What’s New for the 2020 Tax Year?

Here’s the breakdown of all the changes.

Standard deduction

For the 2020 tax year, the standard deduction amounts have increased. Here are the amounts below.

• Single or Married filing separately – $12,400
• Married filing jointly and Qualifying widow(er) – $24,800
• Head of Household – $18,650

For taxpayers who are blind or at least 65 years old, they can claim an additional standard deduction. The standard deduction is $1,300 and $1,650 for the single or head of household filing status.

Taxpayers who are both blind and of eligible age receive a doubled additional standard deduction.

Recovery Rebate Credit (Stimulus Payment)

This credit is for both the first and second economic stimulus payments. It can either reduce the taxes you owe or provide you with a tax refund.

Eligible taxpayers who did not receive their stimulus payments or the full amount of the payment can claim this on their Form 1040. By completing the Recovery Rebate Worksheet, they may be able to receive a credit based on their calculations.

You can easily do this within your account by entering the first and second stimulus amounts so our website can calculate this for you.

For more information on the Recovery Rebate Credit, click here.

Charitable Contributions

You can now deduct a charitable contribution even if you don’t itemize. You can claim up to $300 if you are filing single, married filing joint, head of household or as a qualifying widower. If you file separately with your spouse, you can only claim up to $150.

As a reminder, you can only deduct this if you contributed to a qualified organization such as religious, charitable, educational, scientific, or literary in purpose. Use the IRS’ tool to determine if your organization can be deducted by clicking here.

This deduction is located on line 10b of your Form 1040.

Virtual Currency

When filing your tax return, you will need to answer if you earned virtual currency such as Bitcoin on page 1 of Form 1040. Previously, this was located on Schedule 1.

If any virtual currencies were used as any type of the following transactions, you must report it:

• The receipt/transfer for free including from an airdrop or hard fork
• An exchange for goods or services
• A sale
• An exchange for other property or another virtual currency
• A disposition of a financial interest

Deductible IRA Contributions

You no longer need to be younger than 70 1/2 to take a deduction for contributions to an IRA.

COVID-19 Tax Relief

Taxpayers who file Schedule SE (self-employment tax) or Schedule H (household employment tax) can defer up to 50% of their social security taxes on their 2020 taxes. However, you cannot defer amounts you already paid. You can only do so for the period from March 27. 2020 to December 31, 2020.

As a reminder, a deferral is paying back the amount at a later date. The amount you enter on line 12e will calculate the new due dates on line 13 and 14 on the deferral worksheet.

Credits for sick and family leave

If you’re self-employed, you be able to receive credits for sick and family leave due to COVID-19. For the period beginning on April 1, 2020 to December 31, 2020, the Families First Coronavirus Relief Act (FFCRA) assisted self-employed individuals with paid sick leave. This is similar to what an employer would provide to their employees.

The worksheet for figuring this credit is on Form 7202.

Other taxpayer relief

You can elect to use your 2019 earned income to figure your 2020 earned income credit (EIC). You can also use it to figure your 2020 additional child tax credit (ACTC).

Educator Expenses

If you’re a qualified educator, you can deduct supplies used to prevent the spread of COVID-19. You can only deduct expenses incurred after March 12, 2020. Here are some examples of items you can deduct:

• masks (personal protective equipment)
• disinfectant
• other necessary supplies

Health Insurance

Although you are no longer subject to the health care penalty for the 2020 tax year and onward, you may think that you don’t need to report your insurance. However, if you purchased health insurance through the Marketplace and received Form 1095-A, you must file your taxes with the Premium Tax Credit (Form 8962).

If you do not report your 1095-A, the IRS will adjust your tax return based on your missing information and you may end up paying more in taxes.

Ready to file for the 2020 tax year?

The good news is, although the tax season doesn’t begin until February 12th, you can start your 2020 tax return online. Once the IRS starts accepting e-filed returns, you can submit your return for e-file with us!

This entry was posted on Friday, January 15th, 2021 at 5:20 pm and is filed under Tax and Life Changes, Tax Deadlines, Tax Deductions and Credits, Tax News, Tax Tips and Tricks. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.