The 2020 tax season may only be a few months in the rear-view mirror, but it’s not too soon to start looking forward to next year’s return. With the ripple effects of Covid still impacting the economy in the form of tax credits, remote work and more, 2021 is shaping up to be another tricky tax year.
A number of factors will make 2021 tax returns more complicated than average, including the third stimulus payment that started going out in March. Though the stimulus payments aren’t considered taxable income, if taxpayers include them as income they will end up paying more in taxes and will ultimately need to request a refund.
The advance child tax credits will also be something that tens of millions of families will need to be aware of when filing, as it could impact their final return.
Here are two key things you can start doing now so that you are ready when tax day rolls around in 2022.
1. Do a mid-year tax checkup
Do a mid-year tax checkup so that they know how the year is shaking out for you.
Do a projection of what your tax return is going to look like knowing what the rules that changed are, knowing what might apply to you, knowing what’s different from last year,” “A mid-year checkup will help you identify some problem areas or reinforce some comfort.
Regardless of whether you enlist the services of a tax professional or file your taxes on your own. Doing your own research is important because it may result in you finding additional tax credits that you didn’t know you were eligible for.
The IRS isn’t in the business of making sure you’ve got all your credits and all your benefits, They’re in the business of making sure they get all their money.
2. Stay on top of your important documents and information
One of the biggest favors a taxpayer can do themselves is to be diligent about keeping track of all the information they will need for their tax returns, Getting your stimulus numbers, child tax credit information and unemployment benefits together in one place now will streamline your tax process down the line.
People who waited until the last minute the past couple of years really found themselves in an information crunch, It’s only going to be bigger this year because more people are impacted.
Keep track of everything that happened to you this year — whether it be living through a natural disaster or going back to school or starting a new business — so you won’t forget anything come tax season.
Start your list of things that might change your tax return and either learn about them on your own at tax time or tell your tax pro, You cannot give enough attention to the things that happened to you during the pandemic years.
Tax Day is April 15, 2022.
The Internal Revenue Service has launched a new Spanish-language version of its online tool, Child Tax Credit Eligibility Assistant, designed to help families determine whether they qualify for the Child Tax Credit and the special monthly advance payments of the credit, due to begin on July 15.
Available exclusively on IRS.gov, the new Spanish version of the tool, like its English-language counterpart, is interactive and easy to use. By answering a series of questions about themselves and their family members, a parent or other family member can quickly determine whether they qualify for the credit.
Though anyone can use this tool, it may be particularly useful to families who don’t normally file a federal tax return and have not yet filed either a 2019 or 2020 return. Often, these are people who receive little or no income, including those experiencing homelessness, low income households, and other underserved groups. Using this tool can help them decide whether they should take the next step and either register for the Child Tax Credit payments using another IRS tool, the Non-filer Sign-up Tool, or file a regular tax return using the IRS Free File system.
To help people understand and receive this benefit, the IRS has developed materials in several languages and additional multi-lingual resources will roll out in coming weeks and months. All tools and materials, in English and other languages, are posted on a special Advance Child Tax Credit 2021 page at IRS.gov/childtaxcredit2021
The Internal Revenue Service said it’s pushing the tax-filing deadline from April 15 2021 to May 17 2021.
“This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities,” IRS Commissioner Charles Rettig said in a statement Wednesday.
The May 17 deadline is the deadline to pay any taxes owed, and it is the deadline to submit a return. People can still get an extension to Oct. 15, but that’s only more time to send in a return and does not afford more time to pay taxes.
One caveat to IRS announcement
There is one caveat, however. The IRS notes the extended deadline only pertains to federal income tax payments. It doesn’t affect a state’s income tax deadline.
Here are some deductions and credits you might be able to claim on your 2020 tax return:
1. Charitable Deductions
If you like to give like no one else, we have some great news! 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.3
What if you’re taking the standard deduction? Well, 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.4
2. Medical Deductions
If you spent a lot of time in the hospital or found yourself with some hefty medical bills last year, you might be able to find at least some tax relief.
You can deduct any medical expenses above 7.5% of your adjusted gross income (AGI), which is your total income minus other deductions you have already taken.5 For example, if your AGI was $100,000, you can deduct out-of-pocket medical expenses above $7,500 in 2020. But you have to itemize your deductions in order to write off those expenses on your tax return.
3. Business Deductions
If you’re self-employed, there are a bunch of deductions you can claim on your tax return—including travel expenses and the home office deduction if you use a part of your home to conduct business.6
But if you’re one of the millions of workers who were sent home to work remotely, you won’t be able to claim the home office deduction since it’s reserved for self-employed individuals only. Sorry!
4. Earned Income Tax Credit
The EITC is a refundable credit designed to help out low- and middle-income workers (workers earning up to $56,844 during the 2020 tax year might be eligible).7 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. But here’s a crazy stat: About one out of five taxpayers who are eligible either don’t claim the benefit on their taxes or don’t file a tax return at all.8 Don’t let that be you!
5. Child Tax Credit
Got kids? 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.9
And there are plenty of other deductions and credits that might be up for grabs depending on your situation! If you don’t want to miss out on any tax savings, you’ll want to work with a tax advisor who can make sure you’re not leaving any deductions or credits on the table.
Watch Out For Gift Card Scam
Taxpayers should always be on the lookout for scams especially during the holidays. Crooks want to trick people in order to steal their personal information, scam them out of money, or talk them into engaging in questionable behavior with their taxes. Scam attempts can peak during tax season, but taxpayers need to remain vigilant all year.
Gift card scams are on the rise. In fact, there are many reports of taxpayers being asked to pay a fake tax bill through the purchase of gift cards.
Here’s how one scenario usually happens:
• Someone posing as an IRS agent calls the taxpayer and informs them their identity has been stolen.
• The fake agent says the taxpayer’s identify was used to open fake bank accounts.
• The caller tells the taxpayer to buy gift cards from various stores and await further instructions.
• The scammer then contacts the taxpayer again telling them to provide the gift cards’ access numbers.
Here’s how people can know if it is really the IRS calling. The IRS does not:
• Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer.
• Generally, the IRS will first mail a bill to any taxpayer who owes taxes.
• Demand that taxpayers pay taxes without the opportunity to question or appeal the amount they owe. All taxpayers should be aware of their rights.
• Threaten to bring in local police, immigration officers or other law-enforcement to have the taxpayer arrested for not paying.
• Revoke the taxpayer’s driver’s license, business licenses, or immigration status.
People who believe they’ve been targeted by a scammer should:
• Contact the Treasury Inspector General for Tax Administration to report a phone scam. Use their IRS Impersonation Scam Reporting web page. They can also call 800-366-4484.
• Report phone scams to the Federal Trade Commission. Use the FTC Complaint Assistant on FTC.gov. They should add “IRS Telephone Scam” in the notes.
• Report an unsolicited email claiming to be from the IRS, or an IRS-related component like the Electronic Federal Tax Payment System, to the IRS at email@example.com. The sender can add “IRS Phone Scam” to the subject line.