Personal Tax Tips
ONE QUESTION I AM ASKED THE MOST--ARE THE GOVERNMENT STIMULUS' TAXABLE---ANSWER (AT LEAST FOR THE 2020 RETURN) --NO. FUTURE STIMULUS--WHO KNOWS?
THE IRS IS SUPPOSED TO BE MAILING FOLKS PAPERWORK SHOWING THE AMOUNT OF STIMULUS RECEIVED. REMEMBER, THIS STIMULUS WAS AN ADVANCE ON YOUR TAX RETURNS. THERE IS GOING TO BE A PLACE ON YOUR RETURN TO RECONCILE WHAT YOU GOT VERSUS WHAT YOU WERE ENTITLED TO BASED ON THE 2020 RETURN. IF THOSE NUMBERS ARE THE SAME, YOU WILL SIMPLY SHOW A ZERO NET EFFECT. IF YOU WERE ENTITLED (ACCORDING TO THE 2020 RETURN) TO MORE THAN WHAT YOU RECEIVED, YOU WILL GET A TAX CREDIT. IF YOU RECEIVED MORE THAN WHAT YOU SHOW ON YOUR 2020 RETURN THAT YOU SHOULD HAVE RECEIVED, THEN YOU DO NOT HAVE TO PAY IT BACK. REMEMBER THEY BASED YOUR STIMULUS ON YOUR 2019 OR 2018 RETURNS.
MAJOR CHANGES FOR 2020 RETURNS
Here are some basics:.
Standard Deductions are increased for 2020:
$12,400 (singles) (married filing separately)
$24,800 (married filing joint)
$18,650 (head of household)
Earned Income and AGI Limits
Earned income and adjusted gross income (AGI) must each be less than:
Note: Investment income must be $3,650 or less for the year.
Maximum Credit Amounts for Tax Year 2019 is:
$6,660 with three or more qualifying children
$5,920 with two qualifying children
$3,584with one qualifying child
$538 with no qualifying children
For the 2020 tax year, you are allowed to use the income from either your 2020 return or your 2019 return to calculate the earned income credit--whichever is in your favor--a plus for folks who have lost their jobs in 2020.
For more information on whether a child qualifies you for EIC, see:
Changes in Child Tax Credit for 2020
The Child Tax Credit is a refundable tax credit worth up to $2,000 per qualifying child ($1,400 is refundable; that is, it is money back in your pocket.) and $500 per qualifying dependent. Your income level (adjusted gross income) has to be less than $400,000 if married filing jointly, $200,000 for everyone else. For the tax year 2020, because of the coronavirus, you can use either your 2019 income or your 2020 income to calculate your credit, whichever one gets you back the most refund. Remember: This child must have lived with you for over 1/2 year (there are a few exceptions, make sure to discuss with me) and you must have provided at least half of this child's support, i.e. roof, clothing, food, cell phone, car, whatever. The child cannot be filing a joint return with a spouse (unless just filing to get a full refund of taxes paid), and MUST BE 16 OR YOUNGER. If your child turned 17 in 2020, you are out of luck.
Charitable Giving for 2020
New above-the-line deduction for charitable giving --the government is going to allow us $300 (on top of the standard deduction). Sorry, $300 is the limit and is for CASH contributions only.
Federal long-term capital gains rates
The chart below may help you if you are concerned about long term capital gains (investments held over 1 year).
The long-term capital gains rate is now based on your maximum taxable income levels. For married filing joint taxpayers:
Source:Nerd Wallet 2020-2021 Capital Gains Tax Rates and How to Calculate Your Bill. Nov 16, 2020.
Please note the following:
First, if your long-term capital gains take you into a higher tax bracket, only the gains above that threshold will be taxed at the higher rate. In other words, if your long-term capital gains bring your taxable income $1 over the level for the 0% bracket, only $1 will be taxed at 15%, and the rest of your long-term capital gains will be taxed at 0%.
Second, for single taxpayers who make more than $200,000 per year and married taxpayers who file jointly and earn more than $250,000, there is an additional 3.8% tax on investment income, including capital gains, above a certain level because of the net investment income tax.
DELINQUENT TAXPAYERS--THE IRS IS GETTING SERIOUS ABOUT YOU!!
According to an article by Michael Cohn in Accounting Today News, there has been a bill passed in Congress and signed by Obama in December 2015 that will allow the State Department to revoke the passports of long-term tax delinquents who owe the IRS over $50,000 in tax debts. I know to most of us $50K is a lot of money, but this amount could be an accumulation of several years, so it really would not take many years to owe this kind of money. Okay, you say," no problem, I don't travel overseas", BUT there is another sneaky provision...they are gonna hire PRIVATE TAX COLLECTORS!! Be sure your tax returns are current--of course MTL is ready and able to help you do just that.
Note: Please be aware that criminals are posing as IRS agents trying to get you to pay PHONY tax debts. DO NOT answer any questions to someone calling you. The IRS ALWAYS writes, they do not call or email.
However, now that this law has passed, I'm not sure what the protocol for the tax collectors will be. IF YOU OWE THE IRS BACK TAXES OR HAVE NOT FILED, CONTACT ME SO WE CAN GET THIS TAKEN CARE OF!!!
I can give you a copy of this entire article if you wish, or you can download it at http://www.accountingtoday.com/news/tax-practice/highway-bill-revoke-passports-tax-delinquents-private-debt-collectors-76612-1.html. Be sure to note the "continue to site" click on top right of page so that you don't buy or get signed up for something you may not want. Yes, they are calling this a HIGHWAY BILL!!!
In 2019, the Obamacare health insurance penalty was eliminated.
The Obamacare health insurance penalties for folks who did not have health insurance is OVER! However, if you are being supplemented for your health care insurance through the Marketplace, there is still a penalty if your income is higher than you originally reported to them.
Alimony is now NOT deductible for payers, and NOT taxable to recipients, if your divorce ended after December 31, 2018.
If your divorce ended before Dec 31, 2018, then the old rules generally apply unless modifications were made.
Other Miscellaneous Information:
Social Security wage base for 2020 is $137,900. Under age 66, the amount you can make is $18,240 before you start to lose a portion of your social security benefits. However, if you are over age 66, you can earn any amount of money and still draw your full social security benefits.