2020 Tax Law Changes to Know When Filing Your Taxes

tax time sketch

The COVID-19 pandemic dramatically changed life for Americans, and the federal government responded by making several notable changes to the tax code. As you prepare to file your 2020 tax return, consider how some of these policies and programs may affect you and your family.

Tax Changes Related to COVID-19 Assistance

Many Americans received Economic Impact Payments or stimulus payments. The amounts of those payments were determined based on the income from the most recently filed tax return. Stimulus payments won’t be counted in your gross income and won’t affect the amount of any refund you may receive.

If you didn’t receive the full stimulus amount you were entitled to, you will get a Recovery Rebate Credit when you file your 2020 taxes. If you got more than you were entitled to because the Internal Revenue Service based the payment on a previous year’s income, you won’t have to pay any money back.

Deductions and Credits

Standard deduction amounts for single taxpayers, married couples, and heads of households were increased for the 2020 tax year. In addition, taxpayers who don’t itemize their deductions may take a $300 deduction for charitable donations.

Eligibility for the Earned Income Credit and the Additional Child Tax Credit may be based on 2019 or 2020 income. A “lookback” rule allows taxpayers to use their 2019 earned income instead of the 2020 figure if the 2019 amount will make them eligible for a larger credit.

Retirement Plan Contributions and Distributions

Contribution limits for several types of retirement plans were increased for the 2020 tax year. Required minimum distributions for some retirement plans were waived in 2020.

Individuals who took a Coronavirus-related distribution from a retirement account will not have to pay a 10% early-withdrawal penalty. Early distributions are taxable, and taxes may be paid over a period of three years. If you took a distribution and you pay that amount back to your retirement plan within three years, it will be considered a rollover and won’t be subject to taxation.

Get Help with Your 2020 Taxes

The past year has been a rollercoaster for millions of people. Many experienced dramatic changes in their lives, including business closures, changes in income, and job losses. The government stepped in to provide assistance, but those programs and changes can make the process of filing taxes even more confusing than usual.

DOAAR can help. We can discuss how COVID-19 has affected you, your family, and your company and file your personal and/or business tax returns, taking into account any changes that occurred due to the pandemic. Contact us today so we can get started as soon as possible.

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