Tax reduction for the 2020 tax yr

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Tax relief for the 2020 tax year

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Tax returns for the 2020 tax year are due by May 17, 2021. The IRS offers numerous tax deductions, tax exemptions, and credits to help lower your tax burden. Many of these tax breaks are indexed for inflation, which means they can change from year to year as the IRS sets them in advance.

Find out: What are the tax brackets and tax rates for 2020-2021?

To keep up to date with changes in tax law that affect you in the 2020 calendar year and that affect the tax return you file in 2021, here is a breakdown of the main changes in the 2020 tax year. Make sure that your Federal tax return status is current before you look to the next year as you don’t have to deal with late filing penalties.

Please note that the IRS has announced that the federal income tax deadline for individuals is May 17, 2021 for the 2020 tax year. However, the deadlines for the state have not changed. So make sure you confirm your state’s due date before submitting an application.

The income thresholds for tax brackets have risen

Every year there are several new tax laws that will affect your federal tax return. For example, the government adjusts the income thresholds that determine the tax brackets annually. They are usually hiked so you can earn more in the years to come without moving to a higher tax bracket.

Below are the limits on your 2020 income for each enrollment status, as well as the 2019 limits so you can compare them. For example, you will find that if you are married and file together you can make $ 1,300 more in 2020 than you did in 2019 and still stay in the 12% tax bracket.

Find Out About: Tax Loopholes That Could Save You Thousands

Married joint filing (and surviving spouse)

tax rate

2020 taxable income

Taxable income 2019

10%

$ 0 to $ 19,750

$ 0 to $ 19,400

12%

$ 19,751 to $ 80,250

$ 19,401 to $ 78,950

22%

$ 80,251 to $ 171,050

$ 78,951 to $ 168,400

24%

$ 171,051 to $ 326,600

$ 168,401-321,450

32%

$ 326,601- $ 414,700

$ 321,451 to $ 408,200

35%

$ 414,701 to $ 622,050

408,201 to 612,350 USD

37%

$ 622,051 +

$ 612,351 +

Unmarried persons (excluding surviving spouses and heads of household)

tax rate

2020 taxable income

Taxable income 2019

10%

$ 0 to $ 9,875

$ 0 to $ 9,700

12%

$ 9,876 to $ 40,125

$ 9,701 to $ 39,475

22%

$ 40,126 to $ 85,525

$ 39,476 to $ 84,200

24%

$ 85,526 to $ 163,300

$ 84,201 to $ 160,725

32%

$ 163,301 to $ 207,350

$ 160,726 to $ 204,100

35%

$ 207,351 to $ 518,400

$ 204,101 to $ 510,300

37%

$ 518,401 +

$ 510,301 +

Head of household

tax rate

2020 taxable income

Taxable income 2019

10%

$ 0 to $ 14,100

$ 0 to $ 13,850

12%

$ 14,101 to $ 53,700

$ 13,851 to $ 52,850

22%

$ 53,701- $ 85,500

$ 52,851 to $ 84,200

24%

$ 85,501 to $ 163,300

$ 84,201 to $ 160,700

32%

$ 163,301 to $ 207,350

$ 160,701 to $ 204,100

35%

$ 207,351 to $ 518,400

$ 204,101 to $ 510,300

37%

$ 518,401 +

$ 510,301 +

Married Individuals Filing Separate Returns

tax rate

2020 taxable income

Taxable income 2019

10%

$ 0 to $ 9,875

$ 0 to $ 9,700

12%

$ 9,876 to $ 40,125

$ 9,701 to $ 39,475

22%

$ 40,126 to $ 85,525

$ 39,476 to $ 84,200

24%

$ 85,526 to $ 163,300

$ 84,201 to $ 160,725

32%

$ 163,301 to $ 207,350

$ 160,726 to $ 204,100

35%

$ 207,351 to $ 311,025

$ 204,101 to $ 306,175

3%

$ 311,026 +

$ 306,176 +

The standard deduction has increased

The story goes on

You can use the tax code to deduct the standard deduction for the year from your adjusted gross income. You have the choice between using the standard print and the use of individual prints. If listing has more money in your pocket, you can use this number by filing Appendix A with your tax return.

Whichever method you chose on your 2020 tax return – standard deduction or line item – using these deductions can help you fall to a lower tax bracket if you are right on the border of one of the thresholds above.

The amount of the Standard Deduction you are entitled to each year is also indexed for inflation and will increase across the board in 2020. Here’s how these deductions are spread out for 2020 versus 2019 based on your submission.

Standard deductible amounts

Registration status

2020

2019

Increase

Married joint filing (& surviving spouse)

$ 24,800

$ 24,400

400 dollars

Married filing separately

$ 12,400

$ 12,200

$ 200

single

$ 12,400

$ 12,200

$ 200

Head of household

$ 18,650

$ 18,350

300 dollars

Check Out: 8 New or Improved Tax Credits and Breaks for Your 2020 Returns

HSA dues for individuals have increased

Contributions to a health savings account, also called HSA, can also lower your taxable income. The Internal Revenue Code allows you to contribute pre-tax dollars – income earned before your employer withholds tax – to an HSA. This will reduce the amount of income on which your withholding tax is based. The money you contribute can then be used to pay for qualified medical expenses.

“HSAs were established in 2003 to give those on high-deductible health insurance policies preferential tax treatment for money saved on medical expenses,” said Kristina Grasso, tax advisor at H&R Block.

Typically, you must be on a high deductible health insurance plan to qualify for an HSA. “As long as you later use the HSA money to pay or reimburse eligible medical expenses, the distribution is tax-free,” Grasso said.

There is an annual limit on how much pre-tax income you can contribute. The limit for individuals goes up in 2020, but not by much – just $ 50 from $ 3,500 in 2019 to $ 3,550 this year.

The family limit increases to $ 7,100, compared to $ 7,000 in tax year 2019. If you are 55 years of age or older, you can contribute an additional $ 1,000 make-up amount.

Tax Deductions: What can I write off on my taxes?

Tax Credits: Only the EITC increased

Earned Income Tax Credit is the government’s method of returning tax dollars to individuals and families with low to middle incomes. It is a refundable tax credit. If this exceeds the taxes you owe, the IRS will send you a check for the balance. If you don’t owe taxes, all credit will be given.

Eligibility for this credit depends on the number of children you have and your enrollment status. Your income must fall below certain thresholds. The threshold values ​​for the 2020 tax year are listed below.

For the 2020 tax year, the maximum credit increases to:

  • $ 6,660 for taxpayers with three or more qualified dependent children, up from $ 6,557 in 2020

  • $ 5,920 for taxpayers with two qualified dependent children, up from $ 5,828 in 2020

  • $ 3,584 for taxpayers with one qualified child, up from $ 3,526 in 2020

  • Taxpayers without children can qualify for $ 538 in credit, up from $ 529 in 2020

Sometimes tax laws affect how and when you get your refund. It does if you qualify for the Earned Income Tax Credit this year as the IRS sometimes needs additional information about your returns. In any event, your refund will not be available until the first week of March at the earliest when you apply for the EITC, so that the government has time to investigate and ensure that all claims are valid for the EITC.

“Much of the tax fraud that has taken place in the recent past has been carried out by people who took out loans that they were not entitled to,” said registered agent Dr. Steven J. Weil of RMS Accounting in Fort Lauderdale. “Expect more due diligence from the IRS this year.”

Weil said you should be ready to provide proof of dependency and social security numbers of your loved ones while the IRS verifies that you are eligible for the credit and that your claim is not fraudulent.

The AMT tax exemption amount has increased

The alternative minimum tax exemption amount created in the 1960s was not adjusted until 2012 when the American Taxpayer Relief Act allowed inflation adjustments. For 2020, the amount increased from $ 71,700 for singles to $ 72,900 and from $ 111,700 for married couples filing together.

AMT tax exemption amount

Registration status

2020

2019

Individually

$ 72,900

$ 71,700

Married filing together

$ 113,400

$ 111,700

Married filing separately

$ 56,700

$ 55,850

The death tax threshold has risen

The federal government also taxes the value of your property at the time of your death, but only if the estate exceeds certain thresholds, which are high. The value of your estate must exceed $ 11.58 million in 2020 before estate taxes are due. This is an increase of $ 180,000 from 2019 when the exemption was $ 11.40 million.

Find Out: Common Mistakes People Make When Filing Their Own Taxes

The Biden tax plan and new tax laws

The Biden tax plan is still in the proposal phase but will likely increase the top tax bracket to 39.6% for those earning more than $ 400,000. The proposal also increases corporate tax rates from 21% to 28%. Biden also intends to levy 12.4% Social Security tax on incomes over $ 400,000 and convert capital gains tax rates to normal income tax rates for those who, according to the Tax Foundation, earn more than $ 1 million annually. Biden’s changes, if accepted, could have a significant impact on your tax return in the future, especially if you have a higher income.

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John Csiszar and Barri Segal contributed to coverage for this article.

This article originally appeared on GOBankingRates.com: Know Before You File: Tax Relief for the 2020 Tax Year