Federal and State tax returns for the year 2020
Your Tax Preparer
February 13, 2021
Do I need to file a tax return? The answer depends on your filing status, your age and the type of income you earn.
Each person is allowed to earn a certain amount of income before they are required to file a tax return. For 2020 tax returns, individuals are not allowed a personal exemption deduction, but are still entitled to a standard deduction of $12,400 for a single filer. Hence, an individual can have $12,400 of taxable income before being taxed if under age 65. If age 65 or over, an additional $1,650 standard deduction is allowed increasing the filing threshold to $13,650 of taxable income.
Social security income is taxable if one half the social security received plus all other income exceeds $25,000 single or $32,000 married filing jointly (MFJ). If the income is between $25,000-$34,000 single ($32,000-$44,000 MFJ) 50 percent of the social security is taxable, and amounts over $34,000 single ($44,000 MFJ) result in 85 percent of social security being taxed. Municipal bond interest, disability income and other forms of income can also be tax-free. Individuals filing married jointly under 65 can have $24,800 of taxable income before they are required to file ($26,100 if one spouse is 65 or older, and $27,400 if both spouses are 65 or older). Individuals filing married separately must file a tax return if taxable income exceeds $5.
Head of household individuals (to qualify you must be unmarried and provide a home and over 50 percent support for a dependent) must file if taxable income exceeds $18,650 if under 65, or $20,300 if 65 or older). A qualifying widow(er) is an unmarried individual for two years after their spouse died, with a qualifying child/stepchild they can claim as a dependent. Qualifying widow(er)s must file if their taxable income exceeds $24,800 if under 65, or $26,000 if 65 or over. Even if you are not required to file, you may want to if you are eligible for refundable tax credits.
FIVE things for parents to consider when filing their taxes
1.) A child born or who died can be claimed as a dependent for the full year.
2.) If your child is under age 17, you can claim a $2,000 tax credit per child (each dollar of credit reduces your tax by one dollar). The child tax credit may be refundable if the credit exceeds your tax liability and your income does not exceed certain limits.
3.) There is a tax credit for paying for dependent care for your child(ren) under age 13 so that you can work or look for work.
4.) The amount of the earned income credit is determined by your income level and the number of dependent children you claim (to a maximum of three). The earned income credit is larger with more children. To qualify for the credit you must have earned income from wages, tips or a business you own.
5.) Look to see if you qualify for education credits (dollar for dollar reduction in taxes, some refundable) or for tuition and fees deductions for your children. Student loan interest is deductible up to $2,500 per year, even if you do not itemize your deductions as long as your income does not exceed certain levels. Parents paying interest on student loans can deduct the interest if they are legally obligated to pay the loan. If a parent is not obligated to pay on the loan, payments are treated as a gift to the student, who can then deduct the interest. If the student is claimed as a dependent and the parent is not obligated to pay on the loan, neither the parent nor the child can deduct the student loan interest.
The office of Moats & Hebebrand CPAs makes a concerted effort to stay on top of the changes in the tax laws so you don't have to. Let us prepare your 2020 tax returns so you know they are done right! We are also open all year to assist with tax planning and to take care of our clients.