The tax season is just around the corner. The Internal Revenue Service announced that the country’s tax season will begin on Friday, February 12, 2021, with the agency accepting and processing annual tax returns for 2020 through April 15, 2021.
For everything that has happened in the past year, from the stimulus check to the high unemployment rate to PPP loans, there are other factors to consider when you return your tax return for 2021. Here’s what you can expect.
What you need for your 2021 tax return
Most people who received an income in the US in 2020 will need to file a 2021 tax return. Here’s what you need.
- IRS tax forms: You can call the agency to have forms sent to you. Use control software; Take advantage of the IRS Free File program, which offers all participants blank IRS forms to fill out. Download forms from the IRS website; or visit your local IRS office, library, or post office.
- Personal Information: This includes your full name, date of birth, social security number or tax number, information about your short-term payment, and banking details to receive your direct deposit refund.
- Dependent information: This is information about relatives living in your household and their personal information.
- Sources of income: You will receive a W-2 form from your employer. If you are unemployed, the benefits will be provided on Form 1099-G. Self employed use 1099 forms as well as a record of all income and business usage information. Taxpayers are also required to report retirement assets, investments, dividends, and other sources of income.
- Prints: If you are going to claim something as a deduction, you have to be prepared! Some prints may require listing, others allow you to take the standard print.
Take tax deductions and credits into account
Tax deductions can help lower the amount of your income that is subject to federal income tax, and tax credits lower your actual tax burden. Here are some deductions and credits to consider for your 2021 tax return.
The CARES Act allows taxpayers to deduct up to 100% of their Adjusted Gross Income in qualified donations if they choose to list those deductions. As for the standard deduction, you can write off contributions of up to $ 300 in cash.
You can deduct medical expenses up to 7.5% of your AGI.
For the self-employed, you can deduct business travel expenses and home office expenses.
Child tax credit
Families can claim up to $ 2,000 in tax credit per Qualifying Child. The income limit is $ 200,000 for a single parent and $ 400,000 for a married couple. As this is a refundable credit, families can receive a refund of up to $ 1,400 per child.
Earned Income Tax Credit
The EITC is designed to help workers who earned up to $ 56,844 in tax year 2020. You can save anywhere from a few hundred to several thousand dollars with this credit.
Coronavirus and your tax return for 2021
The coronavirus pandemic is affecting how you file your tax return for 2021. Keep this in mind when you sit down to collect your taxes.
In 2020, the CARES Act gave millions of Americans an aid package ranging from $ 2 trillion to $ 1,200 per eligible person and $ 500 per eligible child. This does not count as taxable income. Instead, it will be treated as a refundable tax credit.
Payment Protection Program Loans
The CARES Act also helped small businesses with PPP loans. and as long as the funds were used for certain business expenses, the credits would be granted. The IRS has stated that expenses paid with PPP funds are not deductible from taxable income. In addition, businesses need their loan application approved by the Small Business Administration. This can take a while as the SBA processes applications for $ 525 billion to 5.2 million small business borrowers.
For those who received unemployment benefits, income tax must be paid on that money.
Money withdrawn from a 529 plan or education savings account must be used for education expenses. This money may have been refunded due to distance learning and canceled classes. You have 60 days to deposit this money back into your account or use it for educational expenses. If that money is used for other expenses, or is not returned to the account within 60 days, you may have to pay income tax and a withdrawal penalty.
The CARES Act allowed individuals to withdraw funds from their retirement accounts before the age of 59½ in 2020 without paying any fees. However, this money is taxed as normal income comes in the tax season. Once you have withdrawn money, you have three years to repay that money and receive a refund of the taxes you paid on that money.
Are you prepared for your tax return for 2021?
Start filing your 2021 tax return as soon as possible. The longer you wait, the less time you need to prepare, and the worst thing you can do is wait for the filing deadline. There are many easy-to-use control software programs available. or you can always consult a tax advisor.