Taxes are one of those things that always seem to change from year to year. And this year is certainly no different.
From tax bracket adjustments to COVID-related tax credits, there are many things taxpayers need to consider before filing their 2020 taxes.
Here’s what you need to know about tax changes in 2020-2021.
The tax deadline has been postponed until May 17.
Due to Coronavirus concerns and uncertainty, the IRS has extended the deadline for filing taxes to May 17 this year.
You may recall that in 2020, the IRS extended the tax filing deadline to July 15 to account for COVID-19.
Changes in tax brackets
According to Kiplinger, the tax bracket ranges have been widened to take into account inflation between September 2018 and August 2019.
There are seven different tax categories in the IRS tax code, including 10%, 12%, 22%, 24%, 32%, 35%, and 37%, ranging from low income to income over $ 518,000 a year.
Standard deductions have increased
For 2020, the standard deduction has increased by $ 400 for married couples ($ 24,800), plus $ 1,300 for each spouse age 65 and older.
The standard deduction for single people has increased by $ 200, to $ 12,400.
Income thresholds for capital gains have increased
For example, people with a taxable income of up to $ 40,000 can claim a 0% tax rate on capital gains, an increase of $ 625 from 2019.
Student loan interest deductions
“The student loan interest deduction allows you to deduct up to $ 2,500 from your taxable income if you paid interest on student loans in 2020,” he writes Nerd wallet.
To see if you qualify for a student loan interest deduction, use this IRS tool.
Employer-paid student loan repayments
While we’re on the subject of student loans, the tax law now allows employers to pay up to $ 5,250 in employee student loans.
If you have student loans, ask your employer if this benefit applies to you.
Charitable deductions are better
The CARES Act increased the charitable deduction allowance for fiscal year 2020. The AGI limit for cash donations was removed.
And $ 300 of charitable cash donations can be canceled without itemizing.
Self-employment sick leave
Federal law requires employers to provide sick leave to employees affected by the virus.
the Families First Coronavirus Response Act extended that benefit with tax credits for those who were self-employed and unable to work due to the virus in 2020.
Child adoption tax credit
If you adopted a child in 2020, the IRS will give you an adoption credit of $ 14,300, which is a $ 220 increase over tax year 2019).
Note that the child adoption tax credit is phased out starting at $ 214,520 in taxable income.
Teacher expenses for COVID protection
In 2020, educators can deduct up to $ 250 of unreimbursed costs for COVID protective equipment (i.e .: masks, cleaning supplies, etc.) that were spent after March 12 of that year. If both spouses in the household are educators, both are eligible for the $ 250 tax credit ($ 500 total).
If you are unclear about any of these changes, speak with a qualified tax accountant, visit the IRS website, or call the IRS for help.
For more information on specific IRS changes as a result of the Coronavirus, visit the IRS website. Coronavirus Tax Relief page.