Tax Preparation Tips for Your 2020 Return
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Your 2021 Tax Guide for Filing a Return, Paying Taxes, & COVID-Related Tax Relief
This past year has brought many changes for individuals, families, and businesses across the country. But one thing that doesn’t change is the requirement to file and pay your taxes. 2020 tax returns (Form 1040 or Form 1040-SR) are due by April 15, 2021 – unless you request a tax extension.
There are several things to keep in mind when filing your tax return this year, particularly in regards to stimulus checks and other Coronavirus-related tax relief programs. Here is some important tax information to help you as you get ready to prepare your 2020 income tax return this year.
2020 Federal Income Tax Rates & Brackets
There are 7 income tax rates for 2020. They are: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
The tax rate(s) that applies/apply to you depend on your filing status and how much income you earned during the year. For each filing status, there are 7 ranges/levels of income that correspond with the tax rates mentioned above. The tax rates and brackets can be viewed here: 2020 Federal Tax Rates, Brackets, & Standard Deduction Amounts.
When you make more money, you move into a higher tax bracket. However, this does not mean that all of your income will be taxed at a higher rate. In fact, only the income that you earn within a particular bracket will be subject to the corresponding tax rate.
RELATED: Marginal Income Tax Brackets
COVID-19 Stimulus Checks
So far there have been 2 rounds of stimulus checks (i.e. Economic Impact Payments) that were distributed to millions of Americans by the IRS. Many are also awaiting news about a third stimulus check, which seems to be in the works.
The first round of stimulus checks gave up to $1,200 to each eligible individual, plus an extra $500 per qualified dependent child – this was authorized by the Coronavirus Aid, Relief, and Economic Security Act (a.k.a. the CARES Act). The second round of stimulus checks gave up to $600 to each eligible person, with an extra $600 for each qualified dependent child – this was authorized by the COVID-Related Tax Relief Act of 2020. Both stimulus checks were distributed either via Direct Deposit or by paper check in the mail.
The stimulus checks are not considered taxable by the IRS and will not affect the taxes you may owe or your tax refund.
Tax Deductions for Your 2020 Return
A tax deduction lowers your taxable income, which means that you will have less income that’s subject to tax and may result in lower taxes due.
The standard deduction amount for tax year 2020 is $12,400 for single filers and $24,800 for married couples filing joint returns. Keep in mind that the standard deduction amounts usually change every year to adjust for inflation.
If you do not claim the standard deduction, you can itemize your deductions instead. Some popular itemized deductions for tax year 2020 include the mortgage interest deduction, the charitable donations deduction, and the medical expenses deduction. For 2020 tax returns, Congress temporarily expanded the eligibility for the charitable donations deduction by allowing taxpayers who don’t itemize to deduct up to $300 (or $600 for married joint filers) of donations made to qualified charitable organizations.
RELATED: Use Tax Deductions to Lower Your IRS Bill
Tax Credits for Your 2020 Return
A tax credit lowers the amount of tax you owe. For example, if you owe $3,000 in taxes, a $1,000 tax credit will reduce your tax balance to $2,000.
Some popular tax credits for this year include the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), and the Recovery Rebate Credit (see below). The Earned Income Tax Credit is designed to help low- and moderate-income Americans and for tax year 2020 it’s worth between $538 – $6,660 depending on your income and how many children you have. If you’re eligible to claim the Child Tax Credit on your 2020 return, it is worth $2,000 for each qualified dependent child under age 17.
RELATED: Common Tax Questions & Answers
Recovery Rebate Credit
The Recovery Rebate Credit is a new COVID-related tax break that was created by the CARES Act in March 2020. If you were eligible for a stimulus check but you didn’t receive it (or you didn’t get the full amount you qualified for), you can claim the Recovery Rebate Credit on your 2020 federal tax return.
RELATED: Recovery Rebate Credit Available for Those Who Didn’t Get a Stimulus Check
File Taxes Online
More taxpayers file their returns online each year because it’s an easy and convenient option. There are a number of choices when it comes to online tax preparation software and services – just make sure you choose a reputable company so you know that your personal information is secure.
If you e-file (electronically file) your taxes, your return will be processed much faster than if you file by paper mail. Also remember to choose the Direct Deposit option for your tax refund so you can get your money faster.
RELATED: How to File Your Federal Income Tax Return
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