If you’re like us, you probably never want to think about 2020 again. But there is one lingering ghost from last year that you need to get rid of before you can truly move on for good—and that’s your 2020 taxes. Thanks to the coronavirus (among other things), a lot has changed for the 2021 tax season.
Here are the main things you need to know right off the bat for the 2021 tax season:
- Tax Day is Thursday, April 15, 2021. You must file your 2020 tax returns by this date!
- The standard deduction for 2020 increased to $12,400 for single filers and $24,800 for married couples filing jointly.
- Income tax brackets increased in 2020 to account for inflation.
Higher Standard Deductions in 2020
When you pay taxes, you have the option of taking the standard deduction or itemizing your deductions. If you itemize, you calculate your deductions one by one. Itemizing is more of a hassle, but it’s worth it if your itemized deductions exceed the amount of the standard deduction.
For the tax year 2020, the standard deduction went up slightly to adjust for inflation. Keep in mind that every situation is different as far as whether you should take the standard deduction or whether you should itemize.
Tax Deductions and Credits to Consider for Tax Season 2021
Tax deductions help lower how much of your income is subject to federal income taxes. Some deductions are only available if you choose to itemize your deductions, while others are still available even if you decide to take the standard deduction.
Meanwhile, tax credits lower your actual tax bill dollar for dollar, and there are two types of credits: refundable and nonrefundable. If a credit is greater than the amount you owe and it’s a refundable credit, the difference is paid to you as a refund. Score! But if it’s a nonrefundable credit, your tax bill will be reduced to zero, but you won’t get a refund.
Charitable Deductions
In an effort to encourage more charitable giving, the CARES Act allows you to deduct up to 100% of your adjusted gross income (AGI), which is your total income minus other deductions you have already taken.
Medical Deductions
You can deduct any medical expenses above 7.5% of your adjusted gross income (AGI), which is your total income minus other deductions you have already taken.
Earned Income Tax Credit
The EITC is a refundable credit designed to help out low- and middle-income workers (workers earning up to $56,844 during the 2020 tax year might be eligible).
Child Tax Credit
You can claim up to $2,000 per qualified child with this tax credit (the income limits for this credit are $200,000 for single parents and $400,000 for married couples).
2020 Taxes
If you have a more complicated tax situation or had a difficult year in 2020, and find yourself needing a tax lawyer, contact Davis, Ermis, and Roberts. Whatever your situation, don’t allow yourself to be sidetracked or to procrastinate on a critical tax issue. Your business is our business priority, and we work hard to mitigate any challenges you might face. Contact us today if you have any questions or an immediate need for tax relief and assistance. We look forward to serving you.