Tax laws are often in-depth, complex and ever-changing. The year 2020 is even further altered by the Covid-19 pandemic. Therefore, possessing a solid grasp of current tax regulations could prove vital to properly completing or understanding one’s income tax returns or other pertinent tax-related concerns.
Taxpayers are encouraged to read the following brief blog highlighting important issues pertaining to 2020 tax laws.
Stimulus Payments Are Not Taxable income
In response to the Coronavirus’s emergence in mid-March, state and federal authorities instituted the mandatory shutdowns of practically all businesses or organizations deemed non-essential. said action put millions of people out of work.
In an effort to abate associated financial hardships, the federal government remitted individuals earning specific incomes or less a $1,200 stimulus check, which became officially known as the recovery rebate.
Fortunately, however, these funds are non-taxable Therefore, they do not need to be included as earnings when calculating income.
Standard Tax Deductions
Deductions are often an income taxpayer’s best friend. These are itemized expenses individuals incur performing their jobs that can be deducted from their tax bills. Deductions can vary depending upon the industry the individual is employed in.
That said, the federal government places a limit such deductions. In 2020, the standard deduction limit for individual filers is $12,400, up $200 from the $12,200 cap set in 2019. Deductions for married couples filing jointly stands at $24,800. This is a $400 increase from the 2019 total of $24,400.
Tax Brackets Have Shifted
Tax brackets or ranges are the categories differentiating the percentage of income tax a filer will be required to pay. This depends on the income of the individual or the combined earnings of joint filers. In 2020, said figures shifted somewhat to account for inflation.
Obviously, those earning less will be required to remit less and persons with greater incomes see more of said rewards going towards income tax. The lowest tax bracket pays 10 percent of their income. The top tax bracket incurs a 37 percent tax rate.
Child Tax Credits
This year, the government expanded child tax credit eligibility.
Individual filers earning $200,000 or less and joint filers bringing in less than $400,000 will qualify for credits of perhaps as much as $2,000 for every dependent child 16 and younger. Moreover, provided the total refund amount exceeds the filer’s tax charges, up to $1,400 can be refunded through a rebate check.
Alterations To The Estate Tax
The estate tax is significant to many people.
In certain cases, said mandates significant taxes on a deceased individual’s estate and limits the funds said subject’s loved ones will be able to claim following their passing.
Fortunately, however, this tax season, the estate tax and gift tax exemption has been heightened to $11,58 million. Moreover, another perk known as the gift exclusion, which enables individuals to gift relatives or other close relations funds each year without incurring any tax penalties, remains at $15,000 per gifted subject.
In 2020, federal tax codes are more favorable to individuals with health savings accounts.
These creations enable individuals to sock away funds to cover health-related expenses. Moreover, income earned through accruing interest is not considered taxable. Additionally, withdrawals can be made free of tax when funds are needed to defray the costs of varying medical expenses.
The government increased the amount of funds that can be kept inside a health spending account to $2,750, which is up from 2019’s level $2,700.
Retirement Account Additions
The Internal Revenue Service, the federal tax collecting agency to millions as simply the IRS, has increased the amount individuals can make to their work-sponsored retirement plan. In 2019, contributions could not exceed $19,000. In 2020, that number has been elevated to $19,500.