February 12th marked the start of the tax filing season. Americans are now able to file their 2020 income tax returns.
Last year’s financial challenges has people with a lot of questions about filing.
The stimulus checks from the government will not be taxed. Anybody who didn’t get a check, but qualified for the payment might be able to claim a recovery rebate credit for that money.
For people who were unemployed, the extra credits will be taxed and added to overall gross income, as well as the overall unemployment benefits.
Brain Geerts, a local certified public accountant, says this could be a good year to check with a professional to answer your questions.
“This might be the year to seek professional advice. Everybody obviously wants to take advantage of the tax laws to get their best benefits. And that’s what my job and a lot of other professional tax preparers and CPAs are out there for,” he said.
He also urges people to file their taxes as soon as possible especially if you lost a job or had a baby. That’s what the latest round of stimulus payments will be based on.
He also shared the new $300 deductible for charitable cash contributions. You can find more information about that below.
Income tax returns are still due on April 15th.
The IRS expects to receive more than 160 million individual tax returns this year with nine out of 10 returns filed electronically. At least eight out of 10 taxpayers get their refunds by using direct deposit.
Be tax ready: Review pandemic-related changes
Last year’s sweeping set of tax changes not only affected individuals and their families but may also affect the tax return they’re filing this year. A new IRS Fact Sheet explains what taxpayers need to know to file a complete and accurate tax return. The IRS recognizes that filing this year may be challenging for some taxpayers and it’s important to understand how to claim credits and deductions, get a refund timely and meet all tax responsibilities.
Recovery Rebate Credit helps people still eligible for Economic Impact Payments
For those who may be eligible for stimulus payments, they should carefully review the guidelines for the Recovery Rebate Credit. Most people received Economic Impact Payments automatically, and anyone who received the maximum amount does not need to include any information about their payments when they file. However, those who didn’t receive a payment or only received a partial payment may be eligible to claim the Recovery Rebate Credit when they file their 2020 tax return. Tax preparation software, including IRS Free File, will help taxpayers figure the amount.
New language preferences to help taxpayers
Additionally, this year for the first time, Forms 1040 and 1040-SR are available in Spanish, and the IRS has a new form allowing taxpayers to request that they receive information from the IRS in their preferred language. The Schedule LEP, Request for Change in Language Preference, will allow taxpayers to request information in some 20 different languages besides English.
The IRS also wants to remind taxpayers of other important changes that could impact their tax return this year.
Remember to factor in retirement plan distributions
Some taxpayers found it necessary to take coronavirus-related early distributions from 401(k) plans and traditional IRAs in 2020. Under the CARES Act, those distributions – up to $100,000 – are not subject to the 10% additional tax that otherwise generally applies to distributions made before an individual reaches age 59 ½. In addition, a coronavirus-related distribution can be included in income in equal installments over a three-year period, and an individual has three years to repay a coronavirus-related distribution to a plan or IRA and undo the tax consequences of the distribution.
Taxpayers should also remember that they can make contributions to traditional IRAs until April 15, 2021, and still deduct that amount on their 2020 tax return, if eligible.
New for 2020: non-itemizers can deduct $300 for charitable cash contributions
Previously, charitable contributions could only be deducted if taxpayers itemized their deductions.However, with the CARES act, taxpayers who don’t itemize deductions may take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations. For the purposes of this deduction, qualifying organizations are those that are religious, charitable, educational, scientific or literary in purpose.