Updated: Mar 7
Stimulus payments If you received stimulus payments under the CARES Act in the last two rounds, that does not count as taxable income, and will not impact your return. That means you don’t pay taxes on the funds received. If you did not receive the last stimulus check, then you can claim the Recovery Rebate Credit on your 2020 tax return filing.
Filing status tax breaks For the tax year 2020, the standard deduction is $12,400 for single filers (an increase of $200) and $24,800 for married couples filing jointly (an increase of $400). For heads of households, the standard deduction is $18,650 (an increase of $300).
Higher education credits Students who attended college for at least part-time during the 2020 tax can claim either the American Opportunity Credit (Maximum annual credit of $2,500) or the Life Learning Credit (up to $2,000 per tax return). An education credit is a refundable credit which reduces the amount of tax owed on your tax return related to qualified education expenses.
Student Loan interest This deduction for qualified education loans can reduce the amount of your income subject to tax by up to $2,500. Modified adjusted gross income (MAGI) must be less than $80,000 ($160,000 if filing a joint return) to claim this deduction.
Charitable contributions A temporary provision of the CARES Act allows tax payers to deduct up to $300 in charitable contributions even if the standard deduction is taken.
Retirement distributions-401K, IRAs If you took a coronavirus-related distribution from a qualified retirement account in 2020, then the 10% early withdrawal penalty is waived, with the provision that the funds are repaid within 3 years. That means you have 3 years to put the funds back into a qualified retirement account and you will not be penalized for the withdrawal during that time. You also have the benefit of spreading the distribution over a 3 year period, so only a 1/3 of the total amount is applied to your taxable income each year for three years.
Mortgage Interest and Property taxes deduction If you refinanced your primary residence in 2020, you may receive multiple or at-least two 1098 forms from your lender(s). You can deduct some of your closing cost applicable to the refinance of your primary residence. This only applies if you itemize your deductions on Schedule A of your 1040, you can deduct the mortgage interest and property taxes you've paid.
Solar Energy Credits The IRS allows tax payers who have installed solar systems to deduct a credit of 26% for the purchase and installation costs conducted in 2020. The federal solar tax credit is a non-refundable credit which will reduce your tax liability by 26% of the cost of the Solar System.
Self-employed or Independent Contractors If you worked as an independent contractor and earned over $600 for the year, you will receive a 1099-NEC which reports nonemployee compensation. Previously you would have received a 1099-MISC. So if you had a “side gig” in the 2020 tax year, the payer may send you a 1099-NEC, this allows you to include all self employment income and applicable expenses which will be reported on Schedule C of your return.
Unemployment compensation Unemployment compensation received during the 2020 tax year is considered taxable income and should be reported based on your Form 1099-G. If you did not have federal or state taxes withheld (if required), then you will need to account for those taxes during your 2020 return filing.
Take the guess work out of your tax filing. Let us help you receive the peace of mind knowing that your tax return is filed correctly and you are receiving the maximum savings.
Contact Elite Tax Advisory today for a free assessment!