2020 taxes in review and some important changes to note
The end of the year is right around the corner. While the filing deadline for 2020 taxes is April 15, 2021, the end of 2020 is a great time to be thinking about them. You can prepare your taxes now and make sure you have your finances in order. And, you will be able to file early in 2021 and not have to worry about scrambling at the last minute.
The process for filing for taxes owed from 2020 will be the same as usual, but there were some changes in 2020’s taxes that could affect how much you owe versus what you would owe any other year.
2020 taxes in review
Here are some key takeaways about 2020 taxes you need to keep in mind:
- COVID-19 stimulus check — You might be wondering if you will need to pay taxes for the stimulus check you received as part of the U.S.’s efforts to assist people through the COVID-19 crisis. The good news is, stimulus checks are not considered as gross income. They are treated as refundable tax credits.
You will need to report your stimulus check as a tax credit when filing, but you should not have to pay income taxes on it.
- Tax bracket changes — The marginal rates of tax brackets for the upcoming tax season have not changed significantly from 2019, but you should familiarize yourself with the exact rates to understand which bracket you will be taxed under.
- Capital gains increases — Long-term capital gains income thresholds increased. The tax rate for most capital gains should not exceed 15% for most individuals, but it can be higher in some cases. Top rate for 2020 is 20%, unless you sell depreciated real estate where the depreciation will be taxed at 25%.
- Retirement account contribution limit increases — The contribution limit for 401(k) accounts increased from $19,000 to $19,500 in 2020 (or $26,000 if you are 50 or older).
- Charitable giving increases — Non-itemized eligible contributions in 2020 have been raised up to $300 per taxpayer in charitable contributions. Itemized contributions can be deducted up to 100% of adjusted gross income (AGI). Corporations can deduct up to 25% of taxable income for itemized contributions.
- Flexible spending account (FSA) increases — FSA contributions increased by $50 to $2,750 in 2020. Make sure you use up your FSA funds or that your employer will carry any over to next year before you miss out and let it go to waste.
Talk to a ProVise CFP® professional about preparing your finances for the tax season
The financial landscape can be difficult to navigate. The rules change every year, and there is so much that you need to do accurately to ensure that you get the most out of your finances and avoid tax penalties. However, with a seasoned tax professional by your side, you can manage your finances more successfully.
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about managing your personal finances? Contact ProVise today to schedule a complimentary consultation.