Here are some key items relating to the 2020 tax year filing:
- Standard deduction is as follows:
- Single $12,400
- Married filing joint $24,800
- Head of household $18,650
- Medical expense deduction threshold is 7.5% of adjusted gross income.
- SALT Deduction (State and Local Tax Deduction) including such items as state income and real estate taxes is capped at $10,000, or $5,000 if married filing separately. New for 2020 is the Pass-Through Business Alternative Income Tax Act (BAIT). This Act allows individuals the opportunity to work around the SALT cap. In order to take advantage you would have to be an owner of a partnership or S Corporation, and the respective entity would pay the state income tax at the entity level thus receiving a federal tax deduction for the taxes paid.
- Mortgage interest deduction is limited to interest paid during the year on the first $1,000,000 of qualified mortgage debt obtained prior to December 16, 2017. If the mortgage was obtained after December 15, 2017, then the mortgage interest deduction is limited to interest paid during the year on the qualified mortgage debt of $750,000.
- Economic Impact payments- you may be able to apply for a tax credit with the filing of your 2020 income tax return if you did not receive your payment and you were entitled to it.
- Charitable contributions are allowed up to 100% of your adjusted gross income (AGI), but in some cases, 20% or 30% limits may apply. Standard mileage rate is 14 cents per mile driven in service of charitable organizations. New for 2020 is an above the line charitable deduction up to $300.
- NJ health insurance mandate requires its residents to maintain health coverage throughout 2020 and beyond unless qualified for an exemption. Failure to have coverage may result in a shared responsibility payment.
- Miscellaneous itemized deductions are generally limited to the following:
- Gambling losses only to the extent of gambling winnings.
- Casualty and theft losses on income-producing property including Ponzi-type investment schemes; Casualty and theft losses on personal-use property only if the loss is attributable to a federally declared disaster.
- Federal estate tax on income in respect of a decedent.
- Amortizable bond premiums on taxable bond
- An ordinary loss attributable to a contingent payment debt instrument or an inflation-indexed debt instrument.
- Deduction for repayment of amounts under a claim of right if over $3,000.
- Certain unrecovered investment in an annuity.
- Impairment-related work expenses of a disabled person.
- Standard business mileage deduction for 2020 is 57.5 cent per mile.
- Child tax credit is $2,000 per qualifying child under the age of 17 at the end of the tax year.
- NJ Veterans Exemption is $6,000 for 2020.
- Reinstatement of Net Operating Loss (NOL) Carrybacks for years 2018, 2019, and 2020 which can be carried back 5 years.
- Qualified business deduction allows taxpayers to deduct up to 20% of their qualified business income. Phase out range for specified service trades or business (SSTB) for 2020 starts at taxable income of $326,600 for married filing jointly and is completely phased out at $426,600. All other filings, phase out range (SSTB) starts at $163,300 and completely phases out at $213,300. If your business income is not from a SSTB then there is no phase out of the deduction, but a wage / investment limitation applies once income thresholds are met.
- Retirement withdrawals can be spread over tax years 2020, 2021 and 2022.
- There is no required minimum distributions for the tax year 2020.
- There is no age limit for IRA contributions.
- Exclusion from gross income for the discharge of qualified principal residence indebtedness has been extended through 2025.
- Mortgage insurance premium deduction has been extended through 2021 and taxpayers can take the deduction retroactively for tax years 2018 and 2019 by filing an amended return.
- Estate tax exemption is $11.58 million per individual (or 23.16 million for a married couple) for 2020; these amounts increase to $11.7 million per individual (or 23.4 million for a married couple) for 2021.
- Annual gift exclusion is for 2020 and 2021 is $15,000.
- Unemployment compensation is taxable and must be reported on 2020 tax return if received in 2020. State tax agencies will issue a 1099-G in January 2021 to recipients of unemployment benefits indicating the amount paid by the taxing agency in 2020. For unemployment paid by NJ, the recipient must to obtain the 1099-G online through your online unemployment account.
- Interest on tax refunds is taxable – Taxpayers receiving tax refunds in 2020 may have received interest on the refund. The taxing authority will issue 1099-INT to anyone who received interest of greater than $10. The interest received in 2020 is required to be reported on your 2020 tax return.
- Kiddie tax reverts to rules prior to the Tax Cut & Jobs Act for years after 2019. For 2020, unearned income above $2,200 is subject to kiddie tax for minors. The applicable tax rate is the parent’s 2020 marginal tax rate.
- Tax credits are available for Sick Leave & Family Leave for certain self-employed individuals for qualified wages paid during the period 4/1/2020 through 12/31/2020.
These are some of the tax provisions that are in effect for the tax year 2020. If you have any questions, do not hesitate to contact us directly.
CAPALDI REYNOLDS & PELOSI, P.A.