2020 Standard Deduction Guidelines and Tax Year Planning
There’s no question that 2020 was a rough year for many, and most of us are glad to see it go. Just one little detail remains, however: Your 2020 taxes are just about due.
As we approach the annual start of “tax season,’ it’s a good time to review some of the main points you need to remember.
There Are New Standard Deductions for the 2020 Tax Year
The standard deductions rose slightly in 2020. Without itemizing, you can now deduct:
- $12,400 for single taxpayers and married people who are filing separately
- $18,650 for taxpayers filing as heads of households
- $24,800 for married couples filing together
Those figures will get a small bump again in 2021, where the standard deductions will be $12,550 for singles and married individuals who file separately $18800 for heads of households and $25,100 for married couples.
The Stimulus Payment Can Only Help You
The stimulus payments received earlier this year ($1,200 for singles, $2,400 for couples) is officially called a “Recovery Rebate.” The stimulus payments are considered a refundable tax credit on your 2020 taxes, so it is neither part of your taxable income nor will it affect any refund you are due.
People who were due the stimulus for themselves or their children and did not receive it will be given a Recovery Rebate Credit on their 2020 tax return.
CARES Act Makes Charitable Deductions Easier
In the past, you could only take charitable donations off your taxes if you itemized, and 87% of all tax filers in 2018 (the last year for which data is available) used the standard deduction instead.
Thanks to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, taxpayers can take the standard deduction and an “above-the-line” deduction for qualified charitable donations, up to $300. This means that the deduction goes above line 15 on the 1040 form, so it reduces both your gross and taxable income.
There’s a Break on Retirement Fund Withdrawals
If the upsets of 2020 led you to take a coronavirus-related-distribution (CRD) from your qualified retirement fund, the distribution is taxable — but you do not have to pay a 10% early-withdrawal penalty. Plus, you can spread the taxes over three years, or avoid the taxes entirely by repaying the funds within three years.
The Earned Income Tax Credit (EITC) Increased
The EITC is a huge benefit to many families. Qualifying taxpayers with three or more children will receive a maximum of $6,660 in 2020, while those with two children will receive a maximum of $5,920. Those with a single child can receive a maximum EITC of $3,584.
The figures will receive only a modest bump in 2021, with the maximum EITC being $6,728.
Are you ready to find a tax service that combines individualized service with reasonable prices? Give us a call at 586-254-5400 or contact us via our convenient online form. We handle all forms of tax resolutions, from strategic planning to manage your tax goals to problem resolutions for levies, liens, garnishments, and seizures.
Meta Description: There’s no question that 2020 was a rough year for many, and most of us are glad to see it go. Just one little detail remains, however: Your 2020 taxes are just about due.