Tax Season 2020: Why Filing Your Taxes This Year Will Be Different
The tax deadline is just weeks away, but it’s never too soon to prepare. Last year, the tax deadline was pushed to July 15. This gave filers (and the IRS) more time to process paperwork during the pandemic. It’s not yet known if the IRS will extend the deadline again this year. Regardless, the Internal Revenue Service encouraged taxpayers to take necessary actions in the final weeks of 2020 to help file federal tax returns timely and accurately in 2021.
The IRS even set up a special page, that is now updated and available on IRS.gov. It outlines steps taxpayers can take now to make tax filing easier in 2021.
2021: What’s New This Tax Year
This year’s tax season will also be different than others because the IRS is using this year’s tax return on your 2020 income to make good on missing stimulus payments. Anyone who did not receive a second stimulus check soon after the Jan. 15 deadline can claim the money as a Recovery Rebate Credit, which the agency has built directly into the tax return process.
Here are items to consider when filing your 2020 taxes that involve credits, deductions, and refunds:
Recovery Rebate Credit/Economic Impact Payment
If you received an Economic Impact Payment (EIP) should keep Notice 1444, Your Economic Impact Payment, with your 2020 tax records. You may be eligible to claim the Recovery Rebate Credit on your 2020 federal income tax return if:
- You did not receive an Economic Impact Payment or…
- Your Economic Impact Payment was under $1,200 ($2,400 if married filing jointly for 2019 or 2018), plus $500 for each qualifying child they had in 2020.
If a taxpayer did not get the full amount of the (EIP) they were eligible for, they may be able to claim the Recovery Rebate Credit when filing in 2021. There’s no need for individuals to complete information about the Recovery Rebate Credit on the tax year 2020 Form 1040 or 1040-SR when filing in 2021 unless they were eligible to claim an additional credit amount.
Stimulus Checks Are Tied to Your Taxes
Taxes and your direct payments (stimulus checks) were tied together for the first two rounds, and your filing status will be critical for the third stimulus check, too – even if you are a non-filer. For example, knowing how the IRS calculates the amount of money you are owed can tell you if you should expect a whole or partial check – or none at all.
Interest on Refunds Taxable
Taxpayers who received a federal tax refund in 2020 may have been paid interest. Refund interest payments are taxable and must be reported on federal income tax returns. In January 2021, the IRS will send Form 1099-INT to anyone who received interest totaling $10 or more.
Charitable Deduction Changes
New this year, taxpayers who do not itemize deductions may take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations. For more information, read Publication 526, Charitable Contributions.
We all love refunds, right? Of course, we do! However, the IRS warns taxpayers not to expect a refund on or by a certain date. This is especially true if you’re making a large purchase or paying bills. Some returns could involve the need for further review. Just as last year, refunds for tax returns claiming the Earned Income Tax Credit or Additional Child Tax Credit, can’t be issued before mid-February. This applies to the entire refund, even the portion not associated with these credits.
The fastest and safest way to receive a refund is to combine direct deposit with electronic filing. This includes the IRS Free File program. After filing, remember, you can track your refund by using the Where’s My Refund? tool.
Finally, be sure to consult your financial advisor for any questions you may have and keep all your paperwork together. Want to get more helpful tips, news, and insights like this? All you need to do is follow Fingercheck!