The IRS typically rolls out at least a few changes every year, affecting most income tax returns. While last year didn’t see sweeping changes like those implemented in 2018, there are a few updates worth reviewing before you complete your 2020 return.
Key Tax Changes You Need to Know for the 2021 Filing Season
1. Higher Standard Deductions
The standard deduction amounts have increased for every tax bracket for 2020. Single filers and those who are married but filing separately can deduct $12,400, a $200 increase from the 2019 limit. Married individuals who file jointly can take a standard deduction of $24,800, which is a $400 jump from the year prior. Additionally, heads of household can deduct $18,650, which is a $300 increase.
2. Simpler Charitable Deductions
To encourage Americans to help one another last year, the CARES Act included a tax incentive regarding donations. Even if you take the standard deduction, you may write off up to $300 in qualified charitable contributions. In years prior, you could only write off donations if you itemized all your deductions, which most taxpayers don’t do.
3. No Obligations on Employer Contributions to Student Loans
Under the CARES Act, employers were invited to contribute up to $5,250 to each employee's student debt in 2020. These funds weren't subject to federal payroll taxes on the employer's end, nor are they subject to federal income taxes on the employee's end. In other words, if your boss helped chip away at your student loans last year, you won't have to worry about it affecting your tax obligations, as long as they contributed less than $5,250.
When you’re ready to prepare your income tax return for 2020, turn to America’s Favorite Insurance & Tax. Operating out of Desoto, TX, they cater to clients in all income brackets across the country. Comprised of highly knowledgeable professionals, their team stays up-to-date on all the latest changes in the tax code. To discuss your needs, reach out on their website or call (972) 662-8221.
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