It’s tax season, and the IRS announced that they would start accepting E-file forms 1040 for taxpayers starting February 12, 2021.

2020 was considered an exceptional year due to the Covid-19 virus that impacted almost all U.S. citizens, also impacted the tax law and its interpretations.

Here are the most critical changes and updates to the 2020 Individual tax return:

1. Economic Impact Payments – EIP1 and EIP 2:

The Good news is that Economic Income Payments 1 and 2 are not taxable for Federal Income Tax.

2. Recovery Rebate Credit:

  • You can claim the recovery rebate credit if you were eligible to receive the first and the second stimulus payments, and you did not receive them.
  • The stimulus checks payment was based on 2018 and 2019 tax information
  •  The recovery rebate credit amount and eligibility are based on 2020 Tax year information.

Eligibility to claim the credit:

    • To be U.S. Citizen or U.S Resident Alien
    • Have a valid Social Security number
    • Were not dependent on someone else
    • Your economic payments received are less than the credit.

3. Election to use 2019 Earned Income

The IRS gave the taxpayer the option to use the Earned income of 2019 instead of the earned income of 2020 in order to figure out the:

  •  2020 earned income credit amount and eligibility.
  •  2020 Additional Child tax credit

4. Educator expenses

All amounts paid or incurred after March 12, 2020, used to prevent the spread of Covid-19 (i.e., Disinfectant, antiseptic supplies, Hand Sanitizer …) can be included as Educator Expenses.
The amount of deduction is $250 for Eligible Educator and $500 if the taxpayer and spouse are Eligible Educators.

Eligible Educator are instructors, counselors, teachers, principals or aides that worked at least 900 hours in an elementary or secondary school and teach Kindergarten through grade 12.

5. Charitable Contributions:

For taxpayers that do not itemize deductions, now they (taxpayer and/or Spouse) can deduct the amount paid for a charitable contribution made in 2020.

  • The amount that can be deducted is $150 if married filing separate and $300 for all other filing statuses.
  • The contributions must be made to qualified institutions, like religious, educational, scientific, charitable as described in Pub.526.

6. Standard Deduction Amounts in 2020:

  •  $12,400 for single or married filing separate, compared to $12,200 in 2019.
  •  $24,800 for married filing jointly or married filing separate, compared to $24,400 in 2019.
  • $18,650 for Head of Household, compared to $18,350 in 2019.

7. SE Deferral

Taxpayer filing Schedule SE (self-employment tax) may differ part or all the self-employment tax that she/he owes for 2020 in their 2020 income tax return. Noting the deferment is only for the self-employment tax and not for the income tax liability.

8. Deductible Part of IRA Contribution

The IRS has repealed the age limitation of 70 and a half or younger in order to claim a deduction for the contribution to an IRA plan.

9. Form 1040X E-filed

Usually, tax preparers send amended income tax returns 1040-x by paper; the IRS has started to accept E-Filing amended tax returns but only for 2019. The IRS announced that an enhancement is in progress to include more years for E-filing amended tax returns. Noting that even though the E-Filing 2019 amended tax return took place, electronic payments and refund are not activated yet.

10. Unemployment Compensation

All taxpayers who filed for unemployment in Michigan should receive Form 1099-G from the state, noting that the amount received as unemployment is fully taxable at the federal and state levels.

11. Schedule LEP

The IRS has introduced schedule LEP, which allows the taxpayer to choose a different language (other than English) for any communication letter received from the IRS.

What Can Rabih Khalil CPA Do for You?

Rabih Khalil is a Certified Public Accountant (CPA). He also holds a master’s degree in accounting and another master’s degree in taxation, in addition to his many years of experience making him an expert at what he does best, and that is helping you in reporting your earning and maximizing your returns.

Using an experienced and knowledgeable CPA will save you money, headaches, and time as you will not have to file amendments to correct taxes previously filed. Rabih Khalil CPA takes pleasure in spending extra time in explaining to his clients the 2020 changes and assure the optimal benefit of implementing those changes. We can accurately reflect those changes on your tax returns and help you in planning for the 2021 tax year and beyond.

Call today for a Free Consultation.