By Janelle Fumerola, CFP®, MBA
Regional Managing Director
Don’t look now, but the deadline for filing your 2020 federal income tax return is right around the corner. This year, Tax Day will fall on the traditional date of April 15. Tax Day was pushed back by three months last year due to the coronavirus pandemic, but the IRS has not issued any extension for this year.
However, you can receive an automatic six-month extension (until October 15) to file your taxes by simply filing IRS Form 4869 no later than April 15. This only extends the due date for filing your tax return — not the deadline for paying taxes. If you owe money to Uncle Sam, the deadline for payment is April 15 or you could face late-payment penalties in addition to the tax that is due.
Here are a few more things to keep in mind as you prepare to file your taxes:
1. Increased standard deduction — The Tax Cuts and Jobs Act repealed the personal exemption (through 2025) but increased the standard deduction, which could make it less advantageous to itemize deductions. But the legislation did increase the standard deduction for tax year 2020 as follows:
- Married couples filing jointly: Rises from $24,400 to $24,800.
- Singles and married couples filing separately: Rises from $12,200 to $12,400.
- Heads of household: Rises from $18,350 to $18,650.
2. No change in medical expense deduction — The IRS allows a deduction if you itemize for qualified medical and dental expenses, but only if these expenses exceed a certain percentage of your adjusted gross income (AGI). This limit of 7.5% remains the same for tax year 2020 that it was in the past.
3 New above-the-line charitable contribution deduction — You usually must itemize deductions by filing Schedule A in order to deduct donations made to charitable organizations. But the Coronavirus Aid, Relief and Economic Security (CARES) Act created an above-the-line deduction of up to $300 for cash contributions you made to qualified charities in 2020 so you don’t have to itemize to claim it. Note: The deduction does not apply to non-cash donations like clothing and household items.
4. IRA and HSA contribution deadline — You have until April 15, 2021 (or your extended tax-filing deadline) to make a tax-deductible IRA contribution and fully fund your Health Savings Account (HSA) for tax year 2020. So, there is still time to garner an additional 2020 deduction by contributing to your IRA.
You and your spouse can each contribute up to $6,000 to an IRA (or $7,000 if you’re 50 years of age or over) for tax year 2020. If your spouse does not have earned income, you may be able to make a contribution to your spouse’s IRA on his or her behalf if you file a joint income tax return and meet other criteria.
5. Change in IRA contribution criteria — Previously, traditional IRA contributions were no longer allowed once you had reached the age 70½. But the Setting Every Community Up for Retirement Enhancement (SECURE) Act eliminates this age limit for making traditional IRA contributions. (Note: There was never an age limit for making Roth IRA contributions.) Your traditional IRA contributions may or may not be deductible, depending on several different factors.
6. Economic impact payments — Eligibility for one of the economic impact stimulus payments that were made last year was based on information contained on 2019 tax returns. If you received a payment last year but you wouldn’t have been eligible based on your 2020 tax return, you won’t have to repay this money.
Meanwhile, if you didn’t receive a stimulus payment (or received only a partial stimulus payment) last year, there’s a chance you could claim the money when filing your 2020 tax return if your circumstances have changed. The 2020 Form 1040 features a new line (line 30) that’s devoted to a Recovery Rebate Credit you may receive if your tax return indicates a smaller AGI than what was used last year to calculate the stimulus payment.
7. Taxation of unemployment benefits — Millions of Americans received unemployment benefits for the first time in 2020 due to economic disruptions caused by the coronavirus pandemic. These benefits — including the special $600 per week extra unemployment compensation that was part of the CARES Act — must be reported as taxable income on your 2020 return.
You should have received IRS Form 1099-G if you received unemployment benefits last year showing your total unemployment compensation and the amount of income tax withheld. This amount should be reported along with W-2 income (if any) on your 2020 federal income tax return. Note: Medicare and Social Security taxes aren’t assessed on unemployment benefits — only income taxes are assessed.
Visit the IRS website to access more resources and tools to help you file your income tax return during the ongoing coronavirus pandemic.