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.
All taxpayers are now eligible for identity protection PINs
The IRS has expanded the Identity Protection PIN Opt-In Program to all taxpayers who can verify their identity.
The Identity Protection PIN is a six-digit code known only to the taxpayer and to the IRS. It helps prevent identity thieves from filing fraudulent tax returns using a taxpayers’ personally identifiable information.
Here are a few key things to know about the IP PIN Opt-In program.
- This is a voluntary program.
- Taxpayers must pass a rigorous identity verification process.
- Spouses and dependents are eligible for an IP PIN if they can verify their identities.
- An IP PIN is valid for a calendar year.
- People must get a new IP PIN each filing season.
- The online IP PIN tool is offline between November and mid-January each year.
- Correct IP PINs must be entered on electronic and paper tax returns to avoid rejections and delays.
- Taxpayers should Never share their IP PIN with anyone but their trusted tax provider.
- The IRS will never call, text or email requesting their IP PIN.
- People should beware of scams to steal their IP PIN.
- There currently is no opt-out option but the IRS is working on one for 2022.
How to get an IP PIN
Taxpayers who want an IP PIN for 2021 should use Get an IP PIN tool on IRS.gov. This tool uses Secure Access authentication verify a person’s identity. Taxpayers should review the Secure Access requirements before they try to use the Get An IP PIN tool. There is no need to file a Form 14039, Identity Theft Affidavit, to join the program.
Once a taxpayer have authenticated their identity, their 2021 IP PIN immediately will be revealed to them. This PIN must be used when prompted by electronic tax returns or written near the signature line on paper tax returns.
Options for taxpayers who can’t verify their identity online
Taxpayers whose adjusted gross income is $72,000 or less may complete Form 15227, Application for an Identity Protection Personal Identification Number, and mail or fax it to the IRS. A customer service representative will contact the taxpayer and verify their identity by phone. Taxpayers should have their prior year tax return for verification process.
Taxpayers who verify their identity this way will have an IP PIN mailed to them the following tax year. This is for security reasons. Once in the program, the IP PIN will be mailed to these taxpayers each year.
Taxpayers who can’t verify their identity online or by phone and are ineligible for file Form 15227 can contact the IRS and make an appointment at a Taxpayer Assistance Center to verify their identity in person. They’ll need to bring should bring two forms of identification, including one government-issued picture identification.
Taxpayers who verify their identity in-person will have an IP PIN mailed to them within three weeks. Once in the program, the IP PIN will be mailed to these taxpayers each year.
Confirmed identity theft victims
Current tax-related identity theft victims who have been receiving IP PINs by mail will experience no change.
Taxpayers who are confirmed identity theft victims or who have filed an identity theft affidavit because of suspected stolen identity refund fraud will automatically receive an IP PIN by mail once their cases are resolved.
Publication 5477, All taxpayers now eligible for Identity Protection PINs PDF
Publication 5477 – SP, All taxpayers now eligible for Identity Protection PINs
Publication 5367 – EN and SP, Identity Protection PIN Opt-In Program for Taxpayers
Get an Identity Protection PIN – IRS YouTube video
What taxpayers need to know to claim the earned income tax credit
The earned income tax credit can give qualifying workers with low-to-moderate income a substantial financial boost. In 2019, the average amount of this credit was $2,476. It not only reduces the amount of tax someone owes but may give them a refund even if they don’t owe any taxes or aren’t required to file a return. People must meet certain requirements and file a federal tax return in order to receive this credit.
- A taxpayer’s eligibility for the credit may change from year to year, so it’s a good idea for people to use the EITC Assistant to find out if they qualify.
- Eligibility can be affected by major life changes such as:
- a new job or loss of a job
- unemployment benefits
- a change in income
- a change in marital status
- the birth or death of a child
- a change in a spouse’s employment situation
- Taxpayers qualify based on their income and the filing status they use on their tax return. The credit can be more if they have one or more children who live with them for more than half the year and meet other requirements.
New this tax season
There’s a new rule to help people impacted by a job loss or change in income in 2020. taxpayers can use their2019 earned income to figure your EITC, if their 2019 earned income was more than their 2020 earned income. The same is true for the additional child tax credit. For details, see the instructions for Form 1040.
2020 Maximum credit amounts allowed
The maximum credit amounts are based on whether the taxpayer can claim a child for the credit and the number of children claimed:
- Zero children: $538
- One child: $3,584
- Two children: $5,920
- Three or more children: $6,660
2020 income limits
Those who are working and earn less than these amounts may qualify for the EITC:
Married filing jointly:
- Zero children: $21,710
- One child: $47,646
- Two children: $53,330
- Three or more children: $56,844
Head of household and single:
- Zero children: $15,820
- One child: $41,756
- Two children: $47,440
- Three or more children: $50,954
Taxpayers who are married filing separately can’t claim EITC.