Tax time isn’t quite here yet, but it will be before you know it. The end of the year is an excellent time to start thinking about all the changes that will go into effect so you can plan to make the most of any credits or deductions when it comes time to file in early 2021.
This year has been one of stimulus packages, and it’s important to know exactly what you would’ve been owned under them and what you ended up receiving in the way of payments. The CARES Act sent eligible Americans stimulus checks of $1,200 for individuals or $2,400 for couples earning up to $75,000. Those with children received an extra $500 per child under the age of 17.
The stimulus checks were actually advance payments of the recovery rebate credit on the 2020 tax form. Filers will have to reconcile the amount they received in their stimulus check with the amount of recovery rebate credit they are entitled to. In most cases, this credit will balance and end up being $0, but some Americans didn’t receive the entire payment they were owed.
For example, some filers didn’t receive the extra money they were owed for their dependents under 17. In this case, they will have to claim it on their 2020 tax return.
Changes to payments for retirement plans
Kiplinger explains that there were a lot of changes to tax credits for payments made to retirement plans this year. Most of the changes came from the SECURE Act, which became law late last year, although the CARES Act also brought some changes.
For example, the SECURE Act raises the age for taking required minimum distributions from 70 and a half to 72. However, the CARES Act lets seniors not take their required minimum distributions this year if they don’t need them without incurring a penalty.
The maximum 401(k) contribution for this year has increased to $19,500 for most people, although those born before 1971 can contribute another $6,500. The cap on SIMPLE IRA contributions is up to $13,500, plus an additional $3,000 for those age 50 and older.
New standard tax return deductions
One other significant change on your 2020 tax return is the size of the standard deductions. They increased slightly. Single filers can now claim a standard deduction of $12,400, an increase of $200. Couples can claim a $24,400 deduction, an increase of $400. Heads of households can claim a deduction of $18,650, an increase of $300 from last year’s standard deduction.