All features, services, support, prices, offers, terms and conditions are subject to change without notice. The CARES Act suspended the 60% of AGI limitation on deductions for cash donations for people who itemize. The CARES Act also allowed employers to pay up to $5,250 in workers’ college loans without including the payments in wages through December 31, 2025. The $5,250 cap applies to both student loan payments and other educational assistance, such as tuition, fees, and books.
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In particular, the following tax credits are among the most common and can produce significant savings. First, all of your itemized deductions, including eligible medical deductions, need to add up to more than the standard deduction. Second, you can deduct only medical expenses that are above a specified threshold of your adjusted gross income (AGI). The temporary current threshold of 7.5 percent, which was scheduled to return to 10 percent in 2021, has now been made permanent, thanks to the pandemic. The permanent 7.5 percent threshold was included in stimulus-related legislation signed into law on Dec. 27. However, taxpayers expecting a refund are still encouraged to file their tax returns as soon as possible so that they can receive their refunds.
- If you make more than these thresholds, then you’ll lose $50 in credits for every $1,000 you make above the relevant income amount.
- For Roth IRAs, contributions are prohibited if you make more than a certain amount of income, and the maximum contribution amount is reduced if your income falls into the phaseout range in the chart below.
- The IRS issued nearly 103 million refunds in total, about 85.33 million of which were via direct deposit.
- Dan Caplinger is a contributing premium stock analyst and financial planning expert at The Motley Fool.
- You are also eligible for the same additional standard deduction amounts if you are blind and younger than 65.
Depending on your income, you can get a credit for 10%, 20%, or 50% of up to $2,000 in contributions to an IRA, 401(k), or similar retirement account. The current amounts are high enough that only a few taxpayers get enough extra benefit to justify itemizing their deductions instead. From stimulus payments to a delayed deadline, this tax season is unusual to say the least.
Changes to retirement savings rules and limits
You must choose between the standard deduction and itemized deductions. Economic Impact Payments, also known as stimulus payments, are different from most other tax benefits. That’s because people can get them even if they have little or no income, and even if they don’t usually file a tax return. This is true as long as you are not being claimed as a dependent by someone else and you have a Social Security number.
The Ultimate 2020 Tax Planning Guide
According to the IRS, stimulus payments are not considered income and no tax is owed on the money. Stimulus payments are also not considered income for purposes of determining eligibility for federal benefits or assistance programs. The IRS has extended the deadline to file 2020 taxes until May 17, 2021 so you’ll have until that date to file your return and claim your unpaid stimulus funds from the bills passed last year.
Tax refunds
Official websites use .gov A .gov website belongs to an official government organization in the United States. If you are familiar with the 1099 world you have likely seen the 1099 miscellaneous. In box seven is where it said “non-employee compensation.” This form still exists, but the IRS decided it would be simpler to create a form called 1099-NEC (standing for non-employee compensation). It’s important to note if you were distributing 1099s to contractors in January that you used the new form.
Filing electronically and choosing direct deposit is the fastest way to get your refund and stimulus payments
This credit is available for graduate school, vocational training, and certain other nontraditional educational expenses. No. “The stimulus payments, formally known as ‘Economic Impact Payments,’ were technically an advance tax credit,” said Matthew Frankel a certified financial planner who writes for The Motley Fool. “It’s just like any other tax credit, except in this case, the government was giving out the money ahead of time, rather than at tax time. So, under no circumstances is that money taxable income.” If you are owed more money from the two rounds of stimulus payments, the IRS will provide the additional payments with your refund check.
Stimulus checks and taxes: What you need to know before filing your 2020 income tax returns
The tuition and fees deduction was revived for the 2020 tax year by the Further Consolidated Appropriations Act. This is an “above-the-line” deduction worth up to $4,000 in qualified higher education expenses. It goes away in 2021, in favor of higher income limits for the Lifetime Learning Credit.
The IRS will also allow what you need to know about your 2020 taxes us an extra month to make contributions to some health, education and savings accounts. Finally, a few aspects of gift and estate tax planning will see some changes in 2019. The federal estate tax lifetime exclusion amount will rise to $11.58 million in 2020, up from $11.4 million in 2019. Each year, the contribution amounts and income limitations change on IRAs, 401(k)s, and other retirement plans.
- With so many legislative changes impacting tax laws, it can feel overwhelming to make sense of your 2020 tax situation.
- Soldiers in combat zones and people living in disaster areas typically get an extension on both filing and paying federal income taxes.
- You can sign into your IRS account (or create one) to see how much you have been paid already in order to correctly determine your outstanding balance.
- Whether you file your tax return as soon possible, skate in just before the April deadline, or request an extension, it’s never too early to start preparing for filing your 2020 taxes in 2021.
- Yet employees can still set aside substantial amounts in a SIMPLE IRA — up to $13,500 if you’re younger than 50 or $16,500 if your 50 or older in 2020.
Be sure to ask your accountant or online tax software support staff whether you qualify to receive stimulus checks retroactively. If your income was too high to qualify for the payments on your 2019 tax return but your 2020 income would have made you eligible, you can include this in your tax return to receive all of the owed stimulus payments. Deductions including the ones for dental and medical expenses, local and state sales taxes, stay basically the same. (The stimulus payments were, technically, an advance on this tax credit.) A tax credit reduces your taxes, dollar for dollar — and in this case, it can not only reduce your taxes to zero but produce a refund.
