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Tax time: what’s new for tax season 2021
While 2020 is a year that everyone would love to forget, there’s one remnant that’s looming over our heads: taxes. Tax season is here again. Thanks to the pandemic, there are various changes to be aware of before you file—especially if this is your first time filing. The deadline to file is May 17th, which is later than the normal April 15th deadline, but sooner than last year’s July deadline. Regardless, it’ll be here before you know it. File your taxes with confidence—below are seven things to keep in mind when you file your 2020 tax return.
Economic Impact Payments
2018 and 2019 taxpayers were issued Economic Impact Payments, colloquially known as stimulus checks, as part of the CARES Act to relieve COVID-19’s economic effects. However, many people were left out, receiving only partial payment or no payment altogether. If you did not receive the full amount you qualified for, you can claim the Recovery Rebate Credit when you file your 2020 tax return. The Recovery Rebate Credit is for individuals who did not receive Economic Impact Payments or did not receive the full payment. If you file electronically, the tax software you use will help you determine your Recovery Rebate Credit. The Form 1040 and Form 1040-SR instructions can also help determine your eligibility.
Many Americans lost their jobs or were temporarily unemployed after the pandemic shut down most of the country, forcing people to apply for unemployment benefits. For those who received unemployment, they could choose whether or not to have their taxes withheld. Recipients could either have a flat 10% rate withheld from their benefits or forego the option altogether. For those who chose the latter, you either paid quarterly estimated taxes or will pay your taxes when you file your return.
Interest on refunds
In 2020, some taxpayers received up to $18 in interest payments on their federal refund. Refund interest payments are taxable and must be reported when you file your 2020 federal income tax return. The IRS sent Form 1099-INT to anyone who received $10 or more in interest. If you did not receive the form, you must still report your interest income earned. To get your interest-earning amounts, you can check your account statement or contact your financial institution.
Charitable deduction changes
Taxpayers can take standard or itemized deductions. Most taxpayers take the standard deduction, which increased slightly this year—$12,400 if filing single, $18,650 if filing head of household, and $24,800 if filing jointly. This year, taxpayers who do not itemize deductions can take a charitable deduction of up to $300 for cash contributions made to qualifying organizations. This means the deduction lowers your adjusted gross income (AGI), which is your total income minus any deductions already taken, and taxable income—translating into tax savings for you. Cash contributions are donations made by check, credit card, or debit card. Keep in mind that every situation is different as to whether you should take the standard deduction or itemize. For more information on claiming charitable deductions, you can read Publication 526, Charitable Contributions.
Unfortunately, because of the pandemic, many families struggled with medical bills. There is hope—you can deduct any medical expenses above 7.5% of your AGI. For example, your AGI is $50,000, and you incurred $8,000 in medical expenses. You would take $50,000 and multiply that by .075 (7.5%) to get $3,750. In this case, everything above $3,750 would be deductible—meaning you could deduct $4,250. The lower your AGI, the more deductions you’ll receive. Most medical expenses can be deducted unless you funded them with a flexible spending account (FSA) or health savings account (HSA). However, if you wish to deduct any medical expenses, you’ll need to itemize, which takes longer.
If you were self-employed in 2020, there are various deductions you can claim on your tax return, like travel expenses or the home office deduction. The home office deduction covers things like mortgage interest, insurance, utilities, repairs, and depreciation. However, if you, like millions of Americans, worked remotely, you cannot claim these deductions. The Tax Cuts and Jobs Act suspended the business use of home deductions through 2025. Home office deductions are reserved for independent contractors or other self-employed individuals who regularly and exclusively use their home to conduct business and their work. So, employees who receive a paycheck or W-2 from an employer are not eligible to claim the deduction—even if they currently work from home.
Earned Income Tax Credit
While this isn’t new, the Earned Income Tax Credit (EITC) often goes unclaimed. Around 20% of eligible taxpayers don’t claim the benefit or file a return because they don’t realize they’re eligible. The EITC helps low- to middle-income workers and their families receive a tax break. If you qualify, that money earned can reduce the amount you owe or go towards your tax refund. You can determine if you meet requirements by using the IRS’s EITC Assistant.
Remember—if your income is less than $72,000 annually, you’re qualified to file your return for free using the IRS’s Free File Program. Once your return has been accepted by the IRS, you can use the Where’s My Refund tool to track when you’ll receive your refund. April will be here before you know it, so it’s best to allow yourself plenty of time to file to ensure there are no errors. Keep these tips in mind, and tax season will be a breeze.
Five ways to celebrate National Financial Awareness Day
August 14th is National Financial Awareness day—a day dedicated to preparing for your financial future and building financial stability. It’s crucial to take the time to review your finances—sound monetary decisions can make a significant impact in the long run. Today, try to complete one of the items below so you can take control of your finances.
Check your savings
Take a look at your savings account—in the event of an emergency, do you have enough funds to get you through? If not, use today to set goals to ensure you’re saving for the future. Calculate your monthly expenses and develop a plan of action to ensure you have the recommended three to six months’ worth of savings.
Reevaluate your budget
Have you found yourself not sticking to your budget lately? Take the time to reevaluate your spending and make changes where you see fit. Periodically reviewing your budget is a crucial step that is overlooked. Make it a habit to frequently assess your budget and see what should be adjusted.
Brush up on your financial literacy
Financial literacy is key to being confident in the monetary decisions you make, and it can be easy to forget the basics. Take the time today to brush up on your financial literacy. There are dozens of free tools to help, like ACHIEVE, a free financial literacy program from Georgia’s Own. ACHIEVE offers various topics and videos on essentials like owning a home, financial caregiving, planning for retirement, and more.
Take steps to improve your credit
Your credit score is a critical representation of your financial past, present, and future. You need good credit for just about anything, like owning a home, applying for an auto loan, or applying for a credit card—your credit score can even determine the price of your auto insurance. Look at your credit score and see where you can improve. If you don’t know your score, visit the federally authorized site annualcreditreport.com to receive a free copy of your credit report.
Get a head start on taxes
It’s never too early to get a head start on taxes. Begin gathering necessary documents, like receipts, expense records, and donations, then put them in an organized folder, so you have them prepared for when you’re ready to file. Preparing paperwork beforehand will save you time—and sanity—when tax season begins. If you want to take it a step further, you can even organize your tax records from the past few years, so you have those prepared if the IRS ever needs to conduct an audit.
We hope these tips help you take control over your financial future. And, as always, Georgia’s Own is available to help—click here to find more resources to help you make smart monetary decisions.
Six ways to make the most of your tax refund
You’ve finally received your tax refund! While it’s exciting to have some extra cash, it can be tempting to spend it on whatever, whenever—after all, it does seem like free money. However, it’s crucial you use your refund wisely, rather than spending it on frivolous things. Here are some ways you can make the most of your tax refund:
Pay off existing debt
It sounds obvious, but if you have student loan or credit card debt, use your refund to help pay it off. It might not sound fun, but putting money towards paying your debt gets you closer to financial freedom. Interest rates can snowball and make payments seem overwhelming, so any amount you put forward helps. Start by paying off debts with the highest interest, and then trickle down from there. Later on, once you’ve finally eliminated your debt, you’ll be thankful you were responsible and used that refund.
Save it for emergencies
Again, another obvious choice—save your refund! According to CNBC, 30% of households have less than $1,000 saved. That isn’t nearly enough to cover your costs if you were to have an emergency like your car breaking down or any unexpected medical bills. Ideally, you should have three to six months’ worth of living expenses saved. Open a savings account if you don’t have one already, and save your refund. Even if you can’t put away that much, use a portion of your refund—just a little is better than none.
Start home improvements
Have you been dying to give your home some much-needed improvements but had to put your funds elsewhere? Well, now that you have your tax refund, you can start your home renovation plans now! There are dozens of projects you can do for under $1,000—from painting to landscaping, those little improvements can all help your home drastically. Not only will it make you happier, but it will also add value to your home.
Use towards big purchases
Does your child need braces, or are you looking to buy a new car? Maybe even a home? Your tax refund is perfect for offsetting those costs. Use it to save for a down payment on a car or house. Every little bit helps when it comes to these purchases, so make your refund count where it should. Open a high-yield savings account, like a money market savings account, so you can earn the most from your money.
Donate to charity
Earn some good karma—donate part of your refund to charity. It feels nice to give back to the community, and using part of your refund to help your favorite organization is the perfect way to do so. Be sure to save your receipts, too, so you can write off the donation on your taxes next year.
Lastly, if you’ve done all of these things, help yourself! We all need self-care sometimes. Go on the trip of your dreams, or simply treat yourself to a new wardrobe—either way, don’t forget about making sure the most important thing is taken care of: you!
How to file taxes for first timers
It’s tax season, which means now is the time to start thinking about how and when you’re going to file your taxes, so you can secure that refund. According to a TaxAct poll, more than a third of millennials rely on their parents to prepare their taxes. However, doing your taxes without your parents’ help has its advantages—you can better understand your finances, and you’ll know how to file your taxes in the future. Are mom and dad making you bite the bullet and file taxes on your own this year? Not sure where to start? Here are the steps you should take to file your taxes for the first time.
Determine your filing status
The first, and most critical step, is to determine your filing status. Your status defines your filing requirements, deductions, eligibility for credits, and your correct tax. It’s based on your age, marital status, and other factors.
Determining your filing status is vital because it impacts how much you owe the Internal Revenue Service (IRS) or how much of a refund the IRS owes you. If you’re unsure of your status, the IRS has a tool that can help you.
Gather necessary paperwork
You can’t file your taxes unless you have the proper paperwork. You need personal information, like a valid Social Security number, income and receipts, meaning any Social Security benefits or Unemployment Compensation, if applicable, as well as receipts from royalties, partnerships, or trusts.
Also, you need a W-2 form (or forms, if you had multiple employers) and a 1099 form, if eligible—for example, if you had any freelancing opportunities or side gigs. If you’re a college student, you might need a 1098-T form, which should be provided by your school. It includes information you’ll report to claim education credits, like tuition, scholarships or grants, and other related expenses. There are dozens of forms you potentially need, so here is a list of the most commonly used forms.
Decide how you want to prepare
You can prepare your taxes using online software or on your own. There are copious benefits to using online software—it’s very affordable, user-friendly, and fast. When you use online software, you can finish your taxes in as little as 30 minutes. Each software also has various tiers you can pick from based on your necessities and price levels.
Preparing taxes on your own can be beneficial, too. You save money, you can file anytime, and you gain a better comprehension of your finances. However, it leaves room for more error, so be patient and be thorough.
If you earn less than $69,000 per year, you’re eligible for Free File, which enables you to use popular tax software for free. Simply use the Free File Online Lookup Tool at irs.gov, and the eligible programs are listed.
From there, you have two filing choices. You can file electronically, known as e-Filing, or by paper. e-Filing is fast, reliable, and has a faster processing time, allowing you to receive your refund promptly.
Paper filing has its advantages, too. There are fewer security risks because you aren’t entering personal information online, meaning you can avoid the possibility of identity theft. It’s also simple—all you do is fill out a form. However, paper filing has a longer processing time—it could take up to six weeks to receive your refund.
Select a standard deduction or itemized deduction
Deductions are expenses incurred throughout the year that can be applied to your taxes. They lower your taxable income and vary by federal and state level. There are two categories: standard and itemized.
Standard deductions are the most prevalent. The amount varies each year and is based on filing characteristics. Standard deductions are the most popular because the amount is already set, so there is no need to calculate anything.
Itemized deductions are expenses allowed by the IRS that reduce your taxable income. When you itemize on your tax return, you can select from several deductions rather than taking a flat-dollar amount. You can deduct on medical expenses, property taxes, or charitable contributions—just to name a few.
If you’re having difficulty deciding if you want a standard or itemized deduction, you’ll need to do some math. Add up your expenses you wish to itemize. If the value of the expenses you can deduct is more than the standard deduction, then you should itemize. Itemized deductions take more time to prepare, but they could potentially save you money in the long-run. However, you must have proof of your expenses—it’s imperative to keep records and save receipts.
Other important tips
So, now that you have the basics down, it’s essential to keep a few things in mind. First, file only one tax return, no matter how many jobs you’ve held in the last year. Also, be sure your parents aren’t claiming you as a dependent—if you’ve been claimed twice, it could result in an audit by the IRS, meaning they’ll need to verify you’re reporting information correctly and not committing tax fraud.
Lastly, and most importantly, give yourself enough time. When you scramble at the last minute, you could make potential errors that you otherwise would’ve caught. It’s best to start prepping at least two months before the tax deadline of April 15th.
So, go ahead and start filing—that deadline will be here before you know it. Plus, the sooner you get started, the sooner you can score that refund.
Tax Refund Touchdowns
So, you got a tax refund – now what? While you might have morphed into a human version of the “money-mouth face” emoji (🤑), fight the urge to treat yourself. Unless you’re debt free and have a nice chunk of change in your savings and retirement accounts, getting financially fit should be your priority over splurging on big-ticket items.
Here are five ways to use your refund responsibly:
Tackle your debt. If you’re carrying high-interest debt, paying it off should be your top priority. Paying interest sucks, and if you’re carrying a large balance on a credit card but only making the minimum payment each month, you may never feel like you’re getting ahead. Use your tax refund to pay off any debt you have. If your refund doesn’t cover everything, it’s time to figure out a debt-payoff plan.
Save it. More than half of Americans don’t have enough in savings to cover a $1,000 emergency, according to Bankrate. If you’re just starting out, money might be a little tight, making it even harder to build up your savings. Think about tossing your tax refund into your savings account so you’re better prepared for life’s little surprises. If your emergency fund already has enough money to cover at least 3–6 months of expenses, consider setting up another savings account for a specific goal, such as a travel fund or a down payment for a new car.
Donate it. Helping others gives us the warm-and-fuzzies, so why not use your refund for good? When your budget is tight, it can be hard to find extra money throughout the year, so donating the cash from your refund is a perfect opportunity to make a difference. Plus, your charitable donation could be tax-deductible next year.
Spend it (on something you need). The keyword here is need. If you’ve been putting off car repairs or minor medical or dental procedures, your tax refund could help you cover these larger, but necessary, expenses.
Spend it (on something you want). Okay, okay…I know I cautioned against splurging, but if you’ve stuck to your budget, saved, and stayed out of debt all year, you’ve earned the right to buy yourself something nice. Just don’t get carried away, of course!
I didn’t get a huge refund. Did I do something wrong? Nope, not at all! Your tax refund isn’t free money; it’s money you overpaid to the government over the course of the year. If you owe money on your taxes, it means you didn’t pay enough out of each check. Take the time to periodically check your withholding and adjust if necessary (the IRS has a handy calculator on their website that can help you out). Paying attention to your withholding is important for two reasons: 1) if you don’t pay enough from each paycheck over the year, you could face an unexpected bill when you file your taxes, and 2) if you normally get a large refund, you can opt to have less withheld up front—your paychecks will be a little higher, giving you more flexibility each month.
How will the new tax bill affect your bottom line in 2019
Monday, April 15, 2019, is tax day for most of the United States. Fun fact, though, if you live in Maine or Massachusetts, it’s April 17th. That’s because Patriot’s Day is a legal holiday in those states and apparently, you can’t do your taxes and celebrate at the same time.
Logically, the deadline should be moved to Tuesday, April 16th, but to complicate things further, that’s Emancipation Day in Washington, D.C., so the federal government won’t be there to accept them. Voila! Two extra days.
The Tax Cuts and Jobs Act (TCJA)
It seems that each year, there are more changes to the tax code and keeping on top of them can be quite the challenge. If you remember, President Trump signed the Tax Cuts and Jobs Act into law in December 2017. For the most part, the bill didn’t affect individual income taxes until the 2018 tax year, which brings us to today.
The good news about the new plan is that, among other things, it was designed to simplify the tax system. How it will affect your individual return depends on your income, the deductions you take and your filing status. Here’s what you need to know:
Originally, the proposed new tax plan called for a reduction in the number of tax brackets. The final number of brackets remained at seven, but the rates were changed. The new tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. They’re important because they affect the amount of income you receive during the tax year and help calculate the amount of your annual tax bill.
The standard tax deduction for all filers was nearly doubled under the new tax plan, but they’ve also eliminated the personal exemption. For single or married taxpayers who are filing separately, the 2018 standard deduction is now $12,000. If you’re filing a joint return, it’s $24,000 and heads of household qualify for an $18,000 deduction.
Child tax credits
Under the new plan, the child tax credit (CTC) was raised from $1,000 to $2,000 per child under the age of 17, and the qualifying taxpayer income limit for the tax credit was raised to $200,000 (or $400,000 for joint filers). It’s also introduced a new $500 deduction for non-child dependents.
Another beneficial change is that if the CTC reduces your tax liability to zero, you’re now eligible to receive a refund for the credit up to $1,400. The adoption credit remains the same and is worth up to $13,750 per child.
For the tax year 2018 (and retroactive to 2017), you can deduct qualifying medical expenses that exceed 7.5% of your adjusted gross income (AGI). But, beginning January 1, 2019, you may only deduct the amount of the total unreimbursed allowable medical care expenses that exceed 10% of your AGI. Also, beginning in 2019, individuals who choose to go without healthcare coverage will not be subject to any tax penalties.
Mortgage interest deductions
Homeowners can still deduct their mortgage interest payments, but for 2018 and beyond, the new limit was reduced to $750,000 from $1 million. If you’re married and filing separately, the deductible mortgage interest limit is $375,000. Also, the interest deduction on home-equity loans has been eliminated.
In previous tax years, taxpayers were able to deduct state and local income and property and general sales tax payments on their federal tax returns. As a result of the new tax law, your total state and local tax (SALT) deductions are now capped at $10,000.
Other deductions that are going away
Aside from the changes we mentioned above, here are some other deductions will be no longer apply to your 2018 tax filing:
- Casualty and theft losses (except those attributable to a federally declared disaster)
- Other miscellaneous deductions previously subject to the 2% AGI cap
- Tax preparation expenses
- Unreimbursed employee expenses
- Moving expenses
- Alimony payments
- Certain school donations
When President Trump signed the tax reform bill into law, it made major revisions to the tax code. In fact, the bill represents the most significant tax changes in more than 30 years. For the comprehensive list of changes, click here.