Tax Day Tips for an Unusual Year
2020 might have changed your tax status
COVID-19 made a mess of many areas of our lives – and our taxes are no exception. Plenty has changed or remains uncertain for the 2020 tax season. Perhaps you lost a job or were unemployed for a time. Maybe your business went gangbusters and you bumped into a new tax bracket. Some people experienced the unfortunate loss of a family member, or the crush of medical bills.
Even if those major changes didn't affect you, there may be a few tax changes that will:
- Tax Day for individuals extended to May 17. To continue to help taxpayers navigate the challenges related to the pandemic, the Treasury and IRS extended the federal income tax filing due date for individuals for the 2020 tax year from April 15 to May 17. As a result of the change, Illinois and Wisconsin income tax filing deadlines have also been moved to May 17. For additional guidance and details visit the IRS website.
- Income tax brackets increased to account for inflation. That’s not to say that tax rates increased – the rate is the percentage you pay. The bracket reflects your income and tells you which percentage you will pay.
- The standard deduction increased. Starting this year, single filers can deduct up to $12,400 and couples filing jointly can take $24,800.
- RMDs were put on hold. That’s right, for retirees, required minimum distributions were not required in 2020.
Despite the chaos of 2020, the government enacted some tax changes to help. The stimulus payments you received in 2020 do not qualify as taxable income. There’s no need to count that as part of your income. Likewise, the first $10,200 in unemployment benefits you earned in 2020 will not be taxed, so long as your total income was less than $150,000. Additionally, up to $100,000 could be removed from 401k accounts tax free in 2020.
Be on on the lookout when filing your taxes this year for extra refund and credit opportunities. Both will reduce the amount of taxes you pay, and in some cases could translate into a bigger refund check for you! Here are some deductions and credits you might qualify for:
- Charitable giving. Congress passed the CARES Act last year, making donations 100 percent deductible. That means every dollar you donated equals one dollar less in taxable income. Many people boosted their giving if they were able to in 2020, as a way of helping neighbors who were struggling. If you were one of them, be sure to gather your receipts to take advantage of this deduction.
- Home office. If you worked from home last year AND are self-employed, then you will qualify for a home office deduction. This does not include people who worked from home but are employed by someone else.
- Medical bills. COVID caused some people to simply drown in medical debt. There is some relief, however, as this year you can deduct any medical expenses that exceed 7.5 percent of your adjusted gross income. Collect receipts though because those deductions will have to be itemized.
- Child Tax Credit. They were home with us all year, so we might as well take credit for that! Families can claim up to $2,000 per child as a tax credit. Not only will this reduce your taxes, but it can translate into cash back in the form of a refund.
- Earned Income Tax Credit. You’ll have to check whether you qualify for this. It is intended for workers earning less than $56,845, and it takes filing status and number of children into account. But if you qualify, it can make a big difference on your taxes.
We know 2020 brought a lot of new challenges to your tax filings, so we recommend consulting with a tax adviser for special tax-filing related questions. If you have questions about any of your RVCU accounts, contact our Member Contact Center using our chat feature during regular business hours or call (815) 282-0300.