Similar to previous years, the 2020 tax filing has several updates to allowable tax credits and deductions. Here’s an update an a few new items:
1. Economic Impact Payment / Recovery Rebate Tax Credits
In April 2020, the IRS sent the first round of Economic Impact Payments (EIP-1) payments of up to $600 to qualifying individuals ($1,200 for qualifying married couples, filing jointly). Congress approved the second stimulus payments of $600 (EIP -2) in December 2020 and distributed that round of payments by January 15, 2021.
Income Levels for First Two EIP Payments & Recovery Rebate Tax Credits
If you file as a single filer with a 2019 adjusted gross income (AGI) less than $75,000, you were eligible for the second round payment (EIP-2) of $600. You will also qualify for the third (EIP-3) stimulus payment of $1,400*.
If you are married and file jointly or are a surviving spouse with an AGI less than $150,000, you qualified for the second payment (EIP-2) of $1,200. You will also qualify for the third payment (EIP-3) of $2,800*. (*As we write this post, Congress is finalizing the thresholds for the EIP-3 payments).
How to Check Status of Prior EIP Payments
If you qualified for the second payment and you did not receive it, check the status of your payment at this link. If you enter your info on the IRS tool and you receive a message that reads “Payment Status Not Available,” the IRS did not send the payment to you. If the tool claims the agency sent the money and you did not receive it, follow the agency’s instructions for tracking the payment.
The IRS based the EIP-1 and EIP-2 on your AGI for the 2018 or 2019 tax year. Some individuals who filed an extension for their 2019 taxes did not receive the EIP-2.
How to Claim Your Tax Credits If You Did Not Receive an EIP Payment
The IRS considers Economic Impact Payments as advance payments of tax credits. If the US Treasury owed you an EIP and you did not receive it, you can claim the payment as a Recovery Rebate Credit on your 2020 1040 or 1040-SR. The Government will base your eligibility for the Recovery Rebate Credit on your 2020 AGI.
To claim the Recovery Rebate Credit, you will need to know the amount of any EIP payments the IRS issued you. If you’re eligible for the Recovery Rebate Credit on your 2020 tax return, the IRS will reduce that credit by the EIP payments the agency sent to you. This Recovery Rebate Credit is a refundable tax credit. This credit can trigger a refund if, after applying for the credit, you have paid more than you owe in taxes. You can learn more about this credit at this link
2. IRS changes to the Earned Income Tax Credit and the Additional Child Tax Credit.
For the 2020 tax filing, you can use your prior year’s income (2019) when you compute these tax credits.
3. You Can Take Some Charitable Deductions.
With the dramatic increase in the standard deduction ($12,000 for individuals and $24,000 for married couples filing jointly), fewer people itemize. In 2020, even if you don’t itemize deductions, you can take a charitable deduction. You can deduct up to $300 for cash contributions you made in 2020 to qualifying organizations. This amount applies to individuals and joint filers. For the 2021 tax year, the IRS will increase this amount increases to $600 for joint filers and $300 for single filers.
4. You Must Report Virtual Currency Transactions.
Did you enter the world of bitcoin owners in 2020? If you completed any transactions involving virtual currency, you will need to answer the question on page 1 of Form 1040 or 1040-SR. In 2019, this question was on Schedule 1.
Please contact us if you have any questions about credits and deductions for your 2020 taxes.
