Taxes are a fact of life, as are annual changes in how you file and calculate your federal income tax. But the coronavirus pandemic will mean even more than the usual annual differences when you sit down to do your taxes for 2020 during the new year.
Some of the new wrinkles stem from the $ 2.2 trillion CARES Act, COVID’s monstrous relief bill that delivered the first round of stimulus checks to Americans since last spring.
You will want to be aware of all the new limits, deductions and credits that can help increase your repayment – and give you more money to save and invest or pay off debts. Here are seven of the biggest tax changes for the 2021 filing season.
1. Simplified charitable deductions
As Americans faced the coronavirus health and economic crisis, the CARES Act provided an incentive to help those who need it most.
The law makes it easier to obtain tax incentives for charitable donations made during 2020.
Typically, you can only deduct charitable gifts if you specify deductions, which the vast majority of taxpayers do not. But, for fiscal 2020, the IRS will allow you to write off up to $ 300 in cash contributions to the charity, even if you make the standard deduction.
Just make sure that the money has been given to a qualified charity.
2. Retirees don’t have to worry about RMDs
Once you reach 72, the IRS says you I owe start withdrawing money annually from tax-exempt retirement accounts, including traditional IRAs and 401 (k) s. These minimum required distributions, or RMDs, count as fully taxable income; withdrawals help to ensure that people do not use retirement accounts to avoid taxes.
But the CARES Act halted mandatory withdrawals for 2020 to help retirement savers recover from the sharp slowdown in the stock market seen during the spring, when the virus began to attack the U.S. economy.
If you are a retiree who does not need the extra “income” this year, you can waive the withdrawal, essentially giving yourself a tax break.
Now, are you sure how much you should withdraw from your retirement fund in 2021, when RMDs start again? Today, certified financial planners are available online to provide expert advice and guide you through a personalized plan to make the best choices for your savings.
3. High income bracket
First, the good news: tax rates did not increase in fiscal 2020.
But income tax bands typically increase each year due to inflation. The parentheses have been slightly increased, so you may end up paying more taxes next year, even if your income hasn’t changed.
Here are the new brackets for those who present themselves as singles, according to the progressive or graduated tax system in the USA:
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The first $ 9,875 of income (or less) is taxed on 10%.
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Revenue amounts greater than $ 9,875 but not more than $ 40,125 are taxed on 12%.
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Revenue amounts greater than $ 40,125, but no more than $ 85,525 are taxed on 22%.
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Revenue amounts greater than $ 85,525 but not more than $ 163,300 are taxed on 24%.
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Revenue amounts greater than $ 163,300, but no more than $ 207,350, are taxed on 32%.
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Revenue amounts greater than $ 207,350, but no more than $ 518,400, are taxed at 35%.
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Any income above $ 518,400 is taxed on 37%.
Visit the IRS website for more details on 2020 tax supports.
4. Higher standard deductions
When paying taxes, you can use the standard deduction to reduce your bill or list your deductions if they represent more savings than the standard deduction.
According to various estimates, up to 90% of American taxpayers use the standard deduction.
Like income brackets, standard deductions increase each year to adjust for inflation.
For fiscal year 2020, these are the standard deduction values:
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Not married: $ 12,400, up to $ 200.
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Jointly married registration: $ 24,800, up to $ 400.
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Declaration of marriage separately: $ 12,400, up to $ 200.
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Householder: $ 18,650, up to $ 300.
Do you think you can save more money by listing? It doesn’t have to be a hassle if you use today’s popular tax software.
5. Health savings account (HSA) limits increased
Health obviously became a central issue for Americans in 2020. With a health savings account, you can avoid income tax on your contributions today and about the money you withdraw for your medical needs in the future – very smart.
You can contribute to a tax-free HSA, as long as your health insurance is considered a high deduction plan.
But there are rules about how much money you can save on your HSA each year.
For 2020, these limits have increased by $ 50, to $ 3,550, for autonomous coverage; and for $ 100, for $ 7,100, for family coverage.
If you are one of the millions who are unemployed and suddenly without health care, you may be eligible for Medicaid or you can apply for a subsidized policy under the Affordable Care Act (Obamacare).
You can also use a free online service to quickly compare health insurance quotes and coverage from various insurers, to find the best deal.
6. Higher income limits for the saver’s credit
Savers’ credit helps low- and middle-income taxpayers to save for retirement by providing a good tax credit when you contribute to retirement accounts, including 401 (k) s and IRAs.
However, many Americans don’t even know it. According to a survey by the Transamerica Center for Retirement Studies, only 38% of American workers were aware of the tax cut.
So, what’s new with the saver’s credit? As in previous years, the IRS increased the revenue limit for 2020, making the tax credit available to even more people. The new limits are:
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Jointly married registration: $ 65,000, up to $ 1,000.
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Householder: $ 48,750, up to $ 750.
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All other tax return statuses: $ 32,500, up to $ 500.
And if a bipartisan bill known as the Secure Act 2.0 is passed in 2021, the saver’s credit will get even better. Lawmakers want to increase the maximum annual credit from $ 1,000 to $ 1,500.
7. No tax if your boss helped with your student debt
Americans are condemned to more than $ 1.7 trillion in student loans, according to the Federal Reserve. Although payments were halted in 2020 – at least for federal loans – the government decided that delaying the problem was not enough.
The CARES Act allowed employers to voluntarily pay up to $ 5,250 of a loan for a worker’s college during 2020. Both employers and employees were able to avoid federal payroll taxes on money, and employees will not have they pay federal income tax on the amount when they file their taxes next year.
If college debt seems insurmountable, now may be the right time to refinance your student loan. With incredibly low interest rates, you can easily switch to a better loan and save yourself a mountain of money for years to come.