Taxes in 2021: 10 Important Innovations to Know About
Next year, the tax filing process will change due to the law on financial assistance in connection with the coronavirus and the standard adjustment for inflation, writes MoneyTalksNews.
If you have yet to file a tax return for the past year, you have more time than usual because the government has extended the deadline for the coronavirus pandemic. But regardless of whether you filed your income statements for 2019, now is the time to think about your profit in 2020, which taxes should be paid by April 2021. The sooner you find out about available loans, deductions and limits, the more time you will have to use them.
Consider some of the differences in the federal tax return that you file in 2021 from this year's tax return.
1. Cancel RMD
The Coronavirus Federal Aid Act (CARES Act) has abolished the Required Minimum Distribution (RMD) from retirement savings for 2020.
RMD - these are the amounts that US tax law requires annually to be derived from traditional pension investments and employer-sponsored pension plans. Thus, this one-time cancellation means that some pensioners will pay less taxes for 2020.
2. Higher standard deductions
Standard deductions usually rise each year due to inflation. For 2020, standard deductions look like this:
- joint filing of a marriage declaration: $ 24 - $ 800 more than in 400;
- Separate marriage fee: $ 12 - $ 400 more;
- household head: $ 18 - $ 650 more;
- single: $ 12 - $ 400 more.
A standard deduction reduces the amount of your federal income tax. Thus, if an unmarried person is entitled to a standard deduction in his tax return for 2020, the first $ 12 of his income for 400 will not be taxed.
3. Charity deduction is available to everyone
As a rule, you can write off donations to charity from taxable income if you choose detailed deductions rather than a standard deduction (which became much more popular after Trump's tax reform).
But in an effort to encourage Americans to donate money to charity during the coronavirus pandemic, the CARES Act allowed taxpayers to deduct up to $ 300 of charitable donations from taxable income taxes for 2020, even if they choose the standard deduction.
4. Higher scope of tax categories
The scope of income tax categories also tends to grow annually. For 2020, for unmarried people, they will look like this:
- A tax rate of 37% applies to taxable income of $ 518;
- 35% - from $ 207 to 350;
- 32% - from $ 163 to 300;
- 24% - from $ 85 to 525;
- 22% - from $ 40 to 125;
- 12% - from $ 9 to 875;
- 10% - income up to $ 9.
5. Higher contribution limits for some retirement accounts
You can save more money by using several types of retirement accounts in 2020.
For example, the base contribution limit for plans 401 (k) is $ 19 - compared with $ 500 in 19. The catch-up limit for taxpayers 000 years of age and older is an additional $ 2019 - compared to $ 50 in 6. Thus, people who are at least 500 years old can contribute a total of $ 6 in 000 (k) in 2019. And the money deposited into these accounts is not taxed.
Unfortunately, 2020 did not bring any increase in the contribution limit for individual retirement accounts (IRAs).
On the subject: 7 common mistakes when filling out a U.S. tax return
6. Higher HSA deposit limits
Contribution limits for health savings accounts (HSA) tend to increase every year, and 2020 is no exception.
2020 limits for people who are eligible for the HSA and have the following types of high deductible health insurance policies:
- self-coverage: $ 3 - compared to $ 550 in 3;
- family coverage: $ 7 - compared to $ 100.
7. Higher Income Limits for a Savings Loan
A Saver's Credit, formally known as a Retirement Savings Contributions Credit, will receive higher income limits, which will actually make this little-known tax credit accessible to more people.
You can be eligible for this loan in 2020 if your adjusted gross income or AGI (indicated in your tax return) does not exceed:
- for joint filing in marriage: $ 65, compared with $ 000 in 64;
- household head: $ 48 - compared to $ 750;
- other tax filing statuses: $ 32 - compared to $ 500.
8. More favorable tax credit for the adoptive parent
A tax credit for qualified adoption costs will be more profitable in 2020. The maximum loan amount is $ 14 - compared with $ 300 in 14.
9. More profitable tax credit for earned income
In 2020, both the income limit and the maximum amount for the Earned Income Tax Credit (EITC) will be higher.
You may be eligible for EITC in 2020 if your AGI does not exceed:
- joint filing in marriage: $ 56 - compared to $ 844 in 55;
- other tax filing statuses: $ 50 - compared to $ 594.
The maximum EITC amount in 2020 will be $ 6 - compared to $ 660 last year.
10. Higher limit for collecting taxes on social security funds
A bit of bad news for some people: the maximum employee income taxed in favor of a social security fund rose to $ 137 in 700 - from $ 2020 in 132.
Social security tax is a regressive tax whereby low-income individuals are paid at a higher rate than high-income individuals.
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