Things taxpayers should know when choosing between standard and itemized deductions
Deductions reduce the amount of taxable income when filing a federal income tax return. In other words, they can reduce the amount of tax someone owes.
Most taxpayers have a choice of either taking the standard deduction or itemizing their deductions. The standard deduction may be quicker and easier, but, itemizing deductions may lower taxes more, in some situations. It’s important for all taxpayers to look into which deduction method best fits them.
New this year
Following tax law changes, cash donations of up to $300 made by December 31, 2020 are deductible without having to itemize when people file a 2020 tax return.
Here are some details about the two methods to help people decide deduction to take:
The standard deduction is an amount that reduces taxable income. The amount adjusts every year and can vary by filing status. The standard deduction amount depends on the taxpayer’s filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don’t itemize deductions are entitled to a higher standard deduction.
Taxpayers benefit from the standard deduction if their standard deduction is more than the total of their allowable itemized deductions. They can use the Interactive Tax Assistant, How Much Is My Standard Deduction? to determine the amount their standard deduction and if they should itemize their deductions.
Taxpayers may itemize deductions because that amount is higher than their standard deduction, which will result in less tax owed or a larger refund. In some cases, they not allowed to use the standard deduction.
A taxpayer may benefit by itemizing deductions if any of following apply to their tax situation, they:
- Had large uninsured medical and dental expenses
- Paid interest and taxes on their home
- Had large uninsured casualty or theft losses
- Made large contributions to qualified charities
Individual itemized deductions may be limited. Schedule A, Form 1040, Itemized Deductions can help determine what limitations may apply.
People should be on the lookout for identity theft involving unemployment benefits
The IRS urges taxpayers whose identities may have been used by thieves to steal unemployment benefits to file a tax return claiming only the income they actually received.
In 2020, millions of taxpayers were affected by the COVID-19 pandemic through job loss or reduced work hours. Some taxpayers applied for and received unemployment compensation from their state. By law, unemployment benefits are taxable.
Scammers also took advantage of the pandemic by filing fraudulent claims for unemployment compensation
using stolen personal information of individuals who had not filed claims. Payments made as a result of these fraudulent claims went to the identity thieves.
Taxpayers who receive an incorrect Form 1099-G should contact the issuing state agency to request a revised form. If they’re unable to get a timely, corrected form from states, they should still file an accurate tax return, reporting only the income they received. They should save whatever documentation they have regarding their attempts to receive a corrected form from their state agency.
What people should if they think they might be an identity theft victim
People should visit Identity Theft Central for more information about the signs of identity theft.
Taxpayers do not need to file a Form 14039, Identity Theft Affidavit, with the IRS about an incorrect Form 1099-G. An affidavit should only be filed only if the taxpayer’s e-filed return is rejected because a return using the same Social Security number already has been filed.
If a taxpayer is concerned that their personal information has been stolen and they want to protect their identity when filing their federal tax return, they can request an identity protection PIN from the IRS.
An Identity Protection PIN is a six-digit number that prevents someone else from filing a tax return using a taxpayer’s Social Security number. The IP PIN is known only to the taxpayer and the IRS, and this step helps the IRS verify the taxpayer’s identity when they file their electronic or paper tax return.
States should not issue Forms 1099-Gs to taxpayers they know to be victims of identity theft involving unemployment compensation.
Publication 525, Taxable and Nontaxable Income
Identity theft guidance regarding unemployment compensation reporting
Here’s what taxpayers should do if they have missing or incorrect documents
Taxpayers should double-check to make sure they have all their documents before filing a tax return.
Taxpayers who haven’t received a W-2 or Form 1099 should contact the employer, payer or issuing agency and request the missing documents. This also applies for those who received an incorrect W-2 or Form 1099.
If they can’t get the forms, they must still file their tax return on time. To avoid filing an incomplete or amended return, they may need to use Form 4852, Substitute for Form W-2, Wage and Tax Statement or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
If a taxpayer doesn’t receive the missing or corrected form in time to file their tax return, they can estimate the wages or payments made to them, as well as any taxes withheld. Then use Form 4852 to report this information on their federal tax return.
If they receive the missing or corrected Form W-2 or Form 1099-R after filing their return and the information differs from their previous estimate, they must file Form 1040-X, Amended U.S. Individual Income Tax Return.
Most taxpayers should have received income documents near the end of January, including:
- Forms W-2, Wage and Tax Statement
- Form 1099-MISC, Miscellaneous Income
- Form 1099-INT, Interest Income
- Form 1099-NEC, Nonemployee Compensation
- Form 1099-G, Certain Government Payments; like unemployment compensation or state tax refund
Incorrect Form 1099-G for unemployment benefits Many people received unemployment compensation in 2020. For some, this may have been the first time they ever received unemployment. These taxpayers need to know that unemployment compensation is taxable and must be included on their tax return.
Taxpayers who receive an incorrect Form 1099-G for unemployment benefits they did not receive should contact the issuing state agency to request a revised Form 1099-G showing they did not receive these benefits. Taxpayers who are unable to obtain a timely, corrected form from states should still file an accurate tax return, reporting only the income they received.
IRS Online Account can help taxpayers get ready to file their tax return
Taxpayers can securely access and view their IRS tax information anytime through their individual online account. They can see important information when preparing to file their tax return or following up on balances or notices. This includes:
- Adjusted gross income. This can be useful if the taxpayer is using different tax software or a different tax preparer this year. They may need their AGI so they or their preparer can validate their identity.
- Economic Impact Payments. People can check the amounts of their Economic Impact Payments to help them accurately calculate any recovery rebate credit they may be eligible for on their 2020 tax return. The EIP amounts can be found on the tax records tab. Amounts will show as Economic Impact Payment for the first payment and Additional Economic Impact Payment for the second payment. Individuals who are married filing joint will each need to sign into their own account to view their portion of the payments.
- Estimated tax payments. The total of any estimated tax payments made during the year or refunds applied as a credit can be found on the account balance tab. A record of each payment appears under payment activity.
Additionally, taxpayers can view:
- The amount owed for any past years, updated for the current calendar day
- Payment history and any scheduled or pending payments
- Payment plan details
- Digital copies of select notices from the IRS
- Tax records using Get Transcript
Later in 2021, taxpayers will be able to digitally sign certain authorization forms, such as a power of attorney, initiated by their tax professional.
Here’s how new users get started:
- Select View Your Account on IRS.gov homepage
- Select the Create or View Your Account button
- Click Create Account
- Pass Secure Access authentication. This is a rigorous process to verify the taxpayer’s identity. They must be able to authenticate their identity to continue.
- Create a profile.
Once the initial authentication process is complete, returning users can use the same username and password to access other IRS online services such as Get Transcript and Get An Identity Protection PIN, if applicable.
All password-protected online IRS tools for taxpayers are protected by multi-factor authentication.