2021 Tax Season: What You Need to Knowadmin
2020 was a terrible year, and most people don’t want to remember it. However, there is one thing from 2020 that you must take care of in 2021; you must file your taxes.
The coronavirus pandemic has brought many changes to the 2021 tax season. Consequently, you must start working on your tax documents while you still have time. Here is a list of the things you need to be aware of as you prepare for the upcoming tax season.
More than 150 million individuals and entities are expected to file their tax returns in 2021. The IRS had moved the beginning of the tax season from its traditional date to February 12th. However, it has not communicated whether it will extend the April 15th deadline.
The government disseminated billions of dollars to Americans in the form of stimulus payments. While many people were happy to receive money from the government, some were afraid that the stimulus payments would increase their taxes in the long term. These fears are unfounded because stimulus payments are not taxed.
If you did not receive your stimulus payment, there could be many reasons that caused that situation. For example, you failed to register in time with the irs.gov non-fillers tool. Nevertheless, your money is still there, and you can claim it during your next tax filing. You will be required to fill a form and answer several questions so that the IRS can determine your eligibility.
Scrutinize Your Financial Records and Tax Documents
The process of filing your tax returns is seamless when you organize your financial records and tax documents. The general practice is to use your tax returns from the previous year as the baseline. Previously reported credits, deductions, and income could help when preparing your documents.
If you don’t have your records from the previous year, you can download one from the IRS portal. On the other hand, your tax consultant may have kept a copy of your last returns.
Register With the IRS Online Portal
The days of transacting with the IRS via mail or phone are behind us. Today, you can access your tax documents provided that you set up an online account with the IRS. Once you have set up the online account, you can view your current payment balances and schedule upcoming payments. Also, the portal provides tax history details.
The IRS online portal gained prominence during the early days of the coronavirus pandemic. March 2020 was the first time that the IRS banned walk-ins. Moreover, the IRS’s central communication center was closed, and its personnel worked from home. As a result, most people decided to file their returns online.
Make Contributions To Your Retirement Account
Your retirement account is affected by how and when you file your tax returns. Anybody who adds funds to their payment accounts on or by April 15th will be eligible for deductions. This also applies to those with SEP accounts.
However, if you want to do tax-free compounding, you should contribute to your retirement account as soon as possible. That will reduce your overall tax bill for the 2020 financial year.
Remote working reached its most significant peak in 2020. While this creates convenience, it may make the tax filing process complicated. People working in states where they don’t reside may have to file their returns in more than one state.
You are supposed to file your returns where you work and where you live. If both are the same, you will only make one filing. However, if your organization is operating in many states, you may have to file several tax returns.
This requirement is not very defined. Each state has its own tax filing rules. Some states won’t even recognize your presence as a non-resident, but you may be required to file tax returns there.
This situation may be a blessing or a curse. In some instances, you may receive higher tax deductions and bonuses. Alternatively, you may have to pay more in taxes.
Select Direct Deposit
The best way to access your refund is if you select direct deposit. You will need to file your returns online and tick the direct deposit option. Once you have done that, the IRS will deposit your tax refund into your account without any charges.
80% of all taxpayers prefer direct deposits when they are looking for refunds. That is because it’s secure, safe, and simple. It’s also used by more than 98% of veterans and Social Security beneficiaries.
Earned Income Tax Credit
Low-to-moderate earners can apply for the Earned Income Tax Credits to enhance their financial benefits. Earned Income Tax Credits lowers the amount of taxes you’ll have to pay. Also, they guarantee you refunds even when you don’t file any tax returns.
Nevertheless, there are strict requirements that govern the Earned Income Tax Credits processes. First, federal tax returns must be filed in time. There are also other income cut-offs. If you are unsure, you should contact one of the IRS assistants to verify your eligibility.
Fortunately, you don’t have to use your 2020 income reports. The IRS allows you to use the 2019 income report when filing your earned income tax credit report.
Take Advantage of Home Office Tax Deductions
Congress and local state legislatures have been relaxing the rules on self-employment. In 2021, you will be able to file your tax returns and take home office deductions if you don’t have a fixed office for your business.
For instance, if administrative and normal business operations happen from your sitting room, you can include that in your tax reports. The same applies to those who meet their clients in their homes.
The world in general and the United States, in particular, underwent a difficult time after the onset of the coronavirus pandemic. Businesses were closed, and people lost their jobs. This makes the 2021 tax filing season very unique. While the tax returns deadline remains on April 15th, 2021, some people will have to file taxes in multiple States. Those who are no longer working will also have to adopt smart filing tactics.
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