If you've got yet to file your income tax return this year, you've got longer than usual, as Uncle Sam and individual states themselves have extended their Tax Day deadlines thanks to the coronavirus pandemic.
But no matter whether you’ve filed your 2019 return yet, now's the time to start out brooding about your 2020 return — First day to file taxes in 2021. the earlier you study the credits, deductions and contribution limits available to you, the longer you'll need to cash in of them.
So, here’s a glance at some ways the federal income tax return you'll enter 2021 will differ from your prior return:
- Waived RMDs
The Coronavirus Aid, Relief, and Economic Security Act of 2020, better referred to as the CARES Act, waived required minimum distributions (RMDs) from retirement accounts for 2020.
RMDs generally count as taxable income. So, this one-time reprieve means some retirees will have lower taxable incomes in 2020 and thus possibly owe less in federal income taxes in 2021.
To learn more about this alteration , inspect “5 Ways the New Coronavirus Stimulus Law Will Help Your Wallet.”
- Higher standard deductions
Standard deductions generally rise annually on account of adjustments for inflation. The IRS reports that for 2020, the quality deduction amounts for the subsequent tax-filing statuses are:
Married filing jointly: $24,800 — up $400 from 2019
Married individuals filing separately: $12,400 — up $200
Head of household: $18,650 — up $300
Single: $12,400 — up $200
The standard deduction reduces the quantity of your income that’s subject to federal taxes. So, if one person is eligible for and chooses to require the quality deduction (as against itemizing deductions) on their 2020 income tax return , they might not be taxed on the primary $12,400 of their income from 2020.
- A charitable deduction available to all or any
Usually, you'll only write off tax-deductible donations to charity on your federal income tax return if you itemize your deductions instead of take the quality deduction — and therefore the latter has become much more common since the 2017 overhaul of the federal tax code.
But in an attempt to encourage Americans to donate money to charity during the coronavirus pandemic, the CARES Act enabled taxpayers to deduct up to $300 in monetary donations in 2020 — albeit they take the quality deduction.
- Higher income brackets
Income tax brackets also tend to rise annually. For 2020, the income brackets are as follows for people whose tax-filing status is single:
37% tax rate: Applies to taxable income of quite $518,400
35%: quite $207,350 but less than $518,400
32%: quite $163,300 but less than $207,350
24%: quite $85,525 but less than $163,300
22%: quite $40,125 but less than $85,525
12%: quite $9,875 but less than $40,125
10%: Income of $9,875 or less
For complete 2020 rate tables for all tax-filing statuses, see Pages 5-7 of IRS Revenue Procedure 2019-44. If you would like to match them with the 2019 tables, see Pages 8-10 of tax income Bulletin 2018-57.
- Higher contribution limits for (some) retirement accounts
You can save extra money in several sorts of workplace retirement accounts in 2020, as we detail in “These pension plan Limits Just Increased.”
The base contribution limit for 401(k) plans, for instance , is $19,500 — up from $19,000 for 2019. The limit for catch-up contributions, which taxpayers age 50 and older can make, is a further $6,500 — up from $6,000. So, folks who are a minimum of 50 can contribute a complete of $26,000 to a 401(k) in 2020.
Unfortunately, 2020 didn't bring any contribution limit increases for individual retirement accounts (IRAs).