Tax season 2021: changes to prepare for this year
This year, changes were made to the US tax code - they will be reflected in the 1040 form of your tax return, writes Money US News.
Every year, when the need arises, the IRS publishes draft updated forms with professional comments and subsequent changes. But advance notice is always welcome and can give you an idea of what tax season will look like next year.
A new look at cryptocurrency
The Department of Finance is focusing on virtual currencies this year. The first question will be this: during 2020, did you receive, sell, send, exchange or otherwise acquire any financial interest in virtual currency?
Over the past few years, the government has focused on cryptocurrency, issued guidance on the tax regime, and notified some taxpayers that they may not have properly reported transactions.
When answering this question, remember that you are signing a tax return taking into account the possible penalty for perjury, which threatens to end up in prison for 5 years.
Income adjustment through charity
A bonus for taxpayers in 2020 is that they may be eligible to reduce their taxable income by up to $ 300 for charitable contributions thanks to the Coronavirus Relief Bill.
These contributions must be made in cash, check or credit card and you must have the appropriate documentation. You cannot deduct the value of donated items, such as the four bags of clothes that you left at Goodwill this spring.
The good thing about this “income adjustment” is that it lowers the Adjusted Gross Income (AGI), which affects many other aspects of your financial life. Your state premiums and Medicare Part B and Medicare Part D are linked to AGI. A lower AGI can reduce these premiums or qualify you for additional government programs.
Therefore, keep receipts and other supporting documents. Please be aware that a thank you letter is required to confirm donations to charity of $ 250 or more.
On the subject: Several states plan to raise taxes to tackle coronavirus crisis
Changes in the reporting of taxes paid
Earlier, when you reported the amount of federal tax withheld, you entered one number - the federal income tax paid, shown in W-2 and any 1099 form. This year the numbers are shown on several separate lines.
Federal Aid Tax Credit
Line 30 on the tax return appears to be reserved for what the government calls a repayable recovery loan, and this refers to the financial aid you received in connection with the coronavirus. You can get an extra credit if your 2020 tax return contains a lower AGI than the one used to calculate your original federal aid amount, or if you have additional dependents.
For confirmation, keep your letter from the IRS telling you how much you received. This is the 1444 notice that you will need when filling out your tax return.
Payroll tax deferral affects the amount you owe
If you have worked as domestic helpers or are self-employed, which should be listed in Appendix H and Appendix SE, you may need to give this calculation extra attention.
Usually the calculation is a simple addition of taxes due minus any payments and credits, but this year there are nuances. The Coronavirus Relief Bill allows employers to postpone the deposit and payment of some social security taxes.
It is important to consider the period from March 27 to December 31, 2020, because any payroll taxes that were due for this period may be deferred, with 50% paid until December 31, 2021 and the rest until December 31 2022 year.
Pension plans for taxpayers affected by COVID-19
The Coronavirus Assistance Bill allows for different handling of retirement account payments, including an IRA, if a taxpayer is affected by COVID-19. You don't need to have a positive test or be ill to do this.
You may be quarantined, fired, taken on vacation at your own expense, your work hours may be reduced, or you may not be able to work because your child's daycare is closed. If it is coronavirus related, you are eligible for this retirement plan option.
When the taxpayer independently confirms these facts, much changes in taxes. There will be no 10% penalty if you receive the distribution of funds from the retirement account up to 59 and a half years, payments will be distributed over three years, and you can pay off the amount taken within three years without taxation.
For this, supporting documentation should also be prepared. Since you need to prove that you were harmed, keep any medical records, notices from your employers, or records describing your circumstances.
For most people, these are major changes that will affect their personal 1040 form. But keep in mind that Congress is still in session, this is an election year, and other changes are possible.
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