Prepare for Tax Year 2020

The IRS already announced the inflation adjustments for next year.

Although the e-file and extension deadline is in a month, the year is almost gone. 2020 has been more than a roller coaster ride, and the next tax season is only a few months away.

Many taxpayers may wonder how their stimulus payments affect your 2020 taxes, if they’re in the same tax bracket, and changes for the 2021 tax season. Keep on reading to find out.

How stimulus payments will affect your tax return

Luckily, stimulus payments due to COVID-19 is recognized as an advance refundable tax credit for your 2020 taxes. It does not need to be paid back.

2020 Tax Bracket

As a reminder, a tax bracket is an income threshold; categorized into percentages, which determines how much you will be subject to tax. The following tax brackets will be used for the 2020 tax year; meaning the 2021 tax season running in between April to October.

• The top tax rate remains to be 37% for individual taxpayers with incomes greater than $518,400 and $622,050 joint filers
• 35% for incomes over $207,350 ($414,700 for joint filers);
• 32% for incomes over $163,300 ($326,600 for joint filers);
• 24% for incomes over $85,525 ($171,050 for joint filers);
• 22% for incomes over $40,125 ($80,250 for joint filers);
• 12% for incomes over $9,875 ($19,750 for joint filers).
• 10% for incomes up to $9,875 or less ($19,750 for joint filers).

Standard Deduction

The standard deduction for married filing jointly rises to $24,800; an increase of $400 compared to the 2019 tax year. For single taxpayers and married filing separate filers, the standard deduction rises to $12,400; a $200 rise. For head of households, the standard deduction will be $18,650; a $300 rise.

Here’s a reminder when filing your taxes

There are no personal exemptions as they have expired due to the Tax Cuts and Jobs Act (TCJA). This also applies to unreimbursed W-2 job expenses where it is limited to military members, government employees and qualified performing artists. Additionally, you will not be penalized for not having health insurance. Most importantly, all dependents must have a social security number in order to be claimed for the Child Tax Credit.

Changes for the 2021 Tax Season

• The Alternative Minimum Tax (AMT) exemption changes to $72,900 and begins to phase out at $518,400. For joint filers, it changes to $113,400 and begins phasing out at $1,036,800.
• The Earned Income Credit (EIC) amount is $6,660 for qualifying taxpayers who have three or more qualifying children.
• The adjusted gross income amount for joint filers to determine the reduction in the Lifetime Learning Credit is $118,000
• Estates of decedents who die during 2020 have an exclusion amount of $11,580,000
• The maximum credit for adoptions is $14,300 in qualified adoption expenses
• Those who have self-only coverage in a Medical Savings Account, their plan must have an annual deductible that is between $2,350 and $3,550
• The maximum out-of-pocket expense amount is $4,750 for self-only coverage
• For those with family coverage, the floor for the annual deductible is $4,750; however, it cannot be more than $7,100 and the out-of-pocket expense limit is $8,650

The IRS has yet to release further tax changes for the 2021 tax season. Keep your eye open for updates.

Did you file your 2019 tax return as yet?

We advise that you e-file your 2019 tax return as soon as possible before October 15 (the e-file and extension deadline). Click here on how to file your 2019 taxes with us if you need assistance. Our representatives are here to help!

This entry was posted on Friday, September 11th, 2020 at 5:30 pm and is filed under Tax Tips and Tricks. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.