Page 9 - Supplement to Income Tax 2020

Recent Tax Developments*

distributions out over the beneficiary’s life • The 60% AGI limit is waived for cash charitable
expectancy as was allowed by prior law (pages contributions made from January 1, 2018,
189, 243 (Law Alert), page 259). through February 18, 2020, if the donations
• Allowing penalty-free withdrawals before age are made for relief efforts in a qualified
59½ of up to $5,000 from 401(k) plans for birth federally declared disaster area. The written
or adoption expenses (pages 189, 233). acknowledgment must specify that the donation
• Treating tax-free difficulty of care payments is for such relief efforts (pages 372-375).
to foster care providers as compensation for
purposes of contributing to a retirement plan or Late-Filing Penalty (page 782). A taxpayer who fails to
IRA. This applies to contributions made after file the income tax return on time (the original due date,
December 20, 2019 (page 214-215). or the extended due date if a timely extension has been
• Treating taxable stipends and non-tuition obtained) is subject to a late-filing penalty. The penalty
fellowship payments to graduate and is 0.5% per month of the outstanding balance not to
postdoctoral students as compensation for
purposes of making IRA contributions (pages exceed a maximum penalty of 25%. If the return is over
214-215). 60 days late, the minimum failure-to-file penalty is the
smaller of $435 (increased by the new law from $330
Disaster Relief. The Taxpayer Certainty and Disaster for returns required to be filed in 2020) or 100% of the
Tax Relief Act of 2019 made several changes to help tax required to be shown on the return.
victims of certain federal disasters. The following apply
to distributions and loans received before June 17,
2020, for losses suffered in disasters that began after IRS Mileage Rates for 2020
2017 and ended by January 19, 2020, provided the (pages 356, 415-416, 467-468, 742)
disaster was declared by February 18, 2020:
• Penalty-free qualified disaster distributions from You may be able to use the IRS’s standard mileage
retirement plans up to $100,000 (pages 211, rate instead of deducting actual expenses when using
259-260). your car for business, medical, moving, or charitable
• Income tax on the distribution is spread over purposes. For 2020, the standard mileage rates are:
three years unless the taxpayer opts to report it • For business driving, 57.5 cents per mile (down
all at once (pages 211, 259-260). from 58 cents).
• Disaster distributions can be repaid to the
retirement plan (pages 211, 259-260). • For medical expenses, 17 cents per mile (down
from 20 cents). The same rate applies to moving
• Hardship distributions taken for a first-time expenses for certain military personnel; no other
home purchase that did not occur because of the taxpayers can claim a moving expense deduction.
disaster can be repaid (pages 211, 259-260). • For driving as a charitable volunteer, 14 cents
• The cap on loans for disaster victims is $100,000 per mile (the rate is fixed by statute).
(rather than the usual $50,000 limit) and the loan
repayment period is extended (pages 191, 211). If you use a standard mileage rate, keep records of
• For major disasters declared by the President your mileage as well as records of parking fees and tolls,
from January 1, 2018, through February 18, which may be added to the applicable 57.5, 17, or 14
2020, a net qualified disaster loss is subject to cents-per-mile rate in figuring your deduction for 2020.
a $500 floor on Form 4684, rather than the
regular $100 floor for losses on personal-use Standard mileage rate for business vehicles. Keep
property, but the 10% of adjusted gross income in mind that to use the IRS standard mileage rate
floor does not apply (pages 432, 434). for a business vehicle in lieu of actual expenses (and
• Taxpayers who do not itemize deductions can depreciation if you own the vehicle), you have to use
increase their standard deduction by a net the IRS allowance in the first year you place the vehicle
qualified disaster loss from a major disaster
declared in 2018 through February 18, 2020. in service to use it in later years. For example, if you
There is a $500 floor but no AGI threshold for a bought a truck for your business in 2019, you must
net qualified disaster loss (page 345). decide whether to use the 2019 IRS rate of 58 cents per

Supplement to J.K. Lasser’s Your Income Tax 2020 | 5