Tax Changes You Need to Know Before Filing Your U.S. 2020 Tax Return
There are several tax changes or annual inflation adjustments for tax year 2020. This article will give you a short checklist of tax changes you need to know before you file the 2020 tax return.
During 2020, as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s $2 trillion relief package, the government sent up to $1,200 in the form of a stimulus check to millions of Americans. But do you know how to report your stimulus checks income when you file the tax return? The good news is your stimulus check will not count as taxable income. Eligible Americans who did not receive the first or second payment can claim a Recovery Rebate Credit based on their 2020 income on the 2020 tax returns.
Standard deductions rise every year to adjust for inflation. For the 2020 tax year, these are the new deduction amount:
Normally, you can deduct charitable gifts only if you use the itemized deductions instead of standard deduction. However, for the 2020 tax year, the IRS will allow you to write off up to $300 in cash contributions to the qualified charitable organization, even if you take the standard deduction.
Normally, once you reach age 72, you must start to withdraw money annually from the tax-advantage retirement accounts, including traditional IRAs and 401(k)s and include the distributions as fully taxable income in the return. This requirement ensures the taxpayers cannot use the retirement account to avoid taxes. However, the CARES Act enabled any taxpayer with an RMD due in 2020 from a defined-contribution retirement plan, including a 401(k) or 403(b) plan, or an IRA, to skip those RMDs for tax year 2020. This includes anyone who turned age 70 1/2 in 2019 and would have had to take the first RMD by April 1, 2020.
Earned Income Tax Credit and Additional Child Tax Credit
If you lost your job or had a change in income in 2020, there is a new rule that can boost or allow you to qualify for the earned income tax credit (EITC). Under the rule, you can use your 2019 earned income to figure your 2020 EITC if your 2019 earned income was higher than your 2020 earned income.
The rule also applies to the additional child tax credit, which is for certain people who get less than the full amount of the child tax credit.