The year 2020 has been a horrible one – not just because of Covid-19, but how the pandemic has affected multiple aspects of our lives. While hoping for the best, it is a good idea to keep yourself prepared for the changes the last brought. One of these is the tax policy changes. In order to file the tax returns in an error-free manner, taxpayers need to be aware of what has changed.
The 2021 tax season will impact your tax situation in many ways. Since we are already stepping into the new year, it is of crucial importance to be prepared to deal with the new tax policies than face tax burdens and discrepancies later. Whether it’s tax credits, tax deductions or tax refunds, some things have changed while many other things are staying the same as before. The new tax season is unique in several ways – both for the taxpayers and the IRS. This year, the tax season will open a little later than the usual date of the previous years.
February 12th is the date when the tax season begins, and you must complete your tax filing procedure by April 15, 2021.
What tax rate will apply in your case depends on the income bracket you are in. For 2021, there are some changes in the tax rate. For example, if you are single and your income is $90,000, then you’ll fall in the 24% tax bracket. However, this doesn’t mean that your tax rate is a flat 24%. Instead, you’ll be taxed at 10%, 12%, 22% and 24% on various parts of your income.
For detailed information on all income tax rates and brackets and how they’ll apply in your case, reach out to SCL Tax Services.
When filing income tax returns, two things that matter the most for a taxpayer are tax deductions and tax credits. If you use these to your avail in a proper manner, you will keep more money in your pocket.
There are two ways in which deductions are available to taxpayers. These include itemizing your deductions and standardizing your deductions. On the other hand, tax credits offer you opportunities to reduce your heavy tax bill. Tax credits can either be refundable or non-refundable. However, both these types of tax credits work in the favor of taxpayers.
If you are going to file your 2020 income tax returns, you should be aware of all the tax deductions and tax credits that you can use to your benefits. Some deductions that you can claim on your tax return include charitable deductions, medical deductions and business deductions. You can also reduce your tax bill using tax credits such as earned income tax credit and child tax credit. These are just a few examples, and there are many other such deductions and credits that you can avail yourself of, as per your specific tax situation. To find out exactly what type of tax deductions and credits will apply in your case, you should reach out to a tax preparation service or an experienced tax accountant or Enrolled Agents.
Let us first talk about the stimulus payments made to individuals in connection with the coronavirus pandemic. After the coronavirus stimulus packages were announced by the government, the IRS and the Treasury Department sent economic impact payments or stimulus payments to people. The payment was either directly deposited into the bank account of the individual or delivered by check. Many people received the payment via prepaid debit cards.
Now that the new tax filing season is just about to begin, the IRS is taking all necessary measures to complete all pending stimulus payments. In keeping with your adjusted gross income, if you are eligible for additional payment, you can claim it on your income tax return for 2020.
The stimulus tax payments made to individuals are actually tax credits. So, it will not affect your tax liability in any way.
The coronavirus pandemic affected a lot of small businesses. To help small businesses stay afloat, the government announced Paycheck Protection Program (PPP) loans. Thanks to the CARES Act, these loans brought big relief for all small businesses that were struggling with their finances.
These loans were ‘forgivable’ in the first place, provided the funds were used to pay for some specific business expenses. So, if you used the money from your PPP loan on expenses such as payroll, rent or mortgage payment interest, the loan will be forgiven. But the question is ,”Are these business expenses tax deductible?” As a small business owner, you should know whether you can deduct the business expenses you paid with the PPP loan money from your annual taxes.
So, please be informed that any expenses that you paid out with money from the PPP loan are non-deductible from your tax income.
Employed people all across America were given furloughs and layoffs as a result of the coronavirus pandemic. A large number of people were out of work. In order to respond to this massive job loss, lawmakers increased the amount of unemployment insurance benefits. Between March and July, the unemployed individuals received an additional amount of $600 per week. Moreover, the duration of benefits was also boosted after the expiry of the state benefits.
The money sent under the UI benefits scheme proved to be a massive help for all those people who lost their jobs due to the coronavirus pandemic. However, all this money is considered to be taxable.
If you are one of those who received UI benefits, you’ll be required to pay income taxes on the amount of money received. If you have not set aside enough money on your UI benefits to pay the taxes, you may find yourself in a tough spot when you file your tax returns for the 2020 tax year.
A number of relief packages were released to help individuals and businesses cope with financial burden during the pandemic. As part of the relief plan, lawmakers also brought about some changes to the tax policies.
New policy changes in this regard have changed how the Earned Income Tax Credit and the Child Tax Credit for the 2020 tax year are calculated. As per the adjustments, tax filers have the opportunity to choose 2019 earnings over 2020 earnings, in a bid to avail themselves of the tax credits. Since every taxpayer has a different tax situation, it becomes crucial to weigh up the income earned in 2019 and 2020 and then select the one which is a better match.
When the amount paid as income tax exceeds your tax liability in a given financial year, you receive an amount called income tax refund. Changes in economic and tax policies mean tax refunds will also be impacted.
Whether you are an individual taxpayer or a business entity, you should expect that the refunds will be affected. The taxpayer’s income has shrunken and the economy is going through a recession. Plus, the government has already spent a lot of money in the form of stimulus packages. Economic impact payment for many people is still pending. So, the tax refunds trend is something we’ll need to watch out for, as it can not be said where the refunds will finally wind up.
In the year 2020, a number of changes were made to retirement plans. If you have made withdrawals from your retirement account before retirement, you need to know how this is going to affect your 2021 tax filing.
Whether you own a 401(k) or traditional IRA, it is possible that you took some money out of the account to manage your expenses during the pandemic. If you did, that money is considered as taxable and a heavy tax bill may be headed your way. However, you don’t need to lose your sleep thinking about this tax issue. You have a long duration of three years in your hands to put that money back. Plus, you can also receive a refund on the taxes paid on the withdrawals. To find out how you can get your retirement savings going in the right direction again, you should reach out to an Enrolled Agent or a tax accountant for advice.
If your tax situation is a complex one or you had a turbulent last year, it is advisable to seek the help of an experienced tax professional in your area. At SCL Tax Services, we have a highly competent and passionate team of tax pros who can help you get your taxes done in 2021 in a correct and accurate manner. We offer individual tax services, business tax services, tax resolution etc. Our services are available in and near the Bronx, New York. Give our office a quick phone call for your free initial consultation and find out how our experts can help you.