Things to Know For The Upcoming 2021 Tax Season

Things to know right off the bat: 

• March 15th - Tax day for Partnerships and S-Corps. Must file a 2020 return or an extension by Monday, March 15th.
• April 15th - Tax day for Individuals, C-Corps and Trusts. Must file a 2020 return or an extension by Thursday, April 15th. 
• The standard deduction for 2020 increased to $12,400 for single & married filing separately filers, $24,800 married couples filing jointly and $18,650 for Head of Household filers.

Tax Deductions and Credits to Consider for the 2021 Tax Season
Tax deductions help lower how much of your income is subject to federal income taxes. While tax credits lower your actual tax bill dollar for dollar. These credits can be refundable or nonrefundable. 

• Charitable Deductions:  In an effort to encourage more charitable giving, the CARES Act allows you to deduct up to 100% of their adjusted gross income (AGI), which is your total income minus other deductions you have already taken, in qualified charitable donations if you plan to itemize their deductions. 

            If you're taking the standard deduction, the CARES act added a new "above-the-line" deduction                that will help you write off up to $300 of charitable contributions you made in cash. 

• Medical Deductions: You can deduct any out of pocket medical expenses above 7.5% of your adjusted gross income (AGI). You must itemize your deductions to write off medical expenses on your tax return. 
• Business Deductions: 
  • Self-employed taxpayers are able to deduct business expenses which are defined as "the cost of carrying on a trade or business". These expenses include the following: 
    1. Cost of goods sold, capital expenses, business use of home, business use of car, employee's pay, retirement plans, rent expense, interest, taxes and insurance. For more information on what you can deduct as a Self-employed tax payer.
  • If you are one of the millions of workers who was sent home to work remotely during the pandemic, you won't be able to claim a home office deduction. This is reserved for self-employed individuals only. 
• Earned Income Credit: The EITC is a refundable credit to help out low and middle income workers earning up to $56,844 during the 2020 tax year. Depending on your income, your filing status and how many children you have, the credit could save you anywhere from a few hundred to a few thousand dollars on your taxes.
• Child Tax Credit: Families can claim up to $2,000 per qualified child with this tax credit (the income limits for this credit are $200,000 for single parents and $400,000 for married couples). And since this is a refundable credit, your family can receive up to $1,400 per child as a refund.

CARES Act: 

• Stimulus Checks: As part of the Cares Act the government sent up to $1,200 in the form of a stimulus check to millions of Americans. Your stimulus check will NOT count as taxable income. Your stimulus check will be treated as a refundable tax credit for 2020. 
• Paycheck Protection Program (PPP) Loans: The CARES act also offered Paycheck Protection Program loans to struggling small business owners. As long as these loans were used on certain business expenses - payroll, rent or interest on mortgage payments, utilities and a few others - these loans were designed to be forgiven. 
  1. Any expenses paid with the money from a PPP loan cannot be deducted from your taxable income. 
  2. In addition, you'll have to get your loan forgiveness application approved by the Small Business Administration before you're off the hook for the amount you borrowed. The SBA is moving slowly in its processing of 5.2 million borrowers, so this process will drag on for a while. 
• 529 Plans & Educational Savings Accounts (ESAs): If you withdrew any funds from your 529 plan or ESA, these funds need to be spent on qualified educational expenses in order to be tax-free. 
  1. If you paid for qualified education expenses with the funds and then were refunded due to the pandemic, you have 60 days to put that money back into the account or use it to cover other qualifying expenses. If this isn't done within 60 days, you might have to pay income taxes and a withdrawal penalty on the withdrawn funds. 
  2. You can now use 529 plans to pay for the cost of certain apprenticeship programs - including fees, books and supplies.
  3. You can also use money from a 529 plan to pay off up to $10,000 in student loan debt without having to pay any penalties or taxes ($10,000 total - not annually).  
• Unemployment Benefits: Any money you received through unemployment benefits is taxable and you will need to pay income taxes on that money. If you did not have taxes withheld from you unemployment benefits or if you usually receive a refund on your tax return, you may have a larger than normal tax bill for 2020. 

Retirement Plans - 401(k)s, IRAs and more: 

• The CARES Act allowed folks under age 59 1/2 to take up to $100,000 out of their 401(k)s or IRAs in 2020 without having to pay an early withdrawal penalty. If you took an early withdrawal in 2020 from a traditional 401(k) or IRA, that money will be taxed as ordinary income. 
  1. If you took money out in 2020 and have a larger tax bill, you have three years to put those funds back and receive a refund for the taxes you paid on that money. 
• The SECURE Act increased the age that required minimum distributions (RMDs) have to be taken at from 70 1/2 to 72. In addition to the SECURE Act, the CARES Act allows seniors to skip RMDs altogether in 2020 without penalty. ​