Important Things You Need to Know: Tax Season 2021
What changed for the 2021 tax season?
You must file your 2020 taxes by April 15, 2021!
For single filers, the standard deduction increased to 12,400 and 24,800 for married couples filing jointly.
The 2020 Income tax brackets increased in 2020.
2021 Tax Season Income Brackets and Rates
|2020 Marginal Tax Rates||Single Tax Bracket||Married Filing Jointly Tax Bracket||Married Filing Separately Tax Bracket||Head of Household Tax Bracket|
|37%||Over $518,400||Over $622,050||Over $311,025||Over $518,400|
Increased Standard Deductions for 2020
The standard deduction goes up marginally for the tax year 2020 to compensate for inflation.
|Married Filing Jointly||$24,400||$24,800|
|Married Filing Separately||$12,200||$12,400|
|Head of Household||$18,350||$18,650|
Tax Season 2021 – Deductions and Credits
For your 2020 tax return, here are some exemptions and credits you might be entitled to claim:
1. Charitable Deductions
The CARES Act requires you to reduce up to 100% of your adjusted gross income (AGI), which is the total income excluding other deductions you have already taken from eligible charitable contributions.
A new “above-the-line” deductions were introduced under the CARES Act to help you write off up to $300 in charitable donations you made in cash.
2. Medical Deductions
You can deduct all medical expenses above 7.5 percent of your adjusted gross income (AGI), which is your net income minus other deductions you have already taken. So, to pay off those costs on your tax return, you have to itemize your deductions.
3. Business Deductions
You can take many exemptions on your tax return if you are self-employed, including travel costs, and if you’re a portion of your home to do business, you can also include a home office deduction.
4. Earned Income Tax Credit
This credit is to support low and middle income taxpayers. If you have earned income, you could be eligible to claim this credit.
5. Child Tax Credit
If you have children, the tax credit for households will be entitled to receive up to $2,000 per eligible child (the income caps for this credit are $200,000 for single parents and $400,000 for married couples). Refundable credit, up to $1,400 per child, can be obtained as a refund from your family.
THINGS TO REMEMBER:
Your stimulus check is not going to register as taxable revenue. Instead, for 2020, it is being handled as a refundable tax credit. The stimulus check is kind of like an advance on money you may have gotten otherwise as part of your tax return in 2021.
Paycheck Protection Program (PPP) Loans
If the fund was used for company expenses like salary, rent, or interest on lease payments and services, to name a few, individual loans were deemed to be “forgiven.
However, according to the IRS, any cost paid with money from PPP loans cannot be deducted from your taxable income. You’ll also need to get your loan forgiveness application approved by SBA.
If you received unemployment benefits, you need to pay income taxes on that money.
However, if you opted not to have taxes deducted when you signed up, you will have to pay projected quarterly payments or save money to pay your taxes on Tax Day.
Educational Expenses: 529 Plans and ESAs
You must use any money you take out of a 529 plan or Educational Savings Account (ESA) to be tax-free for qualified educational expenses if your school reimbursed your 529 or ESA cash due to the pandemic.
If you don’t put the money back in the account or use it to cover other educational expenses(books, fees, and other supplies or student loans), you might have to pay income taxes and a withdrawal penalty.
You’ll have to take money out of your account once you reach a certain age if you own a traditional IRA. These withdrawals are called minimum distributions required (RMDs).
The SECURE Act pushed back the age from 70 1/2 to 72 for RMDs from traditional IRAs. It also allows them to continue putting money in their accounts beyond 70 1/2, beginning in 2020.
The CARES Act allowed seniors to skip RMDs without penalty altogether in 2020.
You have three years to put back those funds and get refunded for the taxes you paid on it. More importantly, it will help you get your retirement savings back on track.
Taxes: Get them done right this 2021!
File your taxes and be confident and let us help you make it possible this year!
You are in good hands at DHH Tax and Bookkeeping Services.
January 10, 2021
January 10, 2021