The year 2020 looked a tad bit different. In terms of finances, people had to make last-minute changes, draw out their savings, look for new employment, or find ways to make ends meet. Some businesses had to scramble to keep cash flow running, and others had to adjust the budget for unexpected expenses and infrastructure additions. Certain self-employed individuals were also left in the dark regarding unemployment or loss of business. There is still about a month left of the 2021 tax season and a lot of questions regarding this year's tax filings. So here is what you need to know.
The 2021 Tax Season Has Arrived and Proving Itself to be Pretty Interesting
This year involves a milieu of new tax considerations. From stimulus payments to PPP loans, unemployment benefits, to the shift of work-from-home models. Common questions regarding this year’s tax return include:
Are My Unemployment Benefits Taxable?
With millions of Americans facing unemployment for some or all of the duration of the pandemic, unemployment checks were the main source of sustenance. According to some estimates, up to 6 million Americans were filing for unemployment per week. Especially people that worked in service industries like restaurants, bars, and other establishments that faced harsher restrictions and closures. So is that income taxable? The short answer is yes. Unemployment insurance is considered taxable income.
Are Stimulus Checks Taxable Income?
The U.S. government sent out two stimulus checks during the 2020 tax year. Unlike unemployment checks, stimulus payments are not taxable income. The IRS announced on Feb 16th— shortly after the 2020 tax season opened for business— that all first and second stimulus checks had been sent out. So, if you did not receive yours and were eligible, you might be able to claim it on your return.
If you experienced certain life changes, you may qualify for additional funds
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Your income declined considerably in 2020 compared to 2018 and 2019
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You had a child before the date of Dec 31, 2020
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You adopted a child under the age of 17 by Dec 31, 2020
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It was the first year you were no longer considered a dependent
Other Important Things to Note About This Year’s Tax Changes
Anytime the economy shifts, it experiences depressions, inflations, and everything in between. This will cause tax brackets to shift some. There were slight adjustments to the tax brackets this year, so make sure to pay attention to whether you have been moved from one tax bracket to another.
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Itemized deductions remain the same
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There will be no personal exemption amount in 2021
When it comes to itemized deductions, a few remaining numbers to point out:
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Medical and dental expenses: You can only deduct medical and dental expenses that surpass 10% of your Adjusted Gross Income.
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State and local taxes: Deductions for these taxes remain unchanged. They are limited to $10,000 or $5,000 for married people filing separately.
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Home Mortgage Interest: You can file for acquisition indebtedness for funds used to buy, build, or improve your home. The amount is up to $750,000 to $375,000.
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Charitable Donations: This number remains steady at 60% of cash donations to public charities.
How To Move Forward and Embrace Personal Finance Tips in 2021
Aside from notable changes in tax filing, people are also eager to know how to move forward and recalibrate. Whether you suffered a major blow to your income in 2020 or not, people have suddenly been jolted awake to the need to be prepared. We’ll be reviewing personal finances tips in the future, but here are a few to begin with this year:
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Regardless of your age, start saving for and thinking about retirement. Whether that means opening an IRA or other type of account, this is a worthy pursuit. The earlier the better.
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Take advantage of the student loan interest hold. The hold on student loan interest has been extended until September. Use this to your advantage depending on your situation.
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Watch credit card debt, but keep an eye on your credit. Building credit is important when it comes to getting a car loan, applying for a mortgage loan, etc. So while you don’t want to get your credit spending out of control, using it to leverage some credit building can be a smart idea.
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Try to pay off debt. If you’re in a position to do so, consider taking a bite out of your debt by making sacrifices now.
Work with Tax Experts on Your 2020 Tax Filing
There’s a lot to think about when it comes to finances in these difficult and still somewhat uncertain times. Whether you have an easy tax situation or a more complex story, Taxes4Us is here to guide you towards optimizing your tax opportunities. There may be credits you qualify for that can make a difference.
If you’re looking for a trusted professional to do your taxes right. Work with Taxes 4Us. Our mission is honest and efficient tax preparation and tax filing. Call us today.