Essential tax tips for 2021

Essential tax tips for 2021

January 6, 2021

The coronavirus pandemic has upended many aspects of life for people throughout the U.S. – and tax season may also be an unusual one for some filers.

2020 tax returns are due by Thursday, April 15, 2021.

Many workers may be faced, however, with different circumstances this year if they opted to work remotely in a state other than their typical, primary residence.

And those who lost their jobs may also need to adjust their filing strategies.

Here are some tips for the coming tax season:

Unemployment benefits

Many Americans lost their jobs either permanently, or temporarily, during the pandemic as businesses were forced to close in an attempt to stem the spread of the virus.

But there may be tax repercussions for people who received unemployment benefits, which were enhanced under the CARES Act and will be boosted again per recently passed legislation.

The IRS requires people to report income received in the form of unemployment – in fact, failure to do so could result in taxes owed to the IRS, and failure to pay could result in potential penalties and interest as well.

Recipients may not know that they have to request to have taxes withheld from this money.

If you do not have taxes withheld from your checks, you may have to make quarterly estimated payments to the IRS. These payments are typically required of individuals who expect to owe tax of $1,000 or more when their return is filed.

Remote working

Another big change is that people, specifically those who have been working remotely, may have to file multiple state income tax returns this year.

Typically, a worker is required to file a return in his or her state of residence as well as where he or she works, if those states are different.

There are different rules in every state governing at what point a nonresident is required to pay taxes in the state.

Whether some people owe more in taxes next year will depend on how high the state taxes are where an individual is currently working vs. their home state.

In many cases, an individual can receive a credit in the resident state for taxes paid to the nonresident state. But if taxes are higher in the nonresident state, a worker could end up owing a little extra.

Charitable deductions

The CARES Act, effectuated in March, loosened restrictions on deductions for charitable giving – meaning that more people may be eligible for a tax break this year.

There is an “above-the-line” deduction of as much as $300 for individuals who claim the standard deduction.

And for individuals who itemize and make cash contributions in 2020, taxpayers can deduct up to 100% of adjusted gross income.

Both of those policies are conditional upon contributions in cash.

Stimulus checks/PPP loans

Money sent to American households in the form of direct payments, $1,200 under the CARES Act and $600 per the most recent legislation passed by lawmakers, does not count as taxable income for 2020.

Business owners who received loans from the popular Paycheck Protection Program need to be aware that they are not eligible to claim regular deductions if expenses were paid for using money that was forgiven under the program. That’s according to IRS guidance issued in the spring.

Lawmakers are, however, looking to change this provision for those business owners who might be eligible for another loan in the upcoming round.

LMC is here to help

Have a specific tax question or need help this tax season? Louis Mamo & Company has the personnel in place to help you with all of your personal and business tax needs. Please contact us today to discuss your specific tax situation and allow us to provide the solution you need.

(Sources: Fox Business News and the Internal Revenue Service).