What to Expect When Filing Your Taxes This Year

The deadline to file 2020 tax returns is around the corner, and if you haven’t filed yet, you probably have plans to do so in upcoming weeks.

But even though you might file taxes every year, you might not be up-to-date on the most recent tax changes for 2020. And if you applied for unemployment benefits or a Payment Protection Program (PPP) loan, do you know how these benefits will affect your 2020 income tax return?

Here’s what to expect when filing your tax return this year.

Adjustment to Income Tax Brackets

When filing your 2020 federal income tax return, be mindful of adjusted income tax brackets for the year. Federal income tax brackets range from 10% to 37%, and it’s not uncommon for these brackets to periodically adjust for inflation.

For example, in 2019 the federal tax rate for a single individual with an income between $9,701 and $39,475 was 12%. Similarly, married couples filing joint returns with incomes between $19,401 and $78,950 paid 12% in federal income tax.

In 2020, however, a single person would have to earn between $9,876 and $40,125 to pay 12% in federal tax, and married couples filing jointly would have to earn between $19,751 and $80,250. Here’s a look at other federal income tax brackets for 2020.

Increases to the Standard Deduction

Some taxpayers itemize their tax return to write off certain deductions like mortgage interest and property taxes. But if you typically itemize your deductions, you may want to consider taking the standard deduction instead, as this increased in recent years.

In 2020, the standard deduction increased to $12,400 (up from $12,200 in 2019) for single filers. For married couples filing jointly, the standard deduction increased to $24,800 (up from $24,400 in 2019).

Unemployment Benefits

If you lost your job during 2020 and claimed unemployment benefits, keep in mind that these benefits are taxable income.

When filing for unemployment, some people opt to have taxes withheld from their unemployment payments. In which case, they might not owe additional tax when filing their return. But if you received unemployment benefits, and you didn’t elect to withhold taxes, the income you received is subject to income tax.

You’ll use form 1099-G to report unemployment compensation when filing your tax return.

Economic Assistance Payments

Like the majority of people in the U.S., you probably received a stimulus check in 2020. The good news is that you don’t have to claim these payments as income when you file taxes.

If you were eligible for a payment and never received one (or received a partial stimulus payment), let your tax preparer know. You might be able to claim the Recovery Rebate Credit on your 2020 tax return.

If you’re a business owner who received a Paycheck Protection Program loan, you don’t have to pay federal income tax on a forgiven loan. To qualify for a forgiven loan, you must have used funds for payroll, a business mortgage, or business rent and utilities. But even if the federal government doesn’t tax this income, your state might consider this taxable income.

Typically, the deadline to file federal income taxes is April 15 of each year. For 2020 tax returns, the IRS has moved the filing deadline to May 17.

 

Sources:

https://www.irs.gov/newsroom/get-ready-for-taxes-whats-new-and-what-to-consider-when-filing-in-2021

https://taxfoundation.org/2021-tax-season/

FirstBank Mortgage does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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