2020 has brought with it many surprises and left people with a never-ending list of unanswered questions. Among those questions includes how filing taxes will look for the year. With all the legislation changes that have come along with 2020, tax season is sure to be more confusing than ever come 2021.
Be one step ahead of the game and keep reading to find out everything you need to know before filing 2020 taxes.
It comes as no surprise that 2020 has brought upon coronavirus-related changes to legislation regarding taxes. Still, many don’t know that other changes were already happening in the year regardless of the pandemic.
Here are a few of the critical changes to how you will be filing 2020 taxes:
New Standard Deduction Amounts
The standard deduction for all tax filing individuals will be increasing for 2020 and 2021. Below you will see how much each tax category’s standard deduction will be rising to:
- Married filed jointly (MFJ): increased to $24,800
- Single/Married filed separately (MFS): increased to $12,400
- Heads of Household (HOH): increased to $18,650
In addition to the standard deduction, the alternative minimum tax (AMT) exemption will be changing for 2020 as well:
- MFJ: $113,400 phasing out at $1,036,800
- Single: $72,900 phasing out at $518,400
Another new change to 2020 taxes is brought to you by a provision in the CARES Act, which allows you to claim up to $300 in charitable cash contributions “above-the-line.” The benefits of this law include removing the 60% adjusted gross income (AGI) limitation.
Income Thresholds for Tax Brackets
While the highest tax rate of 37% and the lowest tax rate of 10% will not change from 2019, the income thresholds will be. The chart below outlines the changes to the different tax brackets based on 2020 income:
|Tax Rate||Filing Status||Income|
|37% (top tax rate)||Single/HOH||> $518,400|
|10% (lowest tax rate)||Single/MFS/HOH||< $9,875|
Other Noteworthy Changes to 2020 Taxes
There are a handful of additional changes to make a note of for 2020 taxes. Here is a brief list that is important to know:
- Coronavirus relief stimulus checks will not be considered taxable income
- Income thresholds for long-term capital gain rates will be increasing
- Contribution limits to an employer or federal government plans are increasing
- New changes are more lenient to making withdrawals and RMDs from retirement accounts
- Estates that belong to individuals who have passed away will have an increased necessary exclusion amount
Changes are frequent to taxes as a way for the IRS to keep federal taxes in line with inflation rates. In addition to these anticipated adjustments, 2020 has, even more, to offer due to the CARES Act brought upon by COVID-19. It pays off, very literally, to know all of your facts going into tax season.