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The Stimulus Check Secret You Need to Know Before You File Your 2020 Taxes

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kupicoo / Getty Images

On a random Wednesday in spring, Givelify, a platform for nonprofits and churches to collect donations online, noticed something interesting: the app was seeing an influx of $120 donations. It was a weirdly specific amount and it was all happening at the same time. After some digging, the company figured out what was going on.

“We realized that $120 was 10 percent of $1,200, the amount of the stimulus checks,” Wale Mafolasire, founder and CEO of Givelify told GOBankingRates. “Our givers were tithing 10 percent of their stimulus right back to the organizations that were also in need.”

See: Best Charities To Donate To for Any Interest You Have
Find: Find Out If You Can Really Write Off That Holiday Donation

Not only were these donors being generous, as Mafolasire is quick to emphasize; they were being smart. In addition to providing a direct payment of around $1,200 per qualifying individuals, the CARES Act also gives taxpayers an “above-the-line” deduction of up to $300 in charitable giving. Above-the-line deductions differ from itemized deductions in that you can use them against your gross income to lower it — before figuring in any other deductions or taxes. You can use this deduction only if you don’t have any deductions to itemize.

But many people don’t know that the CARES Act touts this charitable incentive, which is why Givelify has an upcoming initiative to highlight the benefits of the CARES Act among our organizations and their donors.

See: This is How Americans Spent Their Stimulus Money
Find: The Largest Charitable Organizations in the US

“Our goal is to spread the word because not many people know about this 2020 benefit,” said Mafolasire. “While it’s likely that anyone that is able to and moved to give will do it regardless of the CARES Act, knowing that they can take [an above-the-line] deduction of up to $300, might inspire giving from someone who was not aware of this benefit.”

Here’s a look at some other important aspects of the CARES Act, which expires on Dec. 31, that you might want a refresher on before the bill expires.

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Minimum Retirement Withdrawals Are Waived

Required Minimum Distributions (RMDs) were waived this year, meaning that if you’re retired and have an IRA, 401k, Roth 401k or any inherited retirement accounts, you’re not legally obligated to take out a certain amount this year. The catch is, you must be at least 72 years old in 2020 to qualify for the waived withdrawal from your retirement plan, and at at least 70.5 years old to be exempted from RMDs on inherited plans. The idea behind the waiver is that you can wait out the economic fallout and potentially recoup market losses sustained in 2020.

Learn More: How Do You Figure Out Monthly 401k Distribution at Retirement?

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No Penalty On Early Retirement Withdrawals

If COVID-19 has personally impacted your life (as in, you’ve been sick with it or lost your job because of it), penalties to withdraw early from some tax-advantaged retirement plans including 401(k)s, 403(b)s, 457s, and Traditional IRAs are suspended. You can take up to $100,000 in early distribution without paying the steep 10% penalty tax, even if you’re under the mandated age of 59.5. You must complete this transaction during the calendar year 2020, and if you have numerous accounts, you cannot take out more than $100,000 across all of them.

Find: 32 Answers to Your COVID-19 Money Questions

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More Businesses Can File For Bankruptcy

Under Subchapter 5 in bankruptcy law, businesses only qualified to file for Chapter 11 bankruptcy if the had no more than $2,725,625 in debt. The CARES Act rose this debt limit to $7.5 million, greatly enabling more small businesses to file for bankruptcy, potentially buying them time to get debt relief and make a sound comeback plan. The CARES Act also temporarily amends Chapter 7 and Chapter 13 of the United States Bankruptcy Code in that coronavirus-related payments from the federal government are not considered in the fiscal analysis or counted as disposable income. The CARES Act allows select Chapter 13 debtors to delay their payments for up to seven years after their initial plan payment was due.

Learn More: The Year for Small Businesses Across the US 

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Charitable Deductions Are Limitless

Previously, individual taxpayers could only deduct donations up to 60% of their adjusted gross income. Under the CARES Act, individuals can deduct donations up to 100%, and corporations can deduct up to 25% of taxable income, up from the 10%. This is another enticing incentive to give to charity if you can, though it prompts the question — who can really afford to donate that much money in 2020? Perhaps one of the billionaires who managed to get richer during the pandemic.

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