Due to the pandemic and Coronavirus Aid, Relief, and Economic Security (CARES) Act, the 2021 tax season may look a bit different this year. By becoming familiar with certain deductions and rules, you may be able to potentially avoid costly mistakes. Here’s what you need to know for the unique 2021 tax season:
The IRS sent out two rounds of stimulus payments, one in March 2020 and another in late December and early January. If you received a stimulus payment, rest assured it won’t be considered taxable income. Also, if you received more money than you qualify for based on your 2020 income, you wouldn’t have to repay the funds.
Contrary to popular belief, unemployment benefits are taxable income by the IRS and in almost every state. There is the possibility taxes weren’t taken out of your payments, you may receive a 1099 form showing your unemployment benefits income. You’ll need to pay taxes on the amount of money you made through unemployment benefits before the 2021 tax season.
If you worked from home because of the pandemic, you might assume you automatically qualify for the home deduction. Unfortunately, you can’t deduct work-related expenses if you’re an employee on an employer’s payroll. A home office deduction is only an option if you’re a freelancer, entrepreneur, or another self-employed individual.
Even though Required Minimum Distributions (RMDs) were suspended for 2020, you may have taken your RMD at the start of 2020 before the CARES Act. If so, you had until August 31st, 2020, or 60 days after the payout, to distribute the RMD back into your account and treat it as a subsequent redeposit as a tax-free rollover. If you didn’t undo any RMDs last year. You’re still required to pay taxes on the distribution.
If you made charitable deductions in 2020, you could deduct up to 100% of your adjusted gross income (your total income minus other deductions) in qualified charitable deductions. This is great news if you itemize your deductions. If you opt for the standard deduction, you can take advantage of the “above-the-line deduction,” which will allow you to write off up to $300 of charitable deductions you made in cash.
We encourage you to meet with your tax professional. In order to determine how these tax changes may affect you during this 2021 tax season.
The sources used to prepare this material are believed to be true, accurate and reliable, but are not guaranteed. This information is provided as general information and is not intended to be speciﬁc ﬁnancial or tax guidance. When you access a link you are leaving our website and assume total.
In addition, Kay Russell And Associates specializes in providing strategies and guidance for those who are seeking a better lifestyle in retirement. If you have retirement savings of five million dollars or $50,000, we can ensure it works as hard. As a result, we offer our experience and knowledge to help you design a custom strategy for financial independence. Contact us today to schedule an introductory meeting!