We are all hoping that 2021 will be very different from 2020! But when it comes to your 2020 personal tax returns, there will not be big tax filing changes like we saw for 2018 returns.
Here are seven of the biggest changes for the 2021 tax filing season:
1. Simplified charitable deductions
As Americans have endured the coronavirus crisis, the CARES Act provided an incentive to help those in greater need. Normally, you can deduct charitable gifts only if you itemize deductions, which most taxpayers do not do. But for the 2020 tax year, the IRS will allow you to write off up to $300 in cash contributions to a qualified charity, even if you take the standard deduction.
2. Retirees need not worry about Required Minimum Distributions:
The CARES Act suspended mandatory withdrawals for 2020 to help retirement savers recover from the sharp stock market downturns seen during the spring, when the virus first started hammering away at the U.S. economy.
3. Raised income brackets.
Tax rates have not gone up for the 2020 tax year. But the brackets have been raised slightly, so you could find yourself paying more taxes even if your income did not change.
4. Higher standard deductions
When you pay taxes, you can either take the standard deduction (to reduce your tax bill) or itemize your deductions (if they will add up to more savings than the standard deduction).
Like income brackets, standard deductions rise each year to adjust for inflation. For the 2020 tax year, the standard deduction amounts increased by $200 to $400 depending on the filing status.
5. Health savings account (HSA) limits increased.
For 2020, the limits have gone up by $50, to $3,550, for self-only coverage; and by $100, to $7,100, for family coverage.
6. 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.
7. No tax if your employer helped with your student debt
The CARES Act allowed employers to voluntarily pay up to $5,250 of a worker’s college loan during 2020. Both employers and employees were able to avoid federal payroll taxes on the money, and the employees will not have to pay federal income tax on the amount when they file their taxes next year.
Visit www.irs.gov for more details on 2020 tax changes.
Migration Resource Center Tax Services
The Migration Resource Center staff has a team of tax consultants, tax attorneys,
enrolled agents, and CPAs. We can assist you with tax planning as well as reducing tax liabilities, eliminating tax disputes, negotiating IRS payments, and providing ethical tax representation and tax resolutions.
Please contact us at (646) 827-2959 or use our webform to schedule a free tax consultation.
By: Fatima Kandri, U.S. Tax Court Practitioner, January 27, 2021