The time to file your 2020 tax return is here, and the sooner you can get your return filed, the better. But don’t rush through your usual tax filing process without first becoming familiar with some important tax law changes that apply to your 2020 return. There were many changes made last year that impact a large number of Americans. Keep reading to learn more about which changes might affect you.
The Recovery Rebate Credit
You might notice a new credit on your tax return this year—the Recovery Rebate Credit. This credit has been given to every American who falls below a certain adjusted gross income, so odds are high that you’ve received it to. What is the Recovery Rebate Credit? It’s the credit that’s responsible for the COVID relief check you received last year.
The language surrounding these checks did cause some confusion, but here’s how these checks actually work: Technically, the money you received was an advanced payment on your 2020 tax return. But it’s not an advance of your normal tax refund, as many people feared. It was an advance on a special, new tax credit that every qualifying person received, known as the Recovery Rebate Credit.
For most people, the tax credit allowed will be equal to the stimulus check you received, which reduces your credit to zero. However, if you were underpaid on your stimulus check for some reason, the remaining credit will be added to any refund you are owed or subtracted from any taxes you owe. And if you were overpaid, don’t worry; you won’t have to repay the difference to the IRS.
Increased Charitable Gift Deductions
If you take the standard deduction instead of itemizing, you can also write off up to $300 of charitable cash contributions on top of receiving your standard deduction. Please note that this added deduction is per return, not per person, so married couples filing jointly can still only deduct a maximum of $300.
Changes to Retirement Plans
The SECURE Act that was signed into law at the end of 2019 made a lot of changes to retirement plans, and it included a few items affecting retirement accounts as well. Perhaps the biggest change is in relation to required minimum distributions (RMDs). In the past, individuals were required to begin taking RMDs at 70 ½; the SECURE Act raised that requirement to the age of 72. It also allows individuals to continue making contributions to traditional IRAs throughout their lives, eliminating the previous cap of 70 ½ years of age.
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