2020 Tax Year Guide

Taxes Jan 02, 2021

This is for tax year 2020 (filed in April 2021). See below for 2021.

2021 Tax Year Guide
This is for tax year 2021 (and filed in April 2022), click here[/2020-tax-year-guide/] for 2020′s guide. Highlights * Tax brackets increased with inflation. * IRA contribution limits are unchanged. * Certain COVID related alterations and specifics. -------------------------------------------…

Highlights

  • Tax brackets increase with inflation.
  • No change in IRA contribution limits.
  • Multiple unique aspects due to COVID.

Tax Charts

2020 Tax Bracket Single Income Married Income
10% $0 to $9,875 $0 to $19,750
12% $9,875 to $40,125 $19,750 to $80,250
22% $40,125 to $85,525 $80,250 to $171,050
24% $85,525 to $163,300 $171,050 to $326,600
32% $163,300 to $207,350 $326,600 to $414,700
35% $207,350 to $518,400 $414,700 to $622,050
37% $518,400+ $622,050+
2020 Capital Gains Single Married
0% $0 to $40,000 $0 to $80,000
15% $40,000 to $441,450 $80,000 to $496,050
20% $441,450+ $496,050+
2020 Additional Taxes Single Married
Social Security Tax Cap (6.2%) $137,700 and under $0 to $80,000
Net Investment Income (3.8%) $200,000+ MAGI $250,000+ MAGI
2020 Retirement Contribution Limits Under Age 50 Age 50+
IRA Up to $6,000 (+$1,000)
401(K) or TSP Up to $19,500 (+6,500)
SEP IRA or Solo 401(K) Up to $57,000 (+6,500)
2020 Standard Deduction Single Married
Amount $12,400 $24,800

  • Unemployment compensation is taxable (will receive a 1099-G form), stimulus check are not taxable.
  • Unless you're self-employed, you can not deduct home office expenses.
  • Previous year IRS refund interest payment is taxable.
  • Flexible Spending Accounts - Can carry over funds from 2020 to 2021, and 2021 to 2022.
  • Charitable deduction (see below).

Deductions & Credits Overview

  • (New) Charitable deduction - Up to $300 non-itemized or up to 100% of AGI itemized for 2020 & 2021.
  • Medical expense deduction - Established permanent threshold of 7.5% of AGI.
  • Recovery Rebate Credit - For those who meet qualifications based on 2020 income but did not receive a stimulus check for $1,200 this year (see breakout section). Non-taxable.
  • Child Tax Credit - $2,000/child tax credit (income under $200,000/$400,000).
  • Self-employed deductions - Multiple.

Low Income

  • Earned Income Tax Credit (EITC) - Income under $56,844.
  • Saver's Credit - Income under $32,500/$65,000.

Charitable Deduction Overview

New for 2020 (and 2021) is the charitable deduction allowance.

Non-itemizers can take a charitable deduction of up to $300 on taxable income (but not Adjusted Gross Income (AGI) which is used for certain Roth IRA, investment surtax, and Medicare premium thresholds).

Itemizers can deduct up to 100% of AGI.

Most taxpayers can deduct up to $300 in charitable contributions without itemizing deductions | Internal Revenue Service
COVID Tax Tip 2020-170, December 14, 2020 Following tax law changes, cash donations of up to $300 made this year by December 31, 2020 are now deductible without having to itemize when people file their taxes in 2021. The Coronavirus Aid, Relief and Economic Security Act includes several temporary …

Recovery Rebate Credit Overview

The federal government sent out $1,200/$2,400 checks earlier this year in a tax credit advance, so most people have already received this amount directly.

However, if you didn't receive the $1,200 check but your 2020 income is qualifying you can still receive this.

  • $150,000  if married and filing a joint return
  • $112,500 if filing as  head of household or
  • $75,000  for eligible individuals using any other filing status‌‌Your payment will be reduced by 5% of  the amount by which your AGI exceeds the applicable threshold above.
Recovery Rebate Credit | Internal Revenue Service
Eligible individuals can claim the Recovery Rebate Credit on their 2020 Form 1040 or 1040-SR. These forms can also be used by people who are not normally required to file tax returns but are eligible for the credit. The Recovery Rebate Credit is authorized by the Coronavirus Aid, Relief, and Econom…

IRA Limits

Traditional IRA

This is the limit for how much you can get a deduction for contributing to a traditional IRA.  You can still contribute above this point, it just won't be tax deductible.

2020 Traditional IRA Single Married
Deduction Phase-out $65,000 to $75,000 $104,000 to $123,000
Non-deductable Any income Any income

Note: If you or your spouse are not covered by a workplace retirement plan additional rules apply.

Roth IRA

This is the limit for who can contribute to a Roth IRA.  If you are above this, you can do a "backdoor" contribution by contributing to a Traditional IRA and converting it to a Roth (no limit).

2020 Roth IRA Single Married
Direct Contribution Phase-out $124,000 to $139,000 $196,000 to $206,000
Backdoor/Conversion Any income No income

Note: If you wish to pursue a backdoor contribution and have other/previous Traditional IRA assets there are additional rules.

Is a Roth conversion right for you? | Vanguard

Military & Veterans

Free Tax services

  • IRS Free File (income under $69,000)
  • Military OneSource (any)
  • Volunteer Income Tax Assistance program (income under $56,000)

Special Rules to Remember

  • Combat zone pay is non-taxable
  • VA Disability Benefits are not included in gross income
Tax filing tips for military service members and veterans | Internal Revenue Service
FS-2020-03, February 2020 The Internal Revenue Service is committed to helping military members, veterans and their families meet their federal income tax filing obligations. Active duty or reserve members of the armed forces listed below may be eligible for military tax benefits. Recently retired…

State Taxes

There is too much individual variability to cover here, but as a point of reference here is a graphic courtesy of our friends at Visual Capitalist.

Sources

IRS provides tax inflation adjustments for tax year 2020 | Internal Revenue Service
Note: The Setting Every Community Up for Retirement Enhancement Act, better known as the SECURE Act, was passed at the end of 2019 and increased the minimum penalty for failure to file from $330 to $435.
Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits | Internal Revenue Service
Two annual limits apply to contributions: A limit on employee elective salary deferrals. Salary deferrals are contributions an employee makes, in lieu of salary, to certain retirement plans: 401(k) plans 403(b) plans SARSEP IRA plans (Salary Reduction Simplified Employee Pension Plans) SIMPL…

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