To decide which deductions to take, compare the value of the standard deduction versus the total value of your itemized deductions. For 2020, the standard deduction amounts are:

• $12,400 if you file as single or married filing separately
• $18,650 if you file as head of household
• $24,800 if you file as married filing jointly

Because tax reform significantly increased the standard deduction, you may find your itemized deductions do not exceed the standard deduction amount for your filing status. But mostly talk to your tax preparer!

The U.S. has a progressive tax system, so not all your income is necessarily taxed at the same rate. There are seven tax brackets under current tax law. To find out which one you fall into — and what your tax rate is — you’ll need to know your income. You can then use IRS Tax Rate Schedules for the taxable year to determine your bracket, what your marginal tax rate is, and how much tax you might owe.

https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2020

Both tax credits and tax deductions can reduce the amount of tax you must pay. Deductions reduce the amount of income you pay taxes on, which in turn can reduce your tax. Credits are a dollar-for-dollar reduction in the amount of tax you owe.

If you had an income of $30,000 and took a $1,000 deduction, you don’t have to pay tax on that $1,000 of income. The deduction could save you $200 (assuming a 20% tax rate on that $1,000).

By contrast, a $1,000 credit would reduce the actual amount of tax you owe by that $1,000. So, if you owed $3,000 in taxes, you’d now owe $2,000 and save $1,000.

Each year, you’re required to file your federal income tax return for the previous calendar year by Tax Day. Usually, the filing deadline is on or around April 15, though if the 15th falls on a weekend or holiday the deadline can be bumped to the next business day.

If you’re a sole proprietor (as in, you’re the only one running the “business” and you’re not legally incorporated), simulate withholding by sticking 25 to 30% of your income in a savings account. You should pay your taxes quarterly to the I.R.S. to avoid fines. This information applies to federal only, each state has different requirements, please contact your tax preparer for further questions.

Typically, unemployment income is taxable and should be included in your income for the year. Some states may also count unemployment benefits as taxable income. When it’s time to file your taxes, you will receive Form 1099-G which will show the amount of unemployment income you received. Form 1099-G will also show any federal taxes you had withheld from your unemployment pay.

Typically, withdrawing money early from a retirement account comes with a 10 percent federal tax penalty if you withdraw your money before age 59-1/2 in addition to the regular income tax on the amount withdrawn. There can be other consequences, too. The retirement money may also bump you into a higher tax bracket, which can result in the taxation of other income, such as social security, that you may have not been taxed on otherwise. State requirements differ please contact your tax preparer for more information.

Cash donations of up to $300 made before December 31, 2020, are now deductible when people file their taxes in 2021, according to the IRS.

Usually this is 3 years from the date the return was due or filed, or two years from the date the tax was paid, whichever is later. Some records should be kept indefinitely, such as property records since these may be needed to prove the amount of gain or loss if the property is sold.

Yes. Contact us so we can discuss your situation in detail.

A dependent is a person you’re responsible for supporting. If you can claim a dependent, you can become eligible for certain tax breaks, including the child tax credit. You may also qualify for head-of-household status.

You may have a dependent if …

• You have a qualifying child younger than 19, or under 24 if they’re attending school full time. Your child must either live with you for more than half the year — or qualify for an exception — and must not provide more than half their own support. Your child also can’t file a joint tax return, except to claim a refund.
• You have a qualifying relative. Your qualifying relative either has to share a specific family relationship with you or must live with you all year long. You must provide more than half their support, they must earn very little, and they can’t be claimed as a dependent by anyone else.

The IRS provides an Interactive Tax Assistant Tool to help you determine if you have a dependent.

Questions and info about the stimulus amounts you’ve received can be found on the Get-My-Payment IRS website: https://www.irs.gov/coronavirus/get-my-payment Your tax preparer will need to know the amounts received, this is NOT taxable to federal, but serves as a reconciliation for the IRS. You will be mailed a Notice 1444 stating the amount received, you should keep this for your records and for your tax return.

For 2021, the Child Tax Credit provides a credit of up to $3,600 per child under age 6 and $3,000 per child from ages 6 to 17. If the credit exceeds taxes owed, families may receive the excess amount as a refund. The credit will also be available periodically throughout the year starting as early as July, rather than as a lump sum at tax time. Prior law provided a Child Tax Credit of up to $2,000 per child age 16 and younger, with refunds limited to $1,400 per child. These parameters will be in effect again for 2022-2025. Other dependents—including children aged 18 and full-time college students ages 19–24—can receive a nonrefundable credit of up to $500 each.