Taxes and distributions

taxes and distributions

Q: Is the “above the line” charitable deduction for joint returns for 2020 tax returns $300 or $600? Many sources suggest it was $600, but TurboTax indicates that it is only $300. Which is right?

A: The IRS has indicated that for 2020 returns, the deduction is only $300. The Cares Act had indicated that an individual would have a $300 charitable deduction for tax returns in which a standard deduction was used. The contribution must be for cash donations only. Many observers (including me) had assumed that if the deduction was $300 for an individual, then the deduction for a joint return would be $600 if at least that amount was contributed to a charitable organization. As of now, a $600 would be allowable for 2021 joint tax return.

Q: I have reached 72 and am required to take a minimum distribution (RMD) from my 401(k) this year. I regularly contribute to a charity that is categorized as a 501(c)(3). Am I eligible to have my custodian make a direct contribution to this charity so that I can reduce my RMD and thus reduce my taxes?

A: Unfortunately, qualified charitable deductions (QCDs) are only allowed from IRA accounts, not 401(k) accounts. If you roll over some or all of your 401(k) account into an IRA, then you will be able to have your custodian make a direct contribution from your IRA account to a qualified charity. In that way, you can reduce the amount you have to withdraw from your retirement accounts to meet your RMD, and accordingly reduce your tax liability. Naturally, you should do this only if you are confident that you will be able to obtain the same or better investment returns in the IRA account.

Q: In 2019, I reached 70 1/2, so I was required to take an RMD by the end of 2019, or by April 1, 2020. Because regulations changed in 2020, I was no longer required to take any RMD in 2020. Do I have to take two RMDs in 2021?

A: No. The SECURE Act of 2019 indicated that anyone born on or after July 1, 1949 would not have to take RMD distributions until the year they turned 72, and they could take their first RMD that year or by April 1 the following year. But if they chose the April 1 alternative, they would have to take two RMDs that year, the second one by December 31 the year after they reached 72. From then on, one distribution would be required each year by December 31. Individuals who reached 70 1/2 in 2019, because they were born prior to July 1, 1949, did not have to take any RMDs in 2020 because no one was required to take RMDs in 2020. In 2021, they are required to take an RMD based on their retirement account balance at the end of 2020.

Q: I filed a paper tax return on time in 2019 and have not received my refund. What action should I take?

A: Unfortunately, there doesn’t seem to be any action you can take that will expedite the process. I also filed a paper return in April and have not received a refund either, and the IRS has not indicated that it is processing any paper returns now because of coronavirus. I contacted my congressional representative in November, hoping she could help, giving her permission to contact the IRS on my behalf. In December, I was called by an IRS agent, because of the correspondence from my representative, and was told I should file electronically. I contacted TurboTax, and was told by two representatives the IRS stopped accepting electronic returns for 2019 in October. They did suggest I file a paper return again, by certified mail, requesting a signature from the IRS. I did that, but that is NOT what the IRS recommends. They recommend “doing nothing.”

My advice is use electronic filing for your 2020 return, and be patient. At least the IRS promises you will receive interest on your refund because they are late processing.