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2020 Tax Filing Considerations

Jeff Stolper, CPA, CFP®

Director of Financial Education

Last Updated
January 28, 2021
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As you start to receive your tax documents in the mail and preparing your return, it’s important to think through the transactions that occurred in 2020 as the documents you receive might not tell the whole story.

This holds true in a normal year, but 2020 had an unprecedented amount of legislation passed in response to COVID-19 that could impact your tax return. What follows are a few things to be on the lookout for:

Returned Required Minimum Distributions

The CARES Act suspended Required Minimum Distributions for 2020 and allowed distributions already taken to be returned. If you receive a 1099-R for a distribution you took from a qualified account (i.e. IRA, 401(k)), confirm with your advisor that the distribution wasn’t returned. The 1099 received won’t reflect a returned distribution and you don’t want to inadvertently pick up the distribution as income on your tax return when you don’t have to.

Waiver of 10% Penalty

Typically if you are younger than 59 ½ and take a distribution from a qualified retirement account the distribution is subject to a 10% penalty. The CARES Act temporarily removed that penalty for distributions from qualified accounts up to $100,000 per person for those impacted by COVID-19. If you took a distribution from a qualified account during the year, double check to make sure the 10% penalty isn’t being assessed on the first $100,000. 401(k) plans had the option to adopt this provision, so you may need to check with your employer to see if they opted into the CARES Act.

Roth Conversions

If during 2020 you converted a portion of your traditional IRA to a Roth IRA, that will get reported to you on a 1099-R. The information reported to you on the 1099 will be needed to populate a specific form but won’t include details of any basis you have in the IRA that was converted which could reduce the tax you owe. The basis amount needs to be found separately.

Charitable Contributions

In 2018 the standard deduction was significantly increased by the Tax Cuts and Jobs Act meaning far fewer taxpayers were able to itemize. The CARES Act introduced a $300 charitable deduction taxpayers can take advantage of even if they don’t itemize. If in the last few years your tax advisor stopped asking for the details of your charitable contributions, don’t forget to include them this year! While you may not itemize, you can still see a tax benefit from your contributions in 2020.

Qualified Charitable Distributions

If you took advantage of donating to a charity out of your IRA, you’ll need to let your tax advisor know. Donations to charities out of IRAs (only allowed for those that take required minimum distributions) are reported as normal distributions on the 1099-R and could mistakenly be picked up as income.

Mortgage Refinance

With mortgage rates at historic lows many homeowners refinanced during 2020 to take advantage. If you refinanced in 2020, or your mortgage company changed due to your loan being sold, you will receive two Form 1098’s reporting the interest you paid to each institution. It’s important to get both forms to your tax advisor and confirm the interest is appropriately included if you itemize.

529 Contributions

Unlike many other transactions you initiate during the year, any 529 contributions you make are not reported on a standard tax form. This lack of standard reporting often results in contributors forgetting to take the state tax deduction they are allowed. Make sure you include the details of any contributions you made to 529’s during 2020 in the information you provide to your tax advisor.

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This commentary is provided for general information purposes only and should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

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