Next year the process of filing taxes will change because of the law on financial assistance in connection with the coronavirus and standard adjustments for inflation, says MoneyTalksNews.
If you still have to file a tax return last year, you have more time than usual because the government has extended terms in connection with the pandemic coronavirus. But regardless, if you submitted your Declaration on the income for 2019, now is the time to think about your profit in 2020, the taxes which must be paid by April 2021. The sooner you learn about the available credits, deductions and limits, the more time you will have to use them.
Consider some of the differences between the Federal income tax return that you submit in 2021, from the Declaration this year.
1. Cancel RMD
The law on Federal assistance in connection with the coronavirus (the Law CARES) cancelled required minimum distributions (Required Minimum Distribution — RMD) from retirement savings for the year 2020.
RMD is the amount that the us tax law requires to be annually removed from a traditional pension investments, and employers-sponsored retirement plans. Thus, this one-off cancellation means that some pensioners will pay less in taxes for the year 2020.
2. Higher standard deductions
Standard deductions typically increase each year because of inflation. For 2020, the standard deductions are as follows:
joint filing of tax returns married: $24 800 — $400 more than in 2019;
separate submission in marriage: the $12 400 for $200 more;
head of household: $18 650 — $300 more;
unmarried: $12 400 for $200 more.
The standard deduction reduces the amount of your income that is subject to Federal taxes. Thus, if an unmarried person is entitled to the standard deduction in their tax return for the year 2020, the first $12 400 of its income for 2020 will not be subject to tax.
3. The charitable deduction available to all
Generally, you can deduct donations to charity from taxable income, if you choose itemized deductions instead of the standard deduction (which became much more popular after the tax reform trump).
But, in an effort to encourage Americans to donate money to charity during a pandemic coronavirus, the Law CARES has allowed taxpayers to deduct up to $ 300 of donations from taxable income to taxes for 2020, even if they choose the standard deduction.
4. Higher frame categories of taxation
The scope of the categories of income taxes also tend to rise every year. For the year 2020 for people who are not married they will look like this:
tax rate of 37% applied to taxable income from $518 400;
35% — from $207 518 350 to 400;
32% — from $163 207 300 to 350;
24% — from $85 to 163 525 300;
22% — from $40 125 85 525;
12% — from $9 875 125 40;
10% — income of $9 875.
A complete table of tax rates 2020 for all status of tax filing can be found here. If you want to compare them with the tables of 2019, follow this link.
5. Higher contribution limits for some retirement accounts
You can save more money using several types of pension accounts in the year 2020.
For example, the base limit for contributions for plans 401 (k) is $19 500 — compared to $19 000 in 2019. The limit for catch up contributions, which can make taxpayers age 50 and older is an additional $6 500 — compared to $6,000 in 2019. Thus, people who are at least 50 years old can contribute a total of $26 000 in 401 (K) in 2020. And made to these accounts the money is not taxed.
Unfortunately, the year 2020 has not produced any increases in the limit for contributions to individual retirement accounts (IRA).
6. Higher limits HSA contributions
Contribution limits for health savings accounts (HSA) tend to increase every year, and 2020 is no exception.
The limits of paid in 2020 for people who are eligible for an HSA and have the following types of health insurance with a high deductible:
self-covering: $3 550 — compared to $3 500 in 2019;
family coverage: $7 100 — compared to $7 000.
7. Higher limits of income for savings credit
Savings credit (Saver’s Credit), formally known as the Retirement savings credit (Retirement Savings Contributions Credit), will receive higher limits of income that will actually make this little-known tax credit available to a larger number of people.
You may qualify for this credit in the year 2020, if your adjusted gross income or AGI (listed on your tax return) does not exceed:
in a joint submission in marriage: $65 000 compared with $64 000 in 2019;
head of household: $48 750 — compared to $48 000;
other filing statuses tax return: $32 500 — compared to $32 000.
8. More favorable tax credit adoptive parent
Tax credit for qualified expenses for adoption will be more profitable in 2020. The maximum loan amount is $14 300 compared to the $14 080 in 2019.
9. More favorable tax credit for earned income
In 2020 and the income limit and the maximum amount of Tax credit earned income (EITC) will be higher.
You may be eligible for EITC in 2020, if your AGI does not exceed:
joint submission in marriage: $56 844 — compared to $55 952 in 2019;
other status are filing: $50 594 — compared to $162 50.
The maximum amount of the EITC in 2020 will reach $6 660 — compared to $6 557 last year.
10. Higher limit for tax collection in the social security Fund
A little bad news for some people: the maximum size of the employee’s income that is subject to tax in favor of the social security Fund rose to $137 700 in 2020 — from $132 900 in 2019.
The social security tax is a regressive tax, where those with low income pay at a higher rate than those with high income.