2020 saw a lot of changes in the world. Among them are tax changes due to the CARES Act (Coronavirus Aid, Relief, and Economic Securities Act). While many tax legislation changes were on the horizon before the pandemic, the new act brought two changes that all taxpayers should know about.
New Charitable Deduction Allowance
If there’s one thing 2020 taught us, it’s that life is unpredictable. Millions of people needed financial help this year just to get by and the IRS recognizes this.
Your cash charitable contribution deductions are no longer limited to 60 percent of your adjusted gross income. You may deduct up to 100 percent of your adjusted gross income for any cash charitable contributions.
In addition, if you take the standard deduction, which also increased for the tax year 2020, you can take an additional $300 credit. The new standard deduction for 2020 is $12,400 for singles and $24,800 for married filing joint taxpayers.
This means you can deduct an additional $300 in cash contributions in addition to the standard deduction.
Recovery Rebate Credit
The Recovery Rebate Credit is another important update that derived from the CARES Act. The Recovery Rebate is also known as stimulus payments that most Americans received earlier in 2020.
The $1,200 per adult and $500 per dependent child was an advance refundable tax credit. In other words, everyone gets to keep it even if they don’t owe taxes for the 2020 tax year.
The Recovery Rebate doesn’t add to your taxable income. In other words, the government can’t ask for the money back.
If you did not receive an advance payment, you can request the Recovery Rebate Credit on your 2020 tax returns. You can claim the credit if you:
- Were a U.S. citizen or U.S resident alien in 2020
- Cannot be claimed on anyone else’s tax return as a dependent
- Have a valid social security number
You only need to complete the Recovery Rebate Credit for your 2020 taxes if you didn’t receive the full $1,200 per adult and $500 per qualifying child in 2020. As long as you were eligible to receive the payment and either didn’t receive anything or didn’t receive the full payment, you can apply for the credit.
Your 2020 1040 form will include a worksheet to help you figure out the amount of the Recovery Rebate Credit you’re eligible to receive. The recovery rebate phases out if you made $75,000 and are a single filer. If you are married filing jointly, your credit phases out starting at $150,000.
Take Advantage of the New Tax Laws
The CARES Act tax laws make tax filing more favorable this year as we try to make our way through the pandemic. The new laws make it easier to save on taxes, especially if you made charitable contributions or didn’t receive your stimulus payment. Take full advantage of all credits and deductions available to you so you can lower your tax liability while making the most of this year.