In order to provide financial relief to taxpayers during this Covid19 event, the IRS has introduced new credits and deductions that will apply to the 2020 tax return to be filed next year. Below is an explanation of the credits and deductions introduced under the CARES Act.
Above-The-Line Charity Deduction
The IRS will now allow up to $300 cash only deductions on your tax return without itemizing. An above-the-line deduction means that this is a deduction against regular income to determine adjusted gross income and before calculating the standard deduction.
Regular Charity Donations Under Itemized Deductions
Are Now Up To 100% Of Adjusted Gross Income
Under itemized deductions (certain personal deductions used if exceeds standard deduction) you can now make charitable donations up to 100% of your adjusted gross income (normally 60%). Donations must be made to a 501(c)3 organization and donations do not have to be related to the Covid19 event.
Withdrawals Up To $100,000 From Retirement Accounts
Until December 31, 2020 you can withdraw up to $100,000 from a retirement fund such as a 401(k) or an IRA. The withdrawal has to be related to the Covid19 event and it applies to taxpayers who have been diagnosed with the Coronavirus illness, or has been financially affected as a result of:
Being quarantined, furloughed, or laid off;
Having work hours reduced due to the virus;
Being unable to work due to a lack of child care;
The closing or reducing hours of a business owned or operated by the individual due to
such virus; or
Other factors determined by the Secretary of Treasury
The administrator of the fund may determine the criteria for the withdrawal. The federal 10% premature withdrawal penalty will not apply. However the withdrawal must be included as income either as a lump sum in the current year, or spread out over a three year period. No federal withholding is required for this type of withdrawal. Repayments to the retirement fund can be made over a three year period which means that an amended return will be filed for any year that a repayment is made.