Wealth Planning

What individuals need to know about tax-filing and retirement account changes for 2020

The IRS has made some changes to filing rules for the April 15 deadline. And the recently enacted CARES Act impacted the rules for retirement accounts in 2020.  Here’s what’s different and what’s the same.


Key Takeaways:

  • The IRS has announced that U.S. taxpayers can put off filing their federal income and gift tax returns and paying their federal income and gift tax bills for 2019 until July 15.
  • IRA contributions for 2019 can also be made by July 15
  • Required minimum distributions from IRAs and certain qualified retirement plans are waived for 2020.
  • Note: This information is current as of April 13, 2020. This article will be updated as new information is released.  Be sure to speak with your tax advisors before taking any action.

Tax-Filing Changes

Relief for U.S. taxpayers: the IRS will allow individuals to defer filing 2019 federal income tax returns, paying 2019 federal income tax bills, and making April and June 2020 estimated quarterly tax payments until July 15 without interest or penalties. This deferral also applies to trusts, estates, partnerships, and corporations.

The IRS will also allow individuals to defer filing 2019 federal gift tax returns and paying federal gift and generation-skipping transfer tax bills until July 15 without interest or penalties.  This benefits individuals who made taxable gifts, including frontloaded gifts to 529 plans, in 2019.

The deadline for contributions to individual retirement accounts (IRAs) has also changed: you have until July 15 to make contributions for 2019.

It’s also important to note that state and municipal taxes aren’t affected by this IRS announcement. While some locations (including New York and California) are allowing deferred filings and payments to some extent, you’ll want to check with your state or local government or your tax advisor.

Who should take advantage of this opportunity to defer filing their federal returns and paying their federal taxes?

Those who owe the most to the IRS for the balance of their 2019 taxes, or who owe the most in quarterly estimated tax payments, might benefit the most from waiting until July to file and make their payments.

Remember, regardless of whether you qualify to defer your tax filing, you may still want to file income tax returns on time, especially since 70% of individual taxpayers are owed a refund and filing sooner means getting that money back sooner.

Retirement Account Changes

Relief for retirement account owners and beneficiaries:  The new rules give retirement account owners and beneficiaries relief from required minimum distributions (RMDs) and some of the taxes and penalties typically due on withdrawals. 

Owners and beneficiaries of IRAs and certain qualified retirement plans will not need to take RMDs in 2020.  

Younger account owners are provided some relief when taking withdrawals early, before they turn 59 ½.  Typically, these early withdrawals would be subject to penalties.  For withdrawals taken in 2020, however, so long as those withdrawals are Coronavirus-related and do not exceed $100,000, no federal early withdrawal penalties will be assessed.  And, for any account owner (including a younger account owner), if those Coronavirus-related withdrawals are repaid within 3 years, there will be no federal income tax due on them.  But, if owners decide not to repay these withdrawals, they will have to pay federal income tax on them during the 3-year period.

The new rules allow for more generous loans from 401(k)s made on or before September 23, 2020 – these loans can be for up to $100,000, up from the usual cap of $50,000.

For account beneficiaries who are required to withdraw inherited accounts over a period of years, they may be able to do so without counting 2020 in that withdrawal period, effectively extending the withdrawal period for an additional year.

Because everyone is in a different situation, be sure to check in with your tax advisor as you consider what’s best for you. 

 

 

 

 

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The views, opinions, estimates and strategies expressed herein constitutes the author’s judgment based on current market conditions and are subject to change without notice, and may differ from those expressed by other areas of J.P. Morgan. This information in no way constitute J.P. Morgan Research ...

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