The 2020 tax filing season is upon us for individual tax filers. Most individuals will be required to file Form 1040 with the IRS for their personal Federal income tax returns. As with most recent tax filing deadlines, there are a few changes that the IRS has made to Form 1040 that individuals should be aware of for 2020.

Individual reviewing the 2020 Form 1040 changes to their tax returns.

Virtual Currency

The first Form 1040 change for 2020 individuals should be aware of is the question regarding virtual currency. The question has been moved from Schedule 1 to the top of Page 1 of Form 1040. The IRS considers virtual currency “a digital representation of value that operates as a medium of exchange, a unit of account, and/or a store of value.” For example, cryptocurrency and Bitcoin are considered virtual currency. If virtual currency is used as an investment vehicle, to pay for goods or services, exchanged, or sold, it may result in tax consequences. At the very least, the IRS is probing the issue with this question.

Charitable Cash Contributions

The second Form 1040 change for 2020 also appears on Page 1. There is now a new above-the-line deduction for up to $300 of charitable cash contributions. An individual will qualify for this above-the-line deduction if they do not elect to itemize their 2020 deductions. The deduction can be claimed for cash donations up to $300 made to charity prior to December 31, 2020. The $300 limit applies to single or joint filers and drops to $150 for married filing separate filers.

Recovery Rebate Credit

The third change to Form 1040 for 2020 was made by the CARES Act which authorized the Recovery Rebate Credit that can be found on Page 2 of Form 1040. Typically, this credit will increase the tax refund amount or reduce the amount of tax owed in an individual return. This credit was provided as advance payments through the stimulus checks in 2020 and early 2021. If the full amount of the Economic Impact Payments was received, the Recovery Rebate Credit section does not need to be completed on the individual return as this credit has already been provided. If the advance payments are less than the eligible credit amount, the difference will be claimed on this line.

If you have any questions on the changes to Form 1040 for 2020 and how it impacts your specific filing situation, please contact your Untracht Early advisor.