These tax code changes for 2020 could be important for you.
Plus, what you need to know about your stimulus check!
Filing your taxes is about as fun as getting your teeth cleaned. You know you gotta do it but if you’re like me, you put it off until you ABSOLUTELY have to. But filing taxes is part of ‘adulting’ so you just have to hunker down and get it done.
This year, there are some important changes to the tax codes that could impact you in a significant way. Here are six changes you need to know about before filing your taxes for 2020.
1. Higher Standard Deductions: The Standard Deduction is a fixed amount, based on your filing status, that reduces your taxable income. The good news for 2020 is that the Standard Deduction increased over 2019. The new deductions are:
Married Filing Jointly: $24,800
Married Filing Separately: $12,400
Head of Household: $18,650
2. Charitable Donations Change: The IRS is now allowing a $300 charitable donation deduction even if you are taking the Standard Deduction. So if you donated money to a qualifying organization in 2020, you’ll be able to use this deduction.
3. Earned Income Tax Credit Increases: The Earned Income Tax Credit helps low to middle-income workers and families get a tax break. It’s a tax credit, rather than a deduction, so it can lower the amount of taxes you owe after taking your deductions and even potentially get you a refund. And if your 2019 income was higher than your 2020 income, the IRS will allow you to use your 2019 figure when calculating your 2020 credit. Read more about this here: https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc
4. Retirement Account Changes: There were several important changes to retirement accounts that went into effect for 2020.
- The SECURE Act raised the minimum age you have to start taking Required Minimum Distributions (RMDs) from 70.5 to 72 if you turned 70.5 in 2019. The CARES Act allows seniors to completely forgo taking RMDs without penalty in 2020 if they don’t want to. Taxpayers under 59.5 who had to take money out of retirement accounts in 2020 because of Coronavirus related expenses (up to $100,000) will not have to pay the normal 10% penalty. However, under current law, a taxpayer must put the money back into the retirement plan within three years to avoid the penalty from the distribution. Another great break here is that retirement account loan repayments that were due in 2020 were delayed until 2021.
5. Higher Income Limits for Roth IRAs: Roth IRAs offer a number of important tax benefits, in addition to being a great way to save for retirement. When you put money into a Roth IRA, the money grows tax-free. When you take the money out in retirement, it’s tax-free. And, there are no Required Minimum Distributions so you can leave the money in there longer and it can keep growing. But there’s a catch. In order to contribute to a Roth, your income has to be less than a certain limit. The good news for 2020 is that the limit’s been raised so take advantage of contributing money if you can. Here’s a link to the 2020 income limits: https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2020
6. Your Stimulus Check: Many Americans are worried that they’ll now owe taxes on the stimulus check, or checks, they received in 2020. The quick answer- Nope! The IRS does not consider these stimulus checks to be income. The payment won’t reduce any refund you’re owed nor will it increase the amount of taxes you owe when filing your tax return. In addition, any stimulus payment you received won’t impact your income for purposes of determining eligibility for other tax credits or deductions you may be eligible for or for any federal assistance or benefit programs.
Unlike last year, the IRS has NOT given us more time to file this year.
We all know that things are a bit ‘wonky’ right now due to the pandemic. But the great news is that the IRS has given Americans another tax filing extension this year! Taxes are now due on May 17th.
The IRS is urging Americans to file their tax returns early and electronically if at all possible. Filing electronically, with your bank account linked to the filing, is the fastest way to receive your tax return. Paper tax returns take twice as long to get processed as electronic returns.
To help you start preparing to file your taxes, click the link below and grab "The Ultimate Tax Prep Checklist” that we’ve created. It’s especially great for individuals as well as for business owners, entrepreneurs, and real estate investors.
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