The nearly doubling of the standard deduction a few years ago hasn’t necessarily simplified tax preparation.
The tax code is replete with credits and deductions for taxpayers who claim the standard deduction — and that list got a little longer in 2020.
Here are some tax breaks non-itemizers should not overlook this tax season:
Charitable deduction:
- Last year’s CARES Act includes a provision that allows non-itemizers to deduct $300 in cash contributions to charity. The deduction is based on your tax return, not per person, so the maximum a married couple who file jointly can deduct is $300.
- To claim this deduction, you need to have made a cash contribution to a qualified charity by Dec. 31.
Child tax credit:
- A new baby brings sleepless nights, unbounded joy and a $2,000 tax credit. There’s no limit to how many kids you may claim on a return, as long as they qualify.
But the credit begins to disappear as income rises above $400,000 on joint returns and above $200,000 on single and head-of-household returns.
Child care credit:
- If you paid for child care and your children are younger than 13, you’re eligible for a credit of 20% to 35% for up to $3,000 in expenses for one child or $6,000 for two or more. The percentage decreases as income increases.
College credits:
- The American Opportunity tax credit is available if students are in their first four years of undergraduate study. The credit is worth up to $2,500 for each qualifying student. Married couples filing jointly with modified adjusted gross income of up to $160,000 can claim the full credit; those with modified adjusted gross income of up to $180,000 can claim a partial amount.
The Lifetime Learning credit, meanwhile, isn’t limited to undergraduate expenses, and you don’t have to be a full-time student to claim it.
The credit is worth up to 20% of $10,000 in qualified expenses, up to a maximum $2,000 a year. For 2020, a married couple with modified adjusted gross income of up to $118,000 can claim the full credit; those with modified adjusted gross income of up to $138,000 can claim a partial amount. You can’t claim this credit and the American Opportunity credit for the same student in the same year.
Student loan interest deduction:
- In response to the pandemic and economic downturn, Congress and the White House placed a moratorium on student loan interest and payments last year — and the relief continued into 2021.
But if you decided to keep making payments on your federal student loans, take advantage of an above-the-line deduction on interest.
You can deduct up to $2,500 in student-loan interest for you, your spouse or a dependent. The deduction phases out if your modified AGI is between $70,000 and $85,000 ($140,000 and $170,000 for joint filers). A former student can claim this deduction even if Mom and Dad are making the payments.
