Tax season is just around the corner, and there are significant changes you should be aware of. Thanks to COVID-19, there will be many adjustments in the 2021 tax season. For such reasons, it is important to prepare for your tax situation now rather than later. Our Los Angeles tax attorneys have put together everything you need to know for this year’s tax season.
If you need guidance during this year’s tax returns, our team at The Blue Law Group is here to help you. Call us today at (909) 766-9996!
Important Information About 2021 Tax Season
There are a few things you need to know about the 2021 tax season:
- Tax Day: Tax Day is on Thursday, April 15, 2021. You must file your 2020 tax returns by this date.
- Standard Deductions: The standard deduction for single filers increased to $12,400 and $24,800 for married couples.
- Tax Brackets: Tax brackets increased in 2020 due to inflation
2021 Tax Deductions & Credits
Tax deductions and credits can help you keep more money instead of giving it to the IRS. Tax deductions help you lower your income while filing federal taxes. It’s important to note that some deductions are only available if you itemize them, while others are available even if you decide to take the standard deduction.
Tax credits help you lower your tax bill. Credit that is greater than the amount you owe will be refundable (the difference will be given to you), but if it is lower, then it will just be reduced in your tax bill.
Below we have put together a list of deductions and credits you should consider for your 2020 tax return:
- Medical deductions: If you accumulated a large number of medical bills in 2020, you might find some relief this tax season. You can deduct any medical expenses above 7.5% of your adjusted gross income.
- Business deductions: If you are self-employed, there are various deductions you can claim on your tax return. For example, you can include travel expenses, home office deductions, and more. Unfortunately, if you aren’t self-employed but were working from home during the pandemic, you won’t be able to claim the home office deduction.
- Charitable deductions: The CARES Act now allows you to deduct 100% of your adjusted gross income if you plan to itemize deductions. If you are taking the standard deduction, you will be able to write off up to $300 of charitable contributions you made in cash last year with the “above-the-line” deduction.
- Earned Income Tax Credit: If you earned up to $56,844 during the 2020 tax year, you might be eligible for the low and middle-income credit reduction. Your eligibility will ultimately be based on your income and your number of dependents.
- Child Tax Credit: This year, families will be able to claim a maximum of $2,000 in tax credit for their children.
Paycheck Protection Program (PPP) Loans
Many small businesses used the Paycheck Protection Program (PPP) to stay afloat in 2020. Although these loans were designed to be forgiven, the IRS won’t allow businesses to deduct them from their taxable income.
Will My Stimulus Check Count as Taxable Income?
No, your stimulus check will not count as taxable income. Instead, it will be treated as a refundable tax credit. You won’t need to worry about the stimulus check affecting your 2020 tax returns.
Will My Unemployment Benefits Count as Taxable Income?
Yes, those who received unemployment benefits will need to pay income taxes on that money. Many Americans had to apply for unemployment last year to cope with the COVID pandemic and the economic downturn. This means that many individuals will need to pay unemployment benefit taxes.
Contact our Los Angeles tax lawyers today at (909) 766-9996 for guidance this 2021 tax season!