The top 5 Life Events that can change your Tax Schedule.

by | Dec 13, 2020 | 2021 Tax Returns, Tax Planning, Tax Preparation, Taxtips

The top 5 Life Events that can change your Tax Schedule.

The most important phases of our lives have a great impact on our finances which can be more than we expected at times. You are purchasing a new house or you are becoming a parent, these life events are going to have an impact on your finances definitely.

So, let us have a look at those major life events which can have an impact on your Tax Schedule.

Marriage

When it is about your marriage and your taxes, it is necessary to ensure that the name with which you are filing your tax return must be the same as that of the name in your Social Security Card. In case your address has been changed then it can be changed at the time of your tax return filing. You would also have to make a choice of either married and filing returns jointly or married and filing returns separately.

Becoming parents

If you are becoming parents, then it is also going to have a great impact on your finances. This may be the case if you are having your own child or if you are adopting a kid. If you are going to have a new member in your family then the first and foremost important thing which must be kept in mind is the Social Security Number of the new child. By this, you would be able to claim your child on your income tax return in the next year. This would include your ability of taking the advantage of the federal child tax credit and the deductions that can be availed under the qualified child care expenditure. If you are adopting a kid, you would receive additional credits which would also include adoption charges, court fees, and all other necessary expenses related to transportation.

Purchase of a new house

If you have not started the itemizing of your tax returns, this is the ideal time to do so. There are a large number of new deductions available which would include private mortgage insurance, taxes related to real estate, and qualified home mortgage insurance. You can obtain a large number of benefits from Residential Energy Credits. In case, you have purchased a new water heater but it was expensive but you can use it in the form of savings in the future.

Demise of spouse

This is quite an unfortunate situation and you may not like to discuss it much. But, this situation would arise and you must be well-prepared for such a situation. Firstly, you must be qualifying as a widow or a widower and you should claim this status within a period of two years from the death of your spouse. The qualifying widows or widowers can avail themselves the same standard deduction as that of those Americans who are married and are filing their tax returns jointly.

Change in job

It is quite a well-known fact that a large amount is withdrawn from the paychecks of the taxpayers every year. Due to this, many American taxpayers get a huge amount of tax refund after filing their tax returns. If you obtain a good amount of tax refund it would appear quite attractive, but you would most prefer to have that amount with yourself throughout the year rather than waiting to obtain the refund at the year-end. So, if you have had a change in the job very recently then this is the best moment when you can make adjustments to your Form W-4 and have complete control of the tax scenario for filing your tax returns the next time. You should keep in mind that if you have a higher withholding it would increase your refund but your paycheck amount would be less. But, if withholding is less; you would be able to access your funds whenever the need arises.

Conclusion

So, you must always keep the tax implications in your mind if you have made any changes or are planning for making any changes in the near future. You must keep in mind the planned as well as the unexpected events of your life to plan your taxes accordingly and avail yourself of the benefits too.

Top 8 things-to-do now to make tax filing easier in 2021.

by | Dec 12, 2020 | 2021 Tax Returns, Blog

Top 8 things-to-do now to make tax filing easier in 2021. 

The IRS has been encouraging taxpayers lately to file their tax returns for 2021 in a very easier and convenient manner without any errors. The IRS has given a large series of reminders to the taxpayers about the upcoming tax filing and the steps which must be taken for filing tax returns in an error-free manner.

The IRS has made a special page available on the IRS.gov website which gives taxpayers the easy steps for making federal tax filing much easier for the year 2021.

Let us check out the important 8 things to do now for making federal tax return filing much easier for the taxpayers in 2021.

  1. Usually, most of the income is taxable and so it is necessary for the taxpayers to collect their income documents properly. These income documents can be the Form W-2 obtained from their employers, Form 1099 obtained from banks, and the records of virtual currencies.  These incomes can also include unemployment income, refund interest, and any other income which has been obtained from the gig economy.
  2. During the beginning period of 2020, the taxpayers might receive the Form 1099-NEC, Nonemployee Compensation other than the Form 1099-MISC if they have offered any kind of services and have received the payment for that.
  3. The taxpayers must also need Notice 1444, Economic Impact Payment which would depict the amount of payment they have received during the year 2020. This amount depicting the Economic Impact Payment would be helpful in the calculation of the Recovery Rebate Credit for which they might be eligible while filing the Federal tax return in 2021. Some of the taxpayers who do not qualify for receiving the Economic Impact Payment in the year 2020 might be qualifying for obtaining the Recovery Rebate Credit while filing their taxes for the year 2020 in the tax year 2021.
  4. Taxpayers must ensure that any address changes must be updated with the IRS. Also, any legal name change should be notified to the Social Security Administration for avoiding any kind of delay in the federal tax processing process.
  5. Those taxpayers who have their Individual Tax Identification Number (ITIN) must ensure that the ITIN has not expired yet. If the ITIN of a taxpayer has not been used on a federal tax return for at least once in the last three years then it would expire by 31st December 2020.
  6. If the ITIN of a taxpayer has expired, then the IRS suggests the taxpayer’s submission of Form W-7. The application for IRS Individual Taxpayer Identification Number can be used for the renewal of the ITIN. If taxpayers have not renewed their ITIN before filing their tax returns might have to face the consequences of delayed tax refunds and can also result in ineligibility for availing some types of tax credit.
  7. The Tax Withholding Estimator is a tool that has been designed by the IRS that would help in the determination of the correct tax amount which can be deductible from the paychecks of the taxpayers. The Tax Withholding Estimator can also help in the determination of whether any adjustments into withholding is necessary or not.  If any changes into the Withholding are necessary then it can be done by submission of a new Form W-4 to the employer.
  8. If a taxpayer is receiving any form of income that is non-wage income such as Self-employment Income, Investment Income, Social Security Benefits which is taxable, etc. then the taxpayer must make estimated tax payments in a quarterly manner. 

Conclusion 

So, the time for filing tax returns is running out and the taxpayers must be prepared enough to complete tax filing in time. These major 8 things if kept in mind can be helpful in making tax filing easier and on time without much hassle.

 

 

The top 10 Tax Tips for the Year-End to make the New Year a big success

by | Dec 8, 2020 | 2021 Tax Returns, Blog, Tax Planning

The top 10 Tax Tips for the Year-End to make the New Year a big success.

The year 2020 is about to end and it is the best time to make some very smart decisions related to taxes. These smart moves can be helpful in an increase in your tax refund and can also lower your taxes to be paid.

Let us have a look at some of the tax tips which would be helpful in getting your finances organized for saving more money during tax time.

  • Accelerate your deductions and income deferment. 

In general, there are a large number of tax deductions associated with a particular year. If you own a home, you would have a mortgage interest deduction and in case of making any additional mortgage payment on 31st December then you would have the eligibility to claim the additional interest that has been paid as a deduction.

 By this, you would be able to avail the benefit of tax deduction instantly rather than by waiting for a period of 12 months to pay your taxes in the next year. However, before you use this tax strategy you must keep in mind that as per the tax reforms if you have bought a new house after 15th December 2017 you would be able to deduct the interest on a home loan which is up to $750,000 and not $1,000,000 for those who purchased the house before that date. 

  • Bonus deferment. 

In case, you are about to obtain a bonus at the end of the year the extra money might push you into another tax bracket thus, increasing your taxes owed. If you would be able to defer your bonus until the beginning of the next year, you can avoid your tax payment while filing taxes for 2020.  

  • Donate for charity. 

Christmas and New Year time is the best time when you can use the unnecessary items in your closet for helping those who are the needy. By this, you can also reap the benefits of tax deductions for the donations made to a qualified charitable organization. These donations can be monetary as well as non-cash donations and would be helpful in tax deduction if you are itemizing your tax deduction.

 Under the provisions of the CARES Act, even if you are not itemizing and claiming your Standard Deduction you can still avail the benefit of a new charitable deduction up to $300 on the taxes you owe for 2020 for any donation you have made towards a 501(c) (3) organization. Moreover, by the CARES Act, there would be a temporary removal of the limit that has been placed on the number of cash contributions that you can make if you are itemizing your deductions. 

  • Retirement plans.

Another method by which you would be able to decrease your income that would be taxed is by making some contribution to your retirement account. Even if you are making a contribution to a traditional IRA or a 401(k) plan then also you would be able to reduce your taxable income. In case, you are self-employed and making contributions to a SEP IRA you can still contribute up to less than 25% of your total income obtained from self-employment income or a total of $57,000 for the year 2020. 

  • Finance Courses. 

You can also take some finance courses or training for improvement of your skills on finances. This would be helpful in reducing your taxes and also increasing your tax refund. 

  • FSA. 

In case you have an FSA and there is money left out in your FSA then you can use the money left for some other useful activities. These useful activities can be a doctor’s visit or any other important expense which must be done immediately. 

  • Additional Dependent Credit. 

There can be some other additional dependent credit which can be availed by you in case you qualify for a new dependent credit i.e. “Other Dependent Credit” which would be up to $500.  This can be helpful in reducing the taxes you owe approximately by $500. 

  • Form W-4. 

In case, you have not had the expected outcome for the year 2019 because of the changes in law or due to changes like becoming a parent, losing your job, having an increase or decrease in pay, or getting a new job then the amount which would be withheld from your paycheck can be corrected by refilling the Form W-4. 

  • Buy and Sell Low. 

You can sell your investments that are causing loss to offset the losses caused against the gains obtained. In case, your losses are more than your gains you can apply for a tax deduction of $3000 against your income. Any other income which would be additional can be passed on to the next year. 

  • Gather the receipts associated with the taxes of the home property. 

You can be eligible for the deduction of state and local property income or sales tax up to an amount of $10,000. These taxes were completely deductible in the past.

Top things to remember during the holidays & as the 2021 tax season approaches.

by | Dec 5, 2020 | 2021 Tax Returns, Blog

Top things to remember during the holidays & as the 2021 tax season approaches.

 The current season is a combination of the holiday shopping season, the upcoming tax season along the concerns related to coronavirus.  The Internal Revenue Service (IRS) and the Security Summit partners have jointly issued warnings to the taxpayers as well as the tax professionals to be very much aware of the tax scams and any other identity theft schemes by criminals.

The IRS and the other State Tax Agencies have opened up the National Tax Security Awareness Week. This coincides with Cyber Monday which is the start of the holiday shopping season. The combination of the holiday shopping season and the tax season along with the current trend of working remotely due to coronavirus has made the necessity for online security.

Common people can stop being prey to online thefts and scams if certain simple steps are taken for the protection of tax and sensitive financial data. The IRS, Tax agencies of the States, and the country’s tax industry are together functioning as the Security Summit which indicates the beginning of the 5th Annual National Tax Security Awareness Week which provides security tips.

Let us have a look at some of the basic steps which everyone must remember as the holidays and tax season approaches.

  1. Common people should never forget to use security software for their computers and cell phones. They must keep the software updated as well.
  2. The antivirus in your device must have the basic feature of stopping the malware and also a firewall is present for intrusion prevention.
  3. There are a large number of phishing scams occurring every day which would include any kind of imposter emails or calls. This is one of the best ways by which common people can avoid tax scams is by not opening any email attachments or links that are present in suspicious emails. This year with the Economic Impact Payment being incorporated due to the coronavirus scams and frauds are going to be a common occurrence.
  4. For online accounts, you must use strong and unique passwords. The account holders can use Password Manager or use such words/phrases which can be easily remembered.
  5. Whenever possible, people must use multi-factor authentication and authorization. Various email providers and other social media websites are offering this feature which is very helpful for getting protected against hacking.
  6. If online shopping is being done, it should be done from a secured site whose address begins with “HTTPS” where S denotes Secure Communication while using a communication network.  Moreover, a padlock icon should be present in the window of the browse for security.
  7. As a necessity for security, avoiding shopping from public places like malls where the Wi-Fi is unsecured.
  8. The common people should ensure that their Wi-Fi at home is also secured with the help of a password. When more homes are connected to the web, it becomes important to have a secured system.
  9. It is necessary to create a backup for your files on the computer and mobile phones. External hard drive or cloud service can be a very good option for copying data from either computers or phones thus, providing a good place for recovery of important financial data.
  10. Due to the current scenario of the corona, most Americans are working from home. It is necessary for the creation of a Virtual Private Network (VPN) which would help in connecting securely to the workplace.

 Apart from these areas where security threats are a common scenario, another area that can be susceptible to security risk is mobile phones. Nowadays, those using smartphones are more susceptible to security risks as they can open a scam email using their phone more promptly rather than using their computers.  Since mobile phones are being used for various purposes these days, it is necessary to ensure that phones and tablets are secure means.

 Common people must always remember that the IRS would never call any person or send an email about Economic Impact Payment or any other tax refunds. The IRS would also never call about any threats of jail or legal complications in case of non-payment of taxes.  If any such call, email, or text is received then it is a scam.

 The Federal Bureau of Investigation has issued several warnings about frauds or other scams related to the pandemic COVID-19. These warnings are mainly about the schemes associated with taxes, healthcare fraud, testing of anti-body, cryptocurrency fraud, etc. Common people can file complaints related to tax fraud at the National Center for Disaster Fraud.

 Conclusion 

So, tax scams and frauds are a common occurrence these days and it is necessary to be alert about these scams. Awareness and caution among common people can help avoid tax scams during the upcoming tax season.

 

 

IRS provides tax inflation adjustments for the tax year 2021.

by | Nov 30, 2020 | IRS, IRS credits, IRS e file Return

IRS provides tax inflation adjustments for the tax year 2021.

The IRS has announced the annual inflation adjustments in the tax year 2021 for around 60 tax provisions. These provisions would include the changes in the tax rates and also the other tax changes.

By the Consolidated Appropriation Act of 2020, there has been an increase in the minimum amount of tax addition that is done for your failure of filing tax returns within 60 days from the due date. Beginning with the tax returns that are due after 31st December 2019, the additional tax which must be paid would be $435 or 100% of the amount of tax which is due and this increase is a rise from $330.

Let us have a look at the tax items of the tax year 2021 which would be of great interest to the taxpayers.

  • Standard Deduction. 

  • For the married couples who are filing their tax returns jointly for the tax year 2021, the Standard Deduction rises to $25,100 which is an increase of $300 from the previous year.
  • For the married couples who are filing their tax returns separately or for the single individuals, the Standard Deduction would rise to $12,550 which is a rise of $150 from the prior year.
  • For the heads of the households, the Standard Deduction would be $18,800 for the tax year 2021 which is an increase of $150 from the previous year. 

  • Personal Exemption.

 The Personal Exemption for the tax year 2021 would remain 0 as it was for the tax year 2020. 

  • Marginal Rates.

  • For those taxpayers who are filing tax returns as single individuals with an income that is greater than $523,600, the marginal tax rate is 37%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $628,300.
  • For those taxpayers who are filing tax returns as single individuals with an income that is greater than $209,425, the marginal tax rate is 35%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $418,850.
  • For those taxpayers who are filing tax returns as single individuals with an income that is greater than $164,925, the marginal tax rate is 32%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $329,850.
  • For those taxpayers who are filing tax returns as single individuals with an income that is greater than $86,375, the marginal tax rate is 24%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $172,750.
  • For those taxpayers who are filing tax returns as single individuals with an income that is greater than $40,525, the marginal tax rate is 22%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $81,050.
  • For those taxpayers who are filing tax returns as single individuals with an income that is greater than $9,950, the marginal tax rate is 12%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $19,900. 

  • Itemized Deduction.

In the tax year 2021, there is no limitation on the itemized deductions. This limitation was eliminated by the Tax Cuts and Jobs Act. 

  • Alternative Minimum Tax Exemption.

For individuals filing tax returns as single, the Alternative Minimum Tax Exemption is $73,600 which would start to phase out at $523,600. This Alternative Minimum Tax Exemption is $114,600 for those taxpayers who file their tax returns as Married Couple and this exemption phases out at $1,047,200. 

  • Earned Income Credit.

For the qualifying taxpayers, the Earned Income Credit amount would be $6,728 which is an increase from the Earned Income Credit of $6,660 from last year. 

  • Transportation Fringe Benefit.

The monthly limitation in the case of Transportation Fringe Benefit remains $270 which is considered as the Monthly limitation for the qualified parking. 

  • Foreign Earned Income Exclusion.

For the tax year 2021, the Foreign Earned Income Exclusion is $108,700 which was $108,600 in the previous year. 

  • AGI.

The AGI amount used by the taxpayers who are joint filers for the determination of the reduction in the Lifetime Learning Credit is $119,000. 

  • Estates of Decedents 

The Estates of those decedents who have died during the tax year 2021 have an exclusion amount of $11,700,000 which is higher than the exclusion amount of $11,580,000 available for the estates of the descendants of 2020. 

Conclusion 

Hence, these tax provisions have been introduced by the IRS as a means to help the taxpayers with inflation adjustment.