1. What are the tax rates for the 2020 income tax year?

There are seven (7) federal individual income tax rates for the tax year 2020:

10%, 12%, 22%, 24%, 32%, 35% and 37%.  The tax rates are dependent upon taxable income and your filing status.

The capital gains and qualified dividend rates will remain unchanged at 0%, 15% and 20%, with an additional Medicare tax rate of 3.8% for taxpayers who meet the threshold requirements. Maximum unrecaptured sec1250 gain due to depreciation remains at 25% and collectible and antique capital gain remains at 28%.

2. Can I deduct charitable contributions in 2020?

For tax years beginning in 2020, eligible individuals may deduct up to $300 in qualified charitable contributions made to qualified charitable organizations.  An eligible individual is any individual who does not itemize deductions.  Any amount that exceeds the $300 limit may not be carried forward to future tax years or claimed as an itemized deductions.  The 100% of A.G.I Contribution limits applies only to gifts of cash directly to charities made in 2020 (not including family-funded private foundations).

3. Is alimony taxable to the recipient?

Congress has eliminated the deduction for alimony paid, thereby making alimony received non-taxable.  This will be effective for any divorce or separation instrument executed after December 31, 2018.  This does not apply to previously agreed upon pre-nuptial agreements.  This elimination will also apply to pre-2019 divorce decrees that are amended after December 31, 2018, if the new agreement expressly provides that T.C.J.A rules apply.  (Tax Cuts and Jobs Act: December 2017).

4. Is there an age limit on claiming my child as a dependent?

To claim your child as your dependent,  your child must meet either the qualifying child test or the qualifying relative test.

1. To meet the qualifying child test, your child must be younger than you and either younger than 19 years old or be a student younger than 24 years old as of the end of the calendar year.
2. There is no age limit if your child is permanently and totally disabled or meets the qualifying relative test.

In addition to meeting the qualifying child or qualifying relative test, you can claim that person as a dependent only if three tests are met:

• Dependent taxpayer test
• Citizen or resident test
• Joint return test

5. What can I do now to get ready to file my 2020 taxes?

There are steps people can take now to make sure their tax filing experience goes smoothly:

• Check their withholdings and make any adjustments as soon as possible.
• Gather tax documents and remember to keep them for at least three (3) years.
• Verify mailing and email addresses.
• Important new information to prepare for the tax filing season: taxpayers may be able to claim the recovery rebate credit if they met the eligibility requirements in 2020 and one of the following applies:  1) They did not receive an economic impact payment in 2020.  2)  They are single and their payment was less than $1,200. 3) They are married, filed jointly for 2018 or 2019 and their payment was less than $2,400. 4) They did not receive $500 for each qualifying child.
• Taxpayers who received a federal tax refund in 2020 may have been paid interest. The IRS sent interest payments to individual taxpayers who timely filed their 2019 federal income tax returns and received refunds.  Most interest payments were received separately from tax refunds.  Interest payments are taxable and must be reported on 2020 federal income tax returns.  In January 2021, the IRS will send a Form 1099-INT (interest income) to anyone who received interest totaling at least $10.00.

6. How can I be sure that my ITIN has not expired?

Ensure your I.T.I.N has not expired before you file your tax return.  If you need to file a tax return for 2020, the IRS recommends you submit Form W-7 (Application for IRS Individual Taxpayer Identification Number) now to renew your ITIN if it has expired.  As a reminder, ITIN’s with middle digits 70, 71, 72, 73 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, or 87 that expired in 2016, 2017, 2018, 2019 can also be renewed.

7. Did you have enough tax withholdings?

Use the tax withholding estimator to help you determine the right amount of tax to have withheld from your paycheck.  This tool can be found on  irs.gov and will help determine if you need to adjust your withholdings.  To change your withholdings, you will need to submit a new Form W-4 to your employer.  Consider also, estimated tax payments.  If you receive a substantial amount of non-wage income, for example self-employment income, investment income, taxable social security benefits and in some instances pension and annuity income, you should make quarterly estimated tax payments.  The last payment for 2020 is due by January 15, 2021.

8. Can I receive a tax refund if I am currently making payments under an installment agreement or payment plan for another former tax period?

No.  One of the conditions of your installment agreement is that the IRS will automatically apply any refund or (overpayment) due to you against taxes you owe.  Because your refund is not applied toward your regular monthly payment, continue making your installment agreement payment as scheduled. If your refund exceeds your total balance due on all outstanding tax liabilities including accruals, you will receive a refund of the excess unless you owe certain other past due amounts, such as state income tax, child support, student loans or other federal non-tax obligations which are offset against any refund.  For more information on these non-IRS refund offsets, you can call the Bureau of the Fiscal Service toll– free at (800) 304-3107.

9. Is Social Security taxed?

It is possible.  Depending on your income, up to 85% of social security may be taxable.  If you are a single filer and your combined income – that is, adjusted gross income, nontaxable interest from municipal bonds and half of your social security benefits – is more than $25,000, you will have to pay taxes.  If you are married and file jointly, the threshold is $32,000.

10. Is childcare deductible if I work full-time?

Many parents who work full time overlook the fact that, in many cases, they qualify for a sizeable tax deduction if their kids go to childcare while they work.  Daycare, summer camp and other forms of childcare are eligible for deduction.  Basically, if you work full time , and your child is under 13, you might qualify for a deduction of up to $2,100.

11. Can I change my filing status?

Yes.  You can change your filing status by filing an amended return using Form 1040X.  If you or your spouse (or both of you) file a separate return, you generally can change to a joint return any time within 3 years from the due date of the separate return or returns.

12. Can you change the filing status from married filing jointly to married filing separately?

You can amend a return to change from married filing separately to married filing jointly, but not from married filing jointly to married filing separately, unless you do so prior to the original filing deadline without extensions.

13. What is the statutory limitation for claiming a refund?

To claim a refund, you typically have up to three (3) years from the time you filed your original return , or within two (2) years from the date you paid the tax, whichever is later.

14. My ex claimed our child too, how can I rectify the situation?

You go to file your taxes and the IRS rejects your return because your ex (or someone else) has already claimed your child as a dependent.  Of course, you and your ex both cannot claim your child as a dependent if you want to qualify for certain tax breaks like the child tax credit.  You may have a divorce decree or custody agreement in place, but for IRS purposes the parent who gets to claim the child as a dependent is typically the parent with whom the child lived for more that half the year and who provided more than half of the child’s support.  If you and your ex can agree that you should be the one to claim your child as a dependent, your ex will need to file an amended return to remove your child as a dependent.  If the tow of you cannot agree, the IRS will allow tie-breaker rules when deciding who will get to claim the child.  Under the tie-breaking rules, the child is a qualifying child only for 1. whomever the child lived with the most during the year or 2. the parent with the highest adjusted gross income (A.G.I) if the child lived with each parent for the same amount of time during the year.

15. I do not want the past-due debt owed by my spouse to be applied towards our refund. What should I do?

An injured spouse (Form 8379, Injured Spouse Allocation) is asking the IRS not to apply his or her part of the refund from a joint return to a past-due debt owed by the other spouse.  Form 8379 can be filed to resolve the above mentioned problem.

An innocent spouse (Form 8857, Request for Innocent Spouse Relief) is asking the IRS not to hold him/her liable for tax resulting from actions of the other spouse in a joint return.

16. How a tax audit is determined by the IRS?

Tax audits are selected by computer programs  that calculate which tax returns are most likely to be in error.  The auditor then approaches the individual and conducts a line by line analysis of their personal finances.  Other signals that might trigger an IRS audit include a high amount of tax deductions compared to income, tax items that are erroneous, or failing to include proper proof or explanation for major one time losses.

17. What is the Required Minimum Distribution age for retirement plan participants?

The SECURE ACT was signed into law on December 20, 2019.  One of the most significant provisions from this act was the age at which retirement plan participants need to take Required Minimum Distributions (RMD’s).  The age to take RMD’s increased from 70 ½ to 72.

18. What is the waiver of 10% penalty of retirement distribution under the CARES ACT?

The CARES ACT allowed individuals to make early withdrawals, up to $100,000, from retirement accounts on or after March 27, 2020 and before December 31, 2020, without incurring the 10% penalty associated with early withdrawal.