3 Tips for Retirees Filing Their 2020 Tax Returns

(Image credit: Getty Images)

The CARES Act and the COVID-Related Tax Relief Act, which were both enacted last year, included several tax breaks to help Americans battered by the pandemic. Now it’s time to fill out your 2020 tax return by the May 17 deadline to claim what you’re due. (The deadline was previously April 15 but was delayed because of the pandemic.)

This year’s tax return may be different because of the new tax breaks. For many seniors, the changes for charitable giving, required minimum distributions and the new Recovery Rebate Credit deserve the most attention, according to Letha McDowell, president-elect of the National Academy of Elder Law Attorneys.

22 IRS Audit Red Flags

Charitable Donations

If you claim the standard deduction, McDowell says you can “deduct up to $300 of charitable contributions” made in 2020. This new CARES Act deduction is claimed on Line 10b of either Form 1040 or 1040-SR. There are a few limitations, though. First, you can’t claim the deduction if you itemize. Second, it’s only good for cash donations. Third, donations to donor-advised funds and certain organizations that support charities are not deductible.

There’s some concern that seniors will overlook this new deduction, so it’s important to check your records. “Lots of people will give a little bit here and there and it’s not a big deal, and if you don’t itemize, you don’t keep track of it,” McDowell says. “But this year it’s worth going back and looking at your canceled checks.”

Seniors who itemize get a break, too. The amount deductible for cash contributions is generally limited to 60% of adjusted gross income, but the CARES Act lifted that limit. Instead, the 2020 limit is 100% of AGI for cash donations to charities. Again, donations to donor-advised funds and supporting groups don’t count.

4 Charitable Giving Tips for Uncertain Times

RMD Waivers

The CARES Act waived 2020 RMDs, and retirees who took one before the legislation was passed in March were allowed to put the money back. In fact, if you took an RMD between Jan. 1 and June 30, 2020, you had until Aug. 31 to repay it, with the repayment treated as a tax-free rollover. If taxes were withheld from your RMD, you had to repay that amount, too. However, you can reclaim the withheld taxes as a tax credit on your 2020 return (use Line 25b).

If you didn’t repay any part of an RMD in time (including the withheld taxes), what you kept is taxable income. Any distribution taken in the second half of 2020 is also taxable. You must report taxable distributions from IRAs on Line 4b and from a 401(k) or other pension plan on Line 5b of Form 1040 or 1040-SR.

McDowell also warns: “RMDs are back for 2021.” If you’re at least 72 years old by the end of the year, you must take an RMD. If you turn 72 in 2021, you can wait until April 1, 2022, to take your first RMD. Otherwise, you must take this year’s RMD by Dec. 31.

Recovery Rebate Credit

The stimulus checks authorized last year were advance payments of a new “recovery rebate” tax credit for the 2020 tax year. If you did not receive all the stimulus money you were entitled to, either in the first or second round of payments, you can still get the full amount you’re owed by claiming the credit. To do so, file a 2020 tax return and claim the credit on Line 30. “A lot of seniors, if their only income is Social Security or Social Security and a small pension, don’t necessarily file a return,” says McDowell. “But they have to file a 1040 or 1040-SR in order to get any additional funds that they didn’t receive already.”

Another stimulus-related reason to file a return is to have a better shot at getting a full payment for another round of stimulus checks. Stimulus payments are easier for the IRS to process if you file a return. “We don’t know what else is going to transpire,” notes McDowell. “We’re still in the middle of a pandemic, so who knows if there’s going to be another round of this. So even if you don’t think you have to file, file.”

Because of the IRS’s huge backlog of paper returns, e-filing is recommended. Electronic filing and payment are the only way to ensure that everything gets filed appropriately, McDowell says.

What's the Recovery Rebate Credit?