{"id":1450,"date":"2021-03-10T20:39:03","date_gmt":"2021-03-10T20:39:03","guid":{"rendered":"https:\/\/goodstuffconnections.com\/?p=1450"},"modified":"2021-03-10T20:39:07","modified_gmt":"2021-03-10T20:39:07","slug":"tax-season-2021-what-you-need-to-know","status":"publish","type":"post","link":"https:\/\/goodstuffconnections.com\/index.php\/2021\/03\/10\/tax-season-2021-what-you-need-to-know\/","title":{"rendered":"Tax Season 2021: What You Need to Know"},"content":{"rendered":"\n<p>If you\u2019re like us, you probably never want to think about 2020 again. But there is&nbsp;<em>one<\/em>&nbsp;lingering ghost from last year that you need to get rid of before you can truly move on for good\u2014and that\u2019s your 2020 taxes.<\/p>\n\n\n\n<p>Thanks to the coronavirus (among other things), &nbsp;<a href=\"https:\/\/www.daveramsey.com\/blog\/coronavirus-and-taxes\">a lot has changed for the 2021 tax season<\/a>. That\u2019s why you need to start thinking about your tax situation now while you still have time on your side. We want you to be prepared to tackle your taxes before they tackle&nbsp;<em>you.<\/em>&nbsp;And to do that, we\u2019re going to dig into what\u2019s new for this tax season and what\u2019s staying the same.<\/p>\n\n\n\n<p>First, here are the main things you need to know right off the bat for the 2021 tax season:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Tax Day is&nbsp;<strong>Thursday, April 15, 2021<\/strong>. You&nbsp;<em>must&nbsp;<\/em>file your 2020 tax returns by this date!&nbsp;<\/li><li>The&nbsp;<strong>standard deduction<\/strong>&nbsp;for 2020 increased to&nbsp;<strong>$12,400<\/strong>&nbsp;for single filers and&nbsp;<strong>$24,800<\/strong>&nbsp;for married couples filing jointly.&nbsp;&nbsp;<\/li><li>Income<strong>&nbsp;tax brackets<\/strong>&nbsp;increased in 2020 to account for inflation.&nbsp;<\/li><\/ul>\n\n\n\n<p>But that\u2019s just scratching the surface! Let\u2019s break down the details so you can file your taxes with confidence this year.<\/p>\n\n\n\n<p>Income Brackets and Rates for 2021 Tax Season<\/p>\n\n\n\n<p>Here\u2019s a refresher on how income brackets and tax rates work: Your&nbsp;<strong><em>tax rate<\/em><\/strong><em>&nbsp;<\/em>(the percentages of your income that you pay in taxes) is based on what&nbsp;<strong><em>tax bracket<\/em><\/strong><strong>&nbsp;<\/strong>(income range) you\u2019re in<\/p>\n\n\n\n<p>For the 2020 tax year, the tax&nbsp;<em>rates<\/em>&nbsp;are the same\u2014but there are some&nbsp;<em>slight&nbsp;<\/em>changes to the brackets. Basically, the brackets have been adjusted by a few hundred dollars from 2019 to account for inflation.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>2020&nbsp;Marginal Income Tax Rates and Brackets<\/td><\/tr><tr><td><strong>2020 Marginal Tax Rates<\/strong><\/td><td><strong>Single Tax Bracket<\/strong><\/td><td><strong>Married Filing Jointly Tax Bracket<\/strong><\/td><td><strong>Head of Household Tax Bracket<\/strong><\/td><td><strong>Married Filing Separately Tax Bracket<\/strong><\/td><\/tr><tr><td>10%<\/td><td>$0\u20139,875<\/td><td>$0\u201319,750<\/td><td>$0\u201314,100<\/td><td>$0\u20139,875<\/td><\/tr><tr><td>12%<\/td><td>$9,875\u201340,125<\/td><td>$19,750\u201380,250<\/td><td>$14,100\u201353,700<\/td><td>$9,875\u201340,125<\/td><\/tr><tr><td>22%<\/td><td>$40,125\u201385,525<\/td><td>$80,250\u2013171,050<\/td><td>$53,700\u201385,500<\/td><td>$40,125\u201385,525<\/td><\/tr><tr><td>24%<\/td><td>$85,525\u2013163,300<\/td><td>$171,050\u2013326,600<\/td><td>$85,500\u2013163,300<\/td><td>$85,525\u2013163,300<\/td><\/tr><tr><td>32%<\/td><td>$163,300\u2013207,350<\/td><td>$326,600\u2013414,700<\/td><td>$163,300\u2013207,350<\/td><td>$163,300\u2013207,350<\/td><\/tr><tr><td>35%<\/td><td>$207,350\u2013518,400<\/td><td>$414,700\u2013622,050<\/td><td>$207,350\u2013518,400<\/td><td>$207,350\u2013311,025<\/td><\/tr><tr><td>37%<\/td><td>Over $518,400<\/td><td>Over $622,050<\/td><td>Over $518,400<\/td><td>Over $311,025<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>Higher Standard Deductions in 2020<\/p>\n\n\n\n<p>When you pay taxes, you have the option of taking the standard deduction or itemizing your deductions. If you itemize, you calculate your deductions one by one. Itemizing is more of a hassle, but it\u2019s worth it if your itemized deductions exceed the amount of the standard deduction.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>Standard Deduction<\/td><\/tr><tr><td><strong>Filing Status<\/strong><\/td><td><strong>2019<\/strong><\/td><td><strong>2020<\/strong><\/td><\/tr><tr><td>Single<\/td><td>$12,200<\/td><td><strong>$12,400<\/strong><\/td><\/tr><tr><td>Married Filing Jointly<\/td><td>$24,400<\/td><td><strong>$24,800<\/strong><\/td><\/tr><tr><td>Married Filing Separately<\/td><td>$12,200<\/td><td><strong>$12,400<\/strong><\/td><\/tr><tr><td>Head of Household<\/td><td>$18,350<\/td><td><strong>$18,650<\/strong><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>Keep in mind that every situation is different as far as whether you should take the standard deduction or whether you should itemize.&nbsp;Talk to a tax pro&nbsp;to figure out what&#8217;s best for you.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Tax Deductions and Credits to Consider for Tax Season 2021<\/h2>\n\n\n\n<p>The closest things to \u201cmagic words\u201d when it comes to taxes are&nbsp;<em>deductions<\/em>&nbsp;and&nbsp;<em>credits<\/em>. Both help you keep more money in your pocket instead of Uncle Sam\u2019s, but they do so in slightly different ways!<\/p>\n\n\n\n<p><a href=\"https:\/\/www.daveramsey.com\/blog\/what-is-a-tax-deduction\">Tax deductions<\/a><em>&nbsp;<\/em>help lower how much of your income is subject to federal income taxes. Some deductions are only available if you choose to itemize your deductions, while others are still available even if you decide to take the standard deduction.&nbsp;<\/p>\n\n\n\n<p>Meanwhile,&nbsp;<a href=\"https:\/\/www.daveramsey.com\/blog\/what-are-tax-credits\">tax credits<\/a><em>&nbsp;<\/em>lower your actual tax bill dollar for dollar, and there are two types of credits:&nbsp;<em>refundable<\/em>&nbsp;and&nbsp;<em>nonrefundable<\/em>. If a credit is greater than the amount you owe and it\u2019s a refundable credit, the difference is paid to you as a refund. Score! But if it\u2019s a nonrefundable credit, your tax bill will be reduced to zero, but you won\u2019t get a refund. That\u2019s still great!<\/p>\n\n\n\n<p>Here are some deductions and credits you might be able to claim on your 2020 tax return:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">1. Charitable Deductions<\/h3>\n\n\n\n<p>If you like to give like no one else, we have some great news!<strong>&nbsp;<\/strong>In an effort to encourage more charitable giving, the CARES Act allows you to deduct up to&nbsp;<strong>100%&nbsp;<\/strong>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.<\/p>\n\n\n\n<p>What if you\u2019re taking the standard deduction? Well, the CARES Act added a new \u201cabove-the-line\u201d deduction that will help you write off up to $300 of charitable contributions you made in cash.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">2. Medical Deductions&nbsp;<\/h3>\n\n\n\n<p>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.<\/p>\n\n\n\n<p>You can&nbsp;<a href=\"https:\/\/www.daveramsey.com\/blog\/can-I-deduct-medical-expenses\">deduct any medical expenses<\/a>&nbsp;above&nbsp;<strong>7.5%<\/strong>&nbsp;of your adjusted gross income (AGI), which is your total income minus other deductions you have already taken.<a href=\"https:\/\/www.irs.gov\/taxtopics\/tc502\"><sup>5<\/sup><\/a>&nbsp;For example, if your AGI was $100,000, you can deduct out-of-pocket medical expenses&nbsp;<em>above<\/em>&nbsp;$7,500 in 2020. But you have to itemize your deductions in order to write off those expenses on your tax return.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">3. Business Deductions<\/h3>\n\n\n\n<p><a href=\"https:\/\/www.daveramsey.com\/blog\/small-business-tax-deductions\">If you\u2019re self-employed<\/a>, there are a bunch of deductions you can claim on your tax return\u2014including travel expenses and the home office deduction if you use a part of your home to conduct business.<\/p>\n\n\n\n<p>But if you\u2019re one of the millions of workers who were sent home to work remotely, you won\u2019t be able to claim the home office deduction since it\u2019s reserved for self-employed individuals&nbsp;<em>only.&nbsp;<\/em>Sorry!<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">4. Earned Income Tax Credit<\/h3>\n\n\n\n<p>The EITC is a refundable credit designed to help out low- and middle-income workers (workers earning up to&nbsp;<strong>$56,844<\/strong>&nbsp;during the 2020 tax year might be eligible).<a href=\"https:\/\/www.irs.gov\/credits-deductions\/individuals\/earned-income-tax-credit\/earned-income-tax-credit-income-limits-and-maximum-credit-amounts\"><sup>7<\/sup><\/a>&nbsp;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\u2019s a crazy stat: About one out of five taxpayers who are eligible either don\u2019t claim the benefit on their taxes or don\u2019t file a tax return at all.<a href=\"https:\/\/www.commerce.wa.gov\/news-releases\/millions-of-dollars-in-earned-income-tax-credits-go-unclaimed-each-year-is-some-of-it-yours-2\/\"><sup>8<\/sup><\/a>&nbsp;Don\u2019t let that be you!<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">5. Child Tax Credit<\/h3>\n\n\n\n<p>Got kids? Families&nbsp;can<strong>&nbsp;claim up to $2,000&nbsp;<\/strong>per qualified child&nbsp;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.<\/p>\n\n\n\n<p>And there are&nbsp;<a href=\"https:\/\/www.daveramsey.com\/blog\/tax-breaks-for-kids\">plenty of other deductions<\/a>&nbsp;and credits that might be up for grabs depending on your situation! If you don\u2019t want to miss out on any tax savings, you\u2019ll want to work with a tax advisor who can make sure you\u2019re not leaving any deductions or credits on the table.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">The Coronavirus and Your Taxes<\/h2>\n\n\n\n<p>Oh, so you thought you were done with the coronavirus now that it\u2019s 2021? Unfortunately, the coronavirus (and the government\u2019s response to it) has created a ripple effect that will be felt when you sit down to file your taxes for last year. Here are some things to keep in mind:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Stimulus Checks<\/h3>\n\n\n\n<p>As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act\u2019s $2 trillion relief package, the government sent up to $1,200 in the form of a stimulus check to millions of Americans shortly after the pandemic shut most of the country down.<\/p>\n\n\n\n<p>The good news is your stimulus check&nbsp;<strong>will&nbsp;<\/strong><em><strong>not&nbsp;<\/strong><\/em><strong>count<\/strong>&nbsp;as taxable income. Instead, it\u2019s being treated like a&nbsp;<a href=\"https:\/\/www.daveramsey.com\/blog\/what-are-tax-credits\">refundable tax credit<\/a>&nbsp;for 2020. Translation: Your stimulus check is sort of like an advance on money you would have received anyway as part of your tax refund in 2021.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Paycheck Protection Program (PPP) Loans<\/h3>\n\n\n\n<p>The CARES Act also tried to help struggling small business owners stay afloat by offering them Paycheck Protection Program (PPP) loans. As long as these loans were used on certain business expenses\u2014payroll, rent or interest on mortgage payments, and utilities, to name a few\u2014these loans were designed to be \u201cforgiven.\u201d<\/p>\n\n\n\n<p>But heads up, small business owners: The IRS says that any expenses you paid with money from those PPP loans&nbsp;<em>cannot&nbsp;<\/em>be deducted from your taxable income.&nbsp;Plus, you\u2019ll have to get your loan forgiveness application approved by the Small Business Administration before you\u2019re off the hook for the amount you borrowed. But since the SBA is processing the applications for $525 billion in loans given to 5.2 million borrowers at the speed of a sloth wearing ankle weights, we don\u2019t recommend holding your breath.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Unemployment Benefits<\/h3>\n\n\n\n<p>Many Americans found themselves out of work (at least temporarily) after the pandemic shut down a large part of the economy and turned to unemployment insurance for help. Those who received unemployment benefits&nbsp;<strong>will need to pay income taxes&nbsp;<\/strong>on that money.<\/p>\n\n\n\n<p>If you chose&nbsp;<em>not&nbsp;<\/em>to have taxes withheld from your benefits when you signed up, then you\u2019ll either have to&nbsp;<a href=\"https:\/\/www.daveramsey.com\/blog\/quarterly-taxes\">pay quarterly estimated taxes<\/a>&nbsp;or set aside enough money from your unemployment benefits to pay your taxes come Tax Day.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Educational Expenses: 529 Plans and ESAs&nbsp;<\/h3>\n\n\n\n<p>Any money you take out of a 529 plan or Educational Savings Account (ESA)&nbsp;<em>must&nbsp;<\/em>be used for qualified educational expenses in order to be tax-free. Makes sense. But a lot of schools went remote or cancelled classes this year\u2014which means your college might have refunded some or all of your 529 or ESA money. If that\u2019s the case, you have 60 days to put the money back in the account or use it to cover other educational expenses. If you didn\u2019t, you might have to pay income taxes and a withdrawal penalty.<\/p>\n\n\n\n<p>There are also a couple of new ways you can use 529 plans in 2020 without having to pay any taxes. First, you can now&nbsp;<a href=\"https:\/\/www.daveramsey.com\/blog\/what-is-a-529-plan\">use 529 plans<\/a>&nbsp;to pay for the costs of certain apprenticeship programs\u2014including fees, books and supplies. And second, you can also use money from a 529 plan to pay off up to $10,000 in student loan debt (that\u2019s $10,000&nbsp;<em>total\u2014<\/em>not annually) without having to pay any penalties or taxes.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Retirement Plans: 401(k)s, IRAs and More<\/h2>\n\n\n\n<p>There were&nbsp;<em>a lot<\/em>&nbsp;of changes to retirement plans in 2020\u2014and some of those changes could impact your tax bill this year. Let\u2019s tackle each of those major changes:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The CARES Act allows folks&nbsp;<strong>under age 59 1\/2<\/strong>&nbsp;to take up to $100,000 out of their&nbsp;<strong>401(k)s and IRAs<\/strong>&nbsp;up until the end of 2020 without having to pay an early withdrawal penalty.&nbsp;But first, taking money out of your retirement accounts before retirement is a&nbsp;<em>terrible&nbsp;<\/em>idea\u2014penalty or not. Second, the money you take out of tax-deferred retirement accounts like a traditional 401(k) or IRA will be taxed as ordinary income, so get ready to pay taxes on any withdrawals you make.&nbsp;<\/li><li>If you own a traditional IRA, you&nbsp;<em>have<\/em>&nbsp;to take money out of your account once you reach a certain age. Those withdrawals are called&nbsp;<strong>required minimum distributions (RMDs)<\/strong>. The good news is the SECURE Act pushed back the age for RMDs from traditional IRAs from 70 1\/2 to 72 (if your 70th birthday was July 1, 2019 or later).&nbsp;On top of that, the CARES Act allows seniors to skip RMDs altogether in 2020 without penalty. That\u2019s huge, because it could lead to significant tax savings for retirees with those accounts since the money that\u2019s taken out of a traditional IRA counts as taxable income.<\/li><li>The SECURE Act also allows owners of&nbsp;<strong>traditional IRAs<\/strong>&nbsp;to keep putting money in their accounts&nbsp;<strong>past age 70 1\/2<\/strong>&nbsp;starting in 2020.&nbsp;Since the money you put into a traditional IRA is tax deductible, you could lower how much of your income is taxed this year. Just remember: You will have to pay taxes on that money whenever you take it out.<\/li><\/ul>\n\n\n\n<p>One last thing: If you&nbsp;<em>did&nbsp;<\/em>take some money out of a 401(k) or traditional IRA and you\u2019re facing a huge tax bill, don\u2019t panic! You have three years to put those funds back and get a refund on any taxes you paid&nbsp;on that money.&nbsp;And more importantly, it\u2019ll help you<em>&nbsp;<\/em>get your retirement savings back on track. It\u2019s probably a good idea to&nbsp;<a href=\"https:\/\/www.daveramsey.com\/smartvestor\">reach out to an investment professional<\/a>&nbsp;who can walk you through the process.<\/p>\n\n\n\n<p>\u00a9 Lampo Licensing, LLC. All rights reserved.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>If you\u2019re like us, you probably never want to think about 2020 again. But there is&nbsp;one&nbsp;lingering ghost from last year that you need to get&hellip; <\/p>\n","protected":false},"author":3,"featured_media":1444,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"footnotes":""},"categories":[5,56,7],"tags":[],"class_list":["post-1450","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-life","category-money","category-popular"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/goodstuffconnections.com\/index.php\/wp-json\/wp\/v2\/posts\/1450","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/goodstuffconnections.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/goodstuffconnections.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/goodstuffconnections.com\/index.php\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/goodstuffconnections.com\/index.php\/wp-json\/wp\/v2\/comments?post=1450"}],"version-history":[{"count":1,"href":"https:\/\/goodstuffconnections.com\/index.php\/wp-json\/wp\/v2\/posts\/1450\/revisions"}],"predecessor-version":[{"id":1451,"href":"https:\/\/goodstuffconnections.com\/index.php\/wp-json\/wp\/v2\/posts\/1450\/revisions\/1451"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/goodstuffconnections.com\/index.php\/wp-json\/wp\/v2\/media\/1444"}],"wp:attachment":[{"href":"https:\/\/goodstuffconnections.com\/index.php\/wp-json\/wp\/v2\/media?parent=1450"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/goodstuffconnections.com\/index.php\/wp-json\/wp\/v2\/categories?post=1450"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/goodstuffconnections.com\/index.php\/wp-json\/wp\/v2\/tags?post=1450"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}