There’s already been a substantial push for updates to taxes and legislation in general in Washington, although the full picture of how this will unfold remains to be seen. Filing your taxes, however, in 2021 might look very different based on inflation adjustments and covid related legislation. Throughout this article you’ll find the different ways that your tax picture may have altered.
Charitable Deductions
Typically, only those who choose to itemize their deductions are eligible to claim charitable deductions. Those who took the standard deduction were not usually able to do this. However, the CARES Act enabled taxpayers to deduct as much as $300 in monetary donations in 2020 even if the leveraged the standard deduction.
RMD Waivers
The CARES Act waived the required minimum distributions to be taken from retirement accounts for 2020. Those RMDs are typically classified as taxable income. This means that this one time relaxation in the rule means that certain retirees will have lower taxable incomes throughout 2020, meaning they may get more back in their federal income tax refund.
Bigger Standard Deductions
Accounting for inflation each year usually means there are moderate changes in standard deductions. For tax year 2020, the married filing jointly amount goes up $400 to $24,800. The married individuals filing separately goes up $200 to a total of $12,400. Single standard deductions go up $200 to $12,400 and head of household deductions go up $300 to $18,650. This can reduce the amount of your total income that is subject to income taxes.
Certain Retirement Accounts Accepting Higher Contribution Limits
You could be eligible to save more money in certain kinds of workplace retirement accounts throughout 2020. The base contribution for 401(k) plans is now $19,500. However, catch up contributions affect certain taxpayers aged 50 and above, which means there is an additional $6,500 available for them to contribute.
Higher Income Tax Brackets
The income tax brackets for 2020 have changed so you’ll want to check out the 2020 tax rate tables for all tax filing statuses.
Savers’ Credit Leveraging Higher Income Limits
The savers’ credit, which is also known as the retirement savings contributions tax credit, has higher income limits in 2020 that could affect your taxes. This means that more people are eligible to take this rarely used or little known tax credit. You could be eligible if your adjusted gross income for 2020 is no more than;
- Head of household: $48,750
- Married filing jointly: $65,000
- Any other tax filing status: $32,500
As always, consulting with a tax professional can help you leverage the most opportunities. Ready to get support in this area? My office can help.