Monthly Archives: October 2020

October 1, 2020 Tax Update

The one-year suspension of required minimum distributions can be a blessing to some retirees who don’t otherwise need the funds. The money can continue to grow  tax-free in the IRA, 401(k) or other defined-contribution plan for another year. But it also puts a glitch in a popular income tax withholding strategy. Tax withheld at any point in the year is treated as if evenly paid throughout the year. Some retirees rely on this rule to have taxes they expect to owe withheld from an RMD. With RMDs waived for 2020, consider these options: Make quarterly estimated tax payments. Increase withholding from wages if still working…or Social Security, pension or annuity payments if not.

Does it make sense to do a qualified charitable distribution this year? Yes. Individuals age 70½ and older can transfer up to $100,000 a year from traditional IRAs directly to charity. QCDs are not taxable, nor are they added to your adjusted gross income. This year, with the one-year suspension of RMDs, payouts from traditional IRAs are not required. But IRA owners can still do QCDs, and they remain nontaxable. As always, no charitable write-off can be claimed. 2020 QCDs would reduce your IRA balance for figuring RMDs in 2021 and beyond.

IRS is now accepting electronically filed amended returns for the 2019 tax year. Individuals can use tax software to e-file Form 1040-X to amend a 2019 1040 or 1040-SR. Amended returns for earlier years will still have to be submitted on paper. The Service expects that e-filing will speed up its processing of amended returns and reduce taxpayer errors. IRS says about 3 million Forms 1040-X are filed each year.

Be wary of e-mails, text messages or phone calls that purport to be from IRS. And this year, phishing scams linked to stimulus payments are a threat, Ditto for run-of-the-mill scams. Seniors are one group that is especially at risk.  As older individuals become more adept at using electronic mail and social media, scammers are taking advantage. IRS warns seniors to be alert to fake e-mails, texts, websites and other attempts to steal their personal and financial information.