We all know that the Economic Impact Payments will be giving us $1,200 per adult and parents get $500 for each dependent under age 17. (subject to income limits)
That leaves out anyone 18 and older, who can still be claimed as dependents on another person’s tax return.
A taxpayer is allowed to claim a full-time student between the ages of 19 and 24 as a dependent, so the parent will not get $500 for a college student, nor can the college student generally claim $1,200. Also anyone supporting adults with disabilities and elderly dependents also will not qualify for the additional $500 check!
Furthermore, the you have to have filed a tax return to get your $1,200. Many low income and senior citizens currently don’t file, they are not required to do so. The IRS is saying that they now have to file basic information to get their checks.
While on the topic of college students, I hope parents know how to get the maximum American Opportunity Credit by claiming the right “Qualified Educational Expenses” on their returns and letting the student show the most “scholarship income” on their returns
Did you change bank accounts since your last tax filing? If so the Treasury will build a web site to allow you to make this adjustment.
The IRS has a new web site dedicated to the details of the Coronavirus Tax Relief, https://www.irs.gov/coronavirus
Among the good and bad provisions of the massive Coronavirus Aid, Relief, and Economic Security Act or CARES Act, are waivers for your 2020 required minimum distributions (RMD). Many people don’t need this money for day to day expenses, but they have to take it anyhow.
Who Does This Apply To?
If you have to take a RMD in 2020 from any plan. for example a 401(k) or your IRA the new law says you no longer have to take it in 2020. Also included are beneficiaries, and including those who turned age 70 1/2 in 2019 and had to take their first RMD by April 1, 2020.
Benefits and An Interesting Strategy:
- As we all know our 2020 RMDs were sky high. Our 2020 RMDs were based on our retirement account values on December 31, 2019, when the Dow was over 28,000, now it is around 22,000.
- When you take your RMD you pay income tax on it at the ordinary income rate and it increases the amount of your Social Security that is taxable and it can roll you into a higher tax bracket for dividends and capital gains. You get NO special tax treatment for RMD.
- STRATEGY – since you don’t have to take an RMD, you could decide to take advantage of this situation to do a ROTH conversion. First of all, any amount converted removes those funds from your IRA, lowering the balance that will be subject to your future RMD, therefore lowers your income and tax bill for future years. Secondly, once the funds are in your Roth IRA, they will become lifetime tax free. Your Roth will also pass income tax-free to your beneficiaries. Most importantly, converting now when market values have dropped will mean that any future rebound will now accumulate tax free to you in your Roth IRA. Which is better, price appreciation of a stock in an IRA or a ROTH? ROTH!!!!!!
- Yes, a ROTH conversion is taxable as ordinary income, just like a RMD! However, today we may be paying mush lower taxes that we will be in future years as we pay for all of this new government spending.