Happy New Year! For the many of you who serve as health care providers, educators, and essential workers, please accept our heartfelt thanks for all that you have done to serve so many.
As we move into 2021, may we all take the best of what we have been forced to learn through these trying times and work for a better future for all.
Davidson & Watson Financial is here and ready to assist you in efficient tax services, financial planning, and investment services. Below you will find important information as we move together into a new year.
Economic Impact Payment Update
Many of you have already received the second round of the Economic Impact Payments, commonly known as Stimulus Payments. For eligible taxpayers, with bank account information on file with the IRS, those payments have, or will show up soon in your bank account. Paper checks will be sent to others, starting this month. Click here to check the status of your payment.
People who have an adjusted gross income (for 2019) of up to $75,000 for individuals or $150,000 for married couples will receive $600 (or $1,200 for married couples), in addition to $600 for each qualifying child.
These payments are considered an Advance Tax Credit on your 2020 Tax Return, so here is what that means:
These payments are not taxable income to you.
If you did not receive one, or both, of these stimulus payments, yet you qualify, you will be able to claim the Tax Credit when filing your 2020 Tax Return.
The final Tax Credit amounts will be based on your 2020 income. So if your income was above the threshold in 2019, but has dropped below the credit threshold in 2020, you will be able to claim the full amount that you are due when filing your 2020 Tax Return.
In a rare show of generosity from the IRS, if your income has increased above the threshold in 2020, but you qualified for the Stimulus payments in 2019, you will not have to refund Advance Tax Credit(s) that you received.
Please be prepared to let us know what Stimulus payments you have received, or not received, in your 2020 Tax Organizer.
Tax Organizers are on the way
Your 2020 Tax Organizers will walk you through everything that we need in order to file your 2020 taxes. They are now heading toward your mailbox. If yours does not show up in the next week, please Contact Us and we will find out why yours has not shown up.
Electronic Organizers are available
We are offering Electronic Organizers this year, for those of you who prefer to provide your Tax Information Online. Please contact Thomas if you would like to have your Electronic Organizer emailed to you. The email will have instructions for how to install, fill out, and return the Organizer, while your unique password will be sent in a separate email.
2020 Tax Changes
The Coronavirus Aid Relief and Economic Security (CARES) Act, enacted by Congress in Spring 2020, includes several temporary tax changes, in addition to the stimulus payments that were previously mentioned.
There is a special tax deduction that allows those who claim the Standard Deduction (and miss out on deducting donations) can now claim up to $300 in cash donations as a straight deduction. Everyone should make sure to report any cash donations made in 2020.
If you took an early retirement distribution this year from an IRA or a 401k account, you may be eligible for some relief. If this distribution was directly due to financial difficulties caused by COVID-19, it may be claimed as a coronavirus-related distribution (CRD). This means you are exempt from the 10% early withdrawal penalty and you are able to spread out the taxes owed over the next 3 years. You can also repay this distribution any time over the next 3 years, and it will be considered a rollover and will be non-taxable. If this may apply to you, please contact us to learn more.
Required Minimum Distributions, for those over age 72 with qualified retirement plans, were not required in 2020.
As always, please contact us with any questions you may have about your specific situation.
We look forward to continuing to serve your financial needs in 2021.