Tax Year 2020
HAPPY NEW YEAR!!!!
There is no question that COVID-19 has grounded our economy to almost a halt. Businesses in many industries are limping along and millions of workers are unemployed or furloughed. To help the sagging economy tax relief has played a significant part in our survival. As of April 6, federal lawmakers passed three stimulus laws, two of which included tax relief for businesses and individuals. This program started with direct payments to individuals structured as federal income tax rebates of $1,200.00 for singles and $2,400.00 for couples filing jointly, plus $500.00 for each child under the age of 17. High incomers did not receive these rebates. The rebates began to phrase out for joint filers with adjusted gross income.
(AGI) above $150,000.00, $112,500.00 for heads of household and $75,000.00 for singles. The rebates ended at AGI’s of $198,000.00, $136,500.00, and $99,000.00 respectively for each of the above filing statuses. Anyone who could be claimed as a dependent by another filer did not get a rebate. Think of high school children, age 17 or older, college students and ailing parents for example. The same logic was applied for people without Social Security numbers for themselves or their children. Technically, the rebate is an advance payment for a special 2020 tax credit. On your 2020 return we will reconcile your rebate. For most, the rebate will equal the tax credit allowed. Taxpayers whose credits exceed their rebates can claim the balance on their 2020 returns. For example, a couple who had a baby in 2019 and who filed their 2019 tax return after receiving their rebate money can claim the extra $500.00 as a credit for their child on their 2020 return. We expect you will not have to repay IRS if the payment you got was more than your credit. We now have a COVID page on our website as does the IRS. You can visit our website at: www.stubbstax.com and click on COVID-19 Update across the top of the page and another Update Here button in the middle of the first page of the website. For the IRS, the website is: www.irs.gov/coronavirus.
New Year / More New Rules!
The following tax rules are extended through 2021:
Tuition and Fees allow the line deduction active once again is the potential $4,000.00 educational tax deduction.
Mortgage Insurance Premiums are still good as an itemized deduction. Mortgage interest and property taxes will have some restrictions, but most taxpayers will be able to deduct all of their mortgage interest and property taxes.
Medical Expenses Deduction Threshold holds at 7.5% of adjusted gross income.
Income-free debt forgiveness – Qualified principal residence debt forgiveness may not be
income to you.
New Retirement Account Rules
Rules changes to retirement accounts could have a major impact on your situation in 2021 and beyond. Here are the key changes to be aware of:
5. Moving Retirement Minimum Distributions (RMD) to age 72 for qualified individual retirement accounts. This is an increase from age 70 1⁄2.
6. Allowing part-time workers access to employer 401K plans.
7. Eliminating the contribution age limit for traditional IRA’s. You can keep putting money
aside after age 70 1⁄2.
8. Eliminating stretch IRA rules. Beneficiaries of IRA’s and qualified plans must now take
distributions within 10 years. Former rules allow distribution over your lifetime.
9. New penalty-free distributions from qualified retirement plans. Up to $5,000.00 may be
withdrawn from qualified retirement plans to help cover the cost of new births or adoptions. These disbursements must be made within a year after the birth or adoption.
Can’t pay your taxes and worried about penalties? File your return anyway and we can ask the IRS about penalty abatements if you owe late filing or payment penalties. Under its first-time abatement program, the IRS will approve a waiver of the fines for filers who paid or arranged to pay the tax and who have been tax compliant for 3 years. If making an offer to settle your tax debts at less than what you owe there are two payment options. Lump sum cash, which requires 20% of the total offer amount to be paid up front, with the remaining balance to be paid in 5 or fewer installments within 5 months of the date your offer is accepted. Periodic payment requires that your first payment be made with the offer with the remainder paid in monthly installments over a period of 6-24 months.
The income tax brackets for 2020 are only slightly wider than for last year because of inflation during the 12-month period from September 2018 through August 2019, used to figure the adjustments. Tax rates do not change.
Standard deductions for 2020 rise a bit. Married couples get $24,800 plus $1,300 for each spouse age 65 or older. Singles claim $12,400...$14,050 if 65 or up. Household heads get $18,650 plus $1,650 once they reach age 65. Blind people receive $1,300 more ($1,650 if unmarried and not a surviving spouse).
Tax rates on long-term capital gains and qualified dividends do not change. But the income thresholds to qualify for the various rates go up for 2020. The 0% rate applies for individual taxpayers with taxable income up to $40,000 on single returns, $53,600 for head-of-household filers and $80,000 for joint returns. The 20% rate starts at $441,451 for singles, $469,051 for heads of household and $496,601 for couples filing jointly. The 15% rate is for filers with taxable incomes between the 0% and 20% break points. The 3.8% surtax on net investment income kicks in for single people with modified AGI over $200,000...$250,000 for marrieds.