At this point you probably would like to put 2020 behind you. But as with every year, the last thing lingering to get done is your taxes with the filing season here. This tax season however, there are changes to tax laws related to events that occurred and relief provided in 2020 that may impact your federal tax return. We are here to break down some of the events of 2020 along with the relief provided to help you get ahead of what changed for tax year 2020 and guide you to filing your taxes this year.
You also don’t need to remember all of this when you file your tax returns. If you have questions about anything below, you can connect live via one-way video with a TurboTax Live tax expert to get unlimited advice for your tax situation. You can also fully hand over your taxes to a TurboTax Live tax expert and have them file for you from start to finish.
First, let’s get some basics out of the way like when you can file your return, when is the filing deadline for your 2020 tax return, and what the standard deduction is for this year. Once we have those out of the way, we can dig into some of the topics related to the events that occurred in 2020 and the tax implications like deductions for charitable contributions, medical expenses, and tax implications of stimulus payments.
When can I file my 2020 tax return? (the taxes you file in 2021)
TurboTax is now open and ready to help you prepare your tax return. IRS e-file opened on February 12th, so you can start filing today!
When is the deadline for filing my 2020 tax return?
The deadline for filing your 2020 tax return is midnight on April 15, 2021 unless you file for an extension.
What is the standard deduction for 2020 tax returns?
The standard deduction for single taxpayers (and married individuals filing separately), increased $200 from the previous year and rises to $12,400 and $24,800 for those married filing jointly. While for heads of households, the standard deduction will be $18,650, up $300.
What are the tax implications of some 2020 events and the tax relief provided?
Under the CARES Act, this year close to 90% of taxpayers who claim the standard deduction and weren’t able to deduct charitable contributions following tax reform may now be able to reduce their taxable income by up to $300 in cash contributions. These contributions can be in the form of cash, check, or credit card. Keep in mind that you will need proper documentation like receipts or donation letters. If you gave more than $250 to one organization, you will need a letter of acknowledgment from the charity.
Unfortunately, if you made non-monetary contributions – like donating used clothing, you won’t be able to deduct that unless you claim itemized deductions.
Under CARES Act, if you claim itemized deductions there is also a provision that eliminates the limit placed on the number of cash contributions you can deduct if you itemize your deductions. Usually, cash donations that you can deduct are limited to 60% of your adjusted gross income, but the CARES Act eliminates the limit for tax year 2020 returns (the ones you file in 2021).
You can use TurboTax ItsDeductible to accurately track and value your charitable donations year round, and then the information can transfer directly to your TurboTax tax return.
Medical Expenses and Health Insurance Deductions
This year you, your spouse, or dependents may have spent some time in the hospital or paying some substantial medical bills. You may find some relief in knowing that you can deduct any medical expense that is more than 7.5% of your adjusted gross income if you are able to itemize your deductions.
Don’t worry about figuring out that math. When you file with TurboTax you will be asked simple questions to see if you qualify based on your entries. Also, be sure to pull together the receipts from medical bills for you and your spouse or dependents
If you were self-employed, you may be eligible to take a deduction for self-employed health insurance deduction on your 2020 tax return. This includes premium costs to cover you and your spouse and your dependents.
Stimulus Checks and the Recovery Rebate Credit
This year on your tax return, you may receive a new credit known as the recovery rebate credit. It’s possible to get this credit if your adjusted gross income on your 2020 tax return is smaller than the one that was used to calculate your stimulus check, if you have more dependents, or if you didn’t receive all of what you were eligible for.
Keep the letter you received from the IRS (Notice 1444 for the first stimulus and 1444-B for the second stimulus) that detailed how much stimulus payment you received.
Last year, coronavirus left millions of Americans without a job for most or part of the year. If you received help from unemployment insurance, you will need to pay taxes on payments received from unemployment benefits. You should receive a 1099-G reporting unemployment benefits received.
Remember if you earned lower income last year due to unemployment or reduced hours, you may now be eligible for income based deductions and credits that you weren’t before like the Earned Income Tax Credit and the Child and Dependent Credit.
Business and at Home Deductions
If you’re self-employed, there are plenty of deductions that you can claim, from your business travel mileage to the portion of your home dedicated to your home office. TurboTax will guide you and search industry specific deductions to make sure you don’t miss business deductions related to your self-employed income.
If you are one of the many Americans with an employer who has been working from home because of coronavirus regulations, you won’t be able to claim a deduction for your home expenses. Unfortunately, this deduction is for self-employed workers only.
Coronavirus Related Retirement Withdrawals
If you had to withdraw funds from your retirement, there are a few forms of relief under the CARES Act that may help you tax-wise.
Under CARES Act, the 10 percent early withdrawal penalty may be waived on up to $100K of coronavirus related withdrawals. Additionally, income attributable to such distributions would be subject to tax over three years, instead of one year as it usually is. For example, if you took a distribution of $30,000, you would be able to include $10,000 in income each year over three years as opposed to including the entire $30,000 in income for tax year 2020. You can also pay the distributions back lowering the taxable income.
What tax forms and documents should I gather?
If 2020 was the first year that you worked a side gig, received unemployment benefits, or traded stock you may get more tax forms than you have before.
Here are some common tax forms where your income will be reported and you can expect to receive if any of these scenarios apply to you:
- 1099-G: If you received unemployment benefits.
- 1099-DIV/1099-INT: If you were paid dividends or earned interest over $10.
- 1099-NEC: This is a new form where self-employment income or nonemployee compensation is reported.
- 1099-MISC: If you earned rental or other income, but self-employment income is no longer reported on this form.
- 1099-K: If you earned income from credit card payments, debit cards, or pre-paid cards via side gig, for example, and had over $20,000 in sales and more than 200 individual transactions through a third party processor.
- 1099-SA: If you got health savings account distributions.
- 1099-R: If you received distributions from a retirement plan or IRA.
- 1099-B: If you sold stock
- W-2: If you earned wages from an employer.
Don’t worry about knowing these tax laws. TurboTax will ask you simple questions about you and give you the tax deductions and credits you’re eligible for based on your answers.
If you have questions you can connect live via one-way video to a TurboTax Live tax expert with an average of 12 years experience to get your questions answered. TurboTax Live tax experts are available in English and Spanish, year round to answer your questions and can review, sign, and file your return. You can also fully hand over your taxes to a TurboTax Live tax expert and have them do them from start to finish. All from the comfort of your home.