There are lots of tax changes to talk about. The year-end government funding and stimulus law includes many easings for individuals and businesses. Other changes for 2021 reflect prior-year inflation.
Start with a second round of stimulus checks for individuals, structured as tax rebates of $600 for single filers and $1,200 for couples filing jointly, plus $600 more for each child under age 17.
Upper incomers won’t get the payments. They phase out for couples with AGIs above $150,000…$112,500 for household heads and $75,000 for singles.
IRS will look at the 2019 tax return to figure the amount of the payment in most cases. Since this round of payments will be structured in the same manner as before, the Service should have the relevant information for most individuals.
People with direct deposit should have received the money or will get it soon. Paper checks or prepaid debit cards should be in mailboxes by the end of Jan. By law, IRS has only until Jan. 15 to send out this second round of payments.
Technically, the money is an advance payment of a special 2020 tax credit…
The recovery rebate credit. On your 2020 return, you’ll reconcile this payment, along with the check you received in the first round, with the rebate credit allowed. If the credit exceeds the amounts received, you can claim the balance on your 1040. If the payments you got are more than the credit, you won’t have to repay IRS. If you haven’t received a check and you are entitled to one, you can claim the credit when you file your 20202 return. Note that stimulus payments are not taxable.
A batch of tax breaks that were set to expire after 2020 are now extended.
Some were extended permanently, some through 2025 and others for one year.
Among the permanent breaks: The 7.5% adjusted-gross-income threshold for deducting medical expenses on Schedule A. Lower excise taxes on wine, beer and liquor. The deduction for energy-efficient improvements to commercial buildings.
The above-the-line deduction for college tuition is no more after 2020. Lawmakers terminated it and instead increased the income phaseout limits for the lifetime learning credit to match that of the American Opportunity Tax Credit.
Included in breaks extended through 2025: Seven-year depreciation periods for motor sports complexes. The new-markets and work opportunity tax credits. The exclusion from workers’ wages of up to $5,250 of college debit paid by employers. The credit for employers that provide family and medical leave to workers. The exclusion for forgiven debt on a home is lowered from $2 million to $750,000.
Extended through 2021: Deduction for mortgage insurance premiums. A slew of business and energy tax incentives. The limited credit for windows and doors added to one’s residence. Plus, shorter depreciation lives for young racehorses.