​Top 7 Things You Need to Know About Your 2020 Taxes

With all the craziness that happened in 2020, it’s understandable that your taxes might not be top of mind. But next tax season will be here before you know it, so let’s go over some of the 2020 tax changes — those caused by COVID-19 legislation and those that were set to take place anyway.

Here’s a breakdown of the biggees before we get into the specifics:

• Although 2020 tax rates have stayed the same — 10%, 12%, 22%, 24%, 32%, 35%, and 37% — the IRS did adjust the 2020 tax brackets to account for inflation.
• The standard deduction for all filers — single, married filing separately, married filing jointly, head of household — went up.
• The stimulus payment you might have received from the federal government is related to your 2020 income, but it should have a minimum effect on your taxes.
• You can now deduct $300 in charitable contributions “above-the-line.”
• The income ranges that determine your eligibility to make deductible contributions to your traditional IRA or contribute to your Roth IRA all increased in 2020.
• Because of the pandemic, there’ve been changes that relax retirement account withdrawals and required minimum distributions.
• The estates for those who died in 2020 now have a basic exclusion amount of $11.58 million, up from $11.4 million the year before.

No. 1: New Tax Brackets — Check the table below to see if you’ll be in a different tax bracket when you file your 2020 taxes. If something’s changed, and you need help with your 2020 taxes, let us know.

No. 2: Standard Deduction — For each taxpayer category, the standard deduction increased from $200 to $400 depending on your filing status.

• Married filing jointly: Up $400 to $24,800
• Head of household: Up $300 to $18,650

No. 3: Your Stimulus Payment — Earlier this year, the federal government sent a swath of taxpayers a stimulus payment. This amount — usually between $1,200 to $2,400 depending on your income level — was an advanced refundable tax credit on your 2020 taxes.

So, whether or not you owed any money in the 2020 tax year, you get to keep your money without the government taxing it.

This is all thanks to the CARES Act, which doesn’t have a “clawback” mechanism where the government can take back any of the funds paid out to taxpayers.

No. 4: Deducting Charitable Contributions — When Congress passed the CARES Act earlier this year, it included a provision that allows taxpayers to deduct up to $300 for charitable contributions “above the line.”

To take advantage of the deduction, you have to take the standard deduction when you file your 2020 tax return.

If you itemize your deductions, there isn’t the 60% of adjusted gross income limitation on donations. So, you could opt to donate as much as 100 % of your 2020 adjusted gross income.

No. 5: Retirement Plan Contributions — If your employer offers a 401(k) retirement plan that you take part in, your contribution limit increased $500 — from $19,000 to $19,500.

For employees 50 and older, the catch-up contribution also increased $500 — from $6,000 to $6,500.

The limit on annual contributions to an IRA is still $6,000. The additional catch-up contribution limit if you’re 50 or older isn’t subject to an annual cost-of-living adjustment and is still $1,000.

You can deduct contributions to a traditional IRA if you meet certain conditions. If you or your spouse were covered by a retirement plan at work, your deduction can be reduced or phased out. If neither of you are covered by a plan at work, the phase-outs don’t apply.

The 2020 phase-out ranges are:

• $65,000 to $75,000 for single taxpayers covered by a workplace retirement plan.
• $104,000 to $124,000 for those who are married and filing jointly and where a spouse making the IRA contribution is covered by a workplace retirement plan.
• $196,000 and $206,000 if you contribute to an IRA, aren’t covered by a workplace retirement plan, and are married to someone who is covered.
• $0 to $10,00 if you’re married filing separately.

If you’re making contributions to a Roth IRA, your phase-out range is:

• $124,000 to $139,000 for singles and heads of household.
• $196,000 to $206,000 for married couples filing jointly.
• $0 to $10,00 if you’re married filing separately.

The income limit for the saver’s credit, which is also called the retirement savings contributions credit, for low- and moderate-income workers is:

• $65,000 for married couples filing jointly.
• $48,750 for heads of household.
• $32,500 for singles and married individuals filing separately.

No. 6: Required Minimum Distributions and Coronavirus-Related Distributions — The government waived required minimum distributions — or RMDs — for 2020. This includes your first RMD if you reached 70½ during 2019.

You don’t have to qualify for a coronavirus-related distribution to get this exception. And if you’ve already received an RMD in 2020, you can roll it back into your plan within 60 days and defer paying taxes on the amount.

If you qualify for a coronavirus-related distribution, it’s not subject to a 10% early-withdrawal penalty. Although that distribution is still taxable, you can spread the tax bill over three years, rather than having to pay the tax the year you took the withdrawal. Also, if you pay back those funds within three years, the government will consider it a rollover, so it’s not taxable.

No. 7: Estate Basic Exclusion Amount — For the decedents of those who died in 2020, the estates have a basic exclusion amount of $11.58 million, up from $11.4 million for those who died in 2019. The annual exclusion for gifts is still $15,000.

Have questions about your taxes, retirement, or estate? We’re here to help!