Although Americans got a bit of a reprieve when the tax deadline was extended from the traditional April 15 until May 17, 2021, the deadline to pay Uncle Sam is now looming large. But just because the clock is ticking doesn’t mean you don’t still have time to it’s a lost cause. You can still make it in under the wire without too much stress if you follow this guide.
Organize your documents
Half the battle when it comes to filing your taxes is gathering all the documentation and data you’ll need. This includes last year’s tax returns for reference, a W-2 or 1099 from your employer, along with statements from your taxable accounts, mortgages or student loans. Many (if not most) of these documents will have come in the mail (or e-mail) clearly labeled as “Important Tax Return Information.” Hopefully, you set them aside when you saw them come in.
“It can be easy to lose track of papers when you get them on January 15, and you don’t need them for another month,” says Terry Eisert, founder and owner of Eisert Wealth Management in Cincinnati, Ohio. If you didn’t put a file on your desk and label it “tax info” or at least start stashing them in your “drawer of important things” or other place where you put stuff you know you’ll someday need start digging for the papers now.
If you did any freelance or contract work this year, you’ll need to be on the lookout for any 1099 forms that are coming in. (And whether you get a 1099 or not, you’ll need to declare any freelance or “gig” income on your taxes.) And, if you’re planning on itemizing deductions (more on this in a moment) or claiming certain credits, you’ll need supporting documentation. This may include receipts for small-business expenses, for example, as well as for charitable donations and medical expenses.
What’s New For This Year: Deductions And Credits
Other than the tax deadline extension to May 17, 2021, there was also an increase in the standard deduction to $12,400 for single filers and $24,800 for married couples filing jointly. Also, income tax brackets increased in 2020 to account for inflation.
For 2021, the standard deductions are as follows:
Single & Married Filing Separately: $12,550
Married Filing Jointly: $25,100
Head of Household: $18,800
In terms of deductions, for charitable deductions, thanks to the CARES Act, you can deduct up to 100% of your adjusted gross income (AGI) in qualified charitable donations if you itemize your deductions. But if you’re taking the standard deduction, as 90% of people will be, the CARES Act also included a new “above-the-line” deduction that will help you write off up to $300 of charitable contributions you made in cash. Also, if you’ve got kids, the child tax credit changed this year, with families earning up to $400,000 now able to claim up to $2,000 per qualified child as a tax credit.
And if you found yourself spending a lot of money on medical bills last year, as millions of Americans did, you’ll be able to get tax relief this year. You can deduct any medical expenses above 7.5% of your adjusted gross income (AGI). So this means if your AGI was $200,000, you can deduct out-of-pocket medical expenses beyond $14,000 in 2020. (You’ll just need to make sure you itemize in order to get this write-off.)
Lastly, let’s not forget the stimulus checks that were part of our crazy year, with $1,200 per person sent out in the spring of 2020. Checks were sent to people earning up to $75,000 per person, or $150,000 per married couple. The good news is your stimulus check does not count as taxable income. According to the IRS, it’s being treated like a refundable tax credit for 2020.The only thing you really need to know is that you won’t be taxed on your stimmy, which is very good news.
Consider additional IRA contributions
There’s still time to lower your tax bill and put away some additional money for retirement. Tax deductible IRA contributions made through May 17 still count against your 2020 taxes. You can put up to $5,500 into an IRA ($6,500 for those age 50 and older) as long as you earn less than $63,000 as a single filer, or $101,000 for a couple filing jointly. The deductibility phases out as your income increases, and depending on whether you have access to a workplace retirement plan.
Also, if you have 1099 income, you can contribute up to $55,000 in 2021 or 25% of your earnings into a SEP IRA. Just make sure that you indicate your contributions are going toward the 2020 tax year, and not 2021.
Set yourself up for next year
If this year you find yourself in a crunch before May 15, now is the perfect time to prepare for next year, and ensure you don’t find yourself right back here again. If you owed a lot of money, for example, you might want to consider increasing your withholding at work. It’s easy — just talk to HR and ask them for a fresh W-4, on which you’ll elect to have more withheld throughout the year. You can use this withholding calculator if you need help figuring out how much. Also, if there were documents you had trouble finding or you didn’t keep the best records, start channeling your inner Marie Kondo now to make changes that could make the process even simpler next year. You may find it’s easier than you thought to set yourself up for success in 2022.
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