Tax season is right around the corner. Make sure you’re ready to file! Whether you were lucky enough to buy a yacht this year, or you were one of the millions affected by COVID-19, here is the stuff you should know for 2021’s tax season. Disclaimer: this only applies to taxes in the United States, so if you are from somewhere on Cyprus, you’re out of luck.
1. Last day to file taxes
The last day to file taxes is the same every year. April 15th 2021. Make sure you get all your paperwork done by then or you open yourself up to a fine, an audit, or even jail time. If you are wondering “When can I file my taxes”? You can start filing today! Better sooner rather than waiting for the last minute.
2. 2020 Tax rates and brackets
Your tax rates in 2020 have not increased this year. The brackets have changed slightly higher due to inflation by a couple of hundred dollars according to the IRS. Single taxpayers with incomes less than $9,875 have a 10% tax rate. The other rates are:
-12% for incomes more than $9,875
-22% for incomes more than $40,125
-24% for incomes more than $85,525
-32% for incomes more than $163,300
-35% for incomes more than $207,350
-37% for incomes more than $518,400
3. Be aware of the deductions and credits you can claim
Many of the same deductions and credits apply from last year. Some popular ones to be aware of include:
-Child tax credit – If you have a child who you can claim as a dependant, you can get up to $2,000 per child. Not only that, but the credit is refundable so you can actually get up to $1,400 per child in money back from the IRS if your deductible is more than what you owe.
-Earned Income Tax Credit – If you earned less than $56,844 last year you might be eligible for the EITC. It can save you a large amount of money based on your income and how many children you have, giving you savings from $538 to $6,660!
-Business Expenses – The Self-employed can claim a lot of expenses on their tax return ranging from rent, to utilities, to their car.
-Medical Deductions – If you’ve spent time in the hospital because of the pandemic or any other medical issue you can deduct anything over 7.5% of your adjusted gross income. If your AGI was $50,000 last year, you can deduct anything over $3,750.
-Charitable Deductions – The CARES Act allows you to deduct up to 100% of your AGI on your taxes.
-Education – The American Opportunity Credit (AOC) allows you to deduct $2,500 from your taxes if you are in your first 4 years of college. If you are past that, you can deduct up to $2,000 as part of the Lifetime Learning Credit.
4. Stimulus effects on your taxes
The $1,200 that most Americans received because of the CARES Act relief fund as a stimulus doesn’t count towards your taxable income. You don’t have to pay money on it. Instead, it counts as a refundable tax credit.
A tax credit is something that lets you reduce how much you pay in taxes. Non-refundable tax credits can only reduce the taxes you pay down to zero. Refundable tax credits mean that if it reduces your taxes below zero you actually get paid the remaining balance.
5. PPP Loans
If you were a small business owner who took advantage of the PPP loan, you can deduct any expenses you paid with the loan from your taxable income.
6. Unemployment benefits
If you were one of the unfortunate souls who was unemployed this year, any benefits you received will not need to pay income taxes on the money.
If you are feeling a little overwhelmed now don’t worry, you can alway ask for help with your taxes. Hopefully, these 6 things should help get you started on filing.