Tips for Taxpayers to Get the Most Out of Their Returns in 2021, from ACP Members
With the new tax deadline of May 17 looming for much of America (and June 15 for states impacted by the February storm), certified members of the Alliance of Comprehensive Planners (ACP), have provided tax tips to help the general public and those who are still in the midst of or soon to be preparing their 2020 tax returns.
A community of tax-focused financial planners who provide comprehensive planning strategies for their clients on a commission-free retainer basis, ACP members adhere to fiduciary standards, which means that they are legally and ethically bound to put their clients’ best interests first.
Reminders for the 2021 Tax Season
According to Tricia Rosen, CFP, MBA, EA, Principal of Access Financial Planning, LLC in Andover, MA, a few tax preparation reminders to keep in mind for 2021 which may be overlooked are:
For those who take the standard deduction instead of itemizing, the above the line charitable deduction for 2021 was increased to $600 for a married filing jointly couple, whereas for the 2020 tax year the deduction was $300 per tax return regardless of filing status. The contribution needs to be made in cash and to an IRS approved charitable organization.
For those who itemize their deductions, the adjusted gross income limit for cash contributions to qualifying public charities remains suspended for 2021, which means for cash contributions made in 2021, taxpayers can deduct up to 100% of their Adjusted Gross Income (AGI).
The penalty for overstating a charitable deduction has been increased from 20% to 50% of the underpayment, so don’t be tempted to fudge the numbers to take advantage of the larger deductions. Keep a receipt for any charitable donation over $250.
The IRS operates on a pay-as-you-go system, which means you are required to pay taxes on income as it is earned throughout the year, otherwise you may incur penalties.
Although the federal income tax deadline has been moved to May 17, 2021 and many states have also moved their income tax filing deadline to May 17, 2021, keep in mind that the date for paying quarterly estimated taxes has not changed from April 15, 2021.
A recent tax law change makes the first $10,200 of unemployment income tax-exempt for taxpayers with a modified adjusted gross income of less than $150,000, however, states vary on how they treat unemployment income.
If you filed your tax return before the new unemployment income exclusion was enacted, the IRS is advising taxpayers not to file an amended return.
Instead, the IRS will recalculate the tax due and refund any overpayment to the taxpayer without any action required by the taxpayer.
Economic stimulus payments are considered a tax credit and not income, so they are not subject to income taxes.
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