Tips for a better tax year
Have you filed your 2020 taxes yet? If not, use this list to make the most of the new tax advantages for this filing year. Our firm can also help you maximize potential tax savings, but don’t delay if you need help or an extension on your tax filing:
1. Simplified charitable deductions
The CARES Act provided an incentive to help those in greater need by making it easier to get a tax break for charitable donations made during 2020. For the 2020 tax year, the IRS allows a write-off of up to $300 in cash contributions to a qualified charity, even if you take the standard deduction.
2. Additional Economic Impact Payment funds
If you did not receive the full amount of the stimulus payments for which you’re eligible, you could potentially receive the funds you qualify for by completing a separate worksheet on your tax return with instructions for calculating any outstanding amount owed. The IRS advises filers to only fill out this portion of their return if they received less than the maximum payment amount.
As a reminder, for the first stimulus check single filers and heads of household could have received up to $1,200, plus $500 for each qualifying child (a person under age 17 who is claimed as a dependent). Married joint filers could have received up to $2,400, plus $500 for each qualifying child. The amounts were halved for the second stimulus check, with single filers and heads of household getting up to $600 and married joint filers receiving up to $1,200. The qualifying child payment increased to $600.
Anyone who received the first or second payment should also receive a letter in the mail—Notice 1444 for the first payment and Notice 1444-B for the second—stating the exact amount.
If your family had a baby in 2020, you may be able to claim the additional $500 for a qualifying child (or $600 for the second round of stimulus), even if you received the maximum payment as an individual or couple. Additionally, the second round of stimulus allows mixed-status families—where only one spouse has a work-eligible Social Security number—to be eligible for single and qualifying child payments. The rule is retroactive to the first round of stimulus as well.
3. Tax rates haven’t gone up for the 2020 tax year
However, income tax brackets typically rise every year due to inflation. The brackets below have been raised slightly, so you could find yourself paying more taxes this year even if your income didn’t change.
The first $9,875 of income (or less) is taxed at 10%.
Income amounts greater than $9,875 but not more than $40,125 are taxed at 12%.
Income amounts greater than $40,125 but not more than $85,525 are taxed at 22%.
Income amounts greater than $85,525 but not more than $163,300 are taxed at 24%.
Income amounts greater than $163,300 but not more than $207,350 are taxed at 32%.
Income amounts greater than $207,350 but not more than $518,400 are taxed at 35%.
Any income over $518,400 is taxed at 37%.
4. Higher standard deductions
You can either take the standard deduction to reduce your tax bill or itemize your deductions if they’ll add up to more savings than the standard deduction. For most taxpayers, the standard deduction is the better deal. These are the standard deduction amounts applicable this year:
Single: $12,400, up $200 from 2019.
Married filing jointly: $24,800, up $400 from 2019.
Married filing separately: $12,400, up $200 from 2019.
Head of household: $18,650, up $300 from 2019.
5. Higher income limits for the saver’s credit
The saver’s credit helps low- and medium-income taxpayers save for retirement by providing a tidy tax credit when you contribute to retirement accounts including 401(k)s and IRAs. As in previous years, the IRS increased the income limit for 2020, making the tax credit available to even more people. The new limits are:
Married filing jointly: $65,000, up $1,000.
Head of household: $48,750, up $750.
All other tax-filing statuses: $32,500, up $500.
These are some of the key tax savings for which you may be eligible. If you’re just getting ready to file your 2020 taxes now, be sure to consider each situation, and be sure to contact our firm for assistance if needed.Back to issue