Tax Updates for 2021

Does it seem like you just did your taxes? Even though you may have filed your individual return during the summer of last year, your 2020 tax return is due on April 15th! There are lots of changes this year, so let’s go over some of the most important ones.

Higher Standard Deductions

For many filers, taking the standard deduction is a better option that itemizing your deductions. This year filers can enjoy an increase in standard deductions across the board.

  • Single: $12,550
  • Married Filing Jointly: $25,100
  • Head of Household: $18,800
  • Married Filing Separately: $12,550

Everyone’s tax situation is unique. Not sure if you should take the standard deduction or itemize? Get in touch to discuss which option is best for you.

2020 Tax Rates and Brackets

Remember, tax rates are marginal! That means that a single filer would pay 10% on $9,875 of their income, then 12% on the next $30,250, 22% on the following $45,400, etc.

2020 Marginal Tax RatesSingleMarried Filing JointlyHead of HouseholdMarried Filing Separately
37%Over $518,400Over $622,050Over $518,400Over $311,025

Stimulus Checks and Your Taxes

Worried about how your stimulus check will impact your taxes? Breathe easy! Stimulus checks are not considered taxable income! However, it is considered an advance on your tax return, which will need to be reconciled. If you received more in stimulus funds than your refund would be, you’re in luck. You do not need to repay the excess amount.

Charitable Deductions

For those who like to give back – Congress has decided to reward your efforts. Thanks to the CARES Act, you can now deduct up to 100% of your adjusted gross income in qualified charitable donations (if you itemize). If the standard deduction is a better fit for you – the CARES Act enables you to write off up to $300 of your cash charitable contributions.

Paycheck Protection Program (PPP) Loans

Did your business receive a PPP Loan? While the funds you received are not considered part of your taxable income, expenses that you covered with your PPP Loan are not tax deductible if you believe your loan will be forgiven. Losing those deductions may create a large tax bill for some businesses. Don’t get caught by surprise – start planning today! Give us a call to discuss your unique situation. We can help with your PPP Loan forgiveness application too!

Employee Retention Credits – Claim Them Now!

If you own a business with fewer than 500 employees and you suspended operations or lost 50% or more in gross receipts due to the pandemic, you quality for the Employee Retention Credit.  However, you can not have a PPP Loan and take advantage of the Employee Retention Credit. It’s one or the other. If you qualify, you can claim 50% of an employee’s qualified wages paid per quarter (up to $10,000). This credit can be claimed on your quarterly 941, so you don’t have to wait!

Will Unemployment Benefits Impact Your Tax Liability?

To the surprise of many, if you received unemployment benefits they will impact your taxes. Unemployment benefits are considered taxable income. If you filled out a Form W-4V when you began receiving your benefits, estimated tax payments were automatically withheld. If you did not opt into this process, you may owe quite a bit. The pandemic has caused a dramatic increase in unemployment with many first time recipients of unemployment benefits. If that describes you, don’t wait to until it’s too late to learn about your tax liability and make a plan.

Big Changes to Retirement Plans – Do You Need a New Strategy?

The pandemic forced some people to withdraw money from their retirement plans early. Fortunately, the IRS is waiving the 10% tax for withdrawals made before the age of 59 and a half. That does not mean you are off the hook though – these distributions still count as income and are subject to tax at the normal rate, although the IRS is permitting taxes on these funds to be paid back over three years.

For those who were not impacted by the pandemic, there are still many changes. Required minimum distributions for those with IRAs and similar plans will now begin at age 72. If you wish to work into your 70s and beyond, you can continue to make contributions to your IRA as long as you are working. New parents can now withdraw up to $5,000 for the birth or adoption of a child without a tax penalty. There are many more changes that we can’t cover here. Let’s get in touch and make sure that you’re taking advantage of every opportunity!

Take the Next Step. Let’s Talk Today!

Tax preparation is more than filling out a form and checking boxes. You need an experienced accountant on your side who takes the time to understand your unique tax situation. Tortolano & Company goes above and beyond to minimize your tax liability. We never apply a “one-size-fits-all” approach to any client. Give us a call today, and ask us hard questions. We have answers! Whether you’re expecting a child, planning for retirement, starting a business, or simply looking to slash your tax bill, we can help! Don’t wait until the last minute, get started today!