For tax year 2020, there were a lot of changes even before the effects of the coronavirus were in play. As you gather your documents to start your taxes this season, it’s important to know about a few key highlights. Get to know the top five things that affect your taxes right now.
- Increased Standard Deductions
The standard deduction is the fixed amount offered by the federal government to reduce your taxable income. You use this amount or itemize deductions through a manual method. When the tax code changed a few years ago, standard deductions were significantly raised.
In fact, it continues to rise for tax year 2020 and into 2021.. For example, a married couple filing jointly can take a $24,800 deduction for 2020. In 2021, that deduction rises to $25,100. Be aware of these deductions because they can save you money in the long run.
- Wider Tax Brackets
Many people’s incomes change from year to year. The amount may increase or decrease, depending on your situation. Your tax bracket, as a result, may differ this year. The federal government has widened the tax brackets to cover for inflation and other factors. Take your adjusted gross income, and compare it to the latest brackets. For many filers, you may fall into the same bracket as 2019. This scenario protects you from excessive taxes on your income. It should be around the same amount due as the year before. If you take enough taxes out of your paycheck with each pay period, no taxes should be due out of pocket now.
- No Tax Date Change
For tax year 2019, the tax deadline was extended because of the COVID-19 pandemic. Many filers waited until fall 2020 to file their 2019 tax returns. Currently, there are no plans to extend tax year 2020’s date. The return is due April 15, 2021.
Keep in mind that the federal government has put out extensions on short notice in the past. Keep up with the latest news to see if any date changes are in the works. With the pandemic raging on, there may be a date change. Ideally, don’t procrastinate with the return. Sending it in early will only take the pressure off you.
- Remember the Stimulus Funds
If you received a stimulus check in 2020, the funds were created from a recovery rebate credit. Your tax return will effectively show that you received this credit, and no tax is due on any portion of the funds. There are only rare instances where you might receive more credit on your taxes as opposed to the original check. Talking with a tax professional is the best way to reconcile these credits. It shouldn’t impact your adjusted gross income for most tax brackets.
- Working-From-Home Woes
Thousands of workers were directed to work at home for much of 2020. This remote perk might make you think about a home-office deduction on your taxes. However, this scenario isn’t built into the tax code. Unless you’re self-employed, this deduction doesn’t apply to remote workers.
In fact, taking this credit on your taxes as a standard employee might trigger an audit. If you have any outstanding expenses from working at home, consider a talk with your employer rather than taking improper deductions. There may be options, such as filling in expense reports for work-related items.
Get started early this tax season regardless of your filing status. Almost everyone will have a unique situation that must be looked at with a bit more attention. Take your time with the forms, and you’ll have an accurate file for both federal and state purposes.