Published on 22/02/2021
Since the outbreak of the coronavirus pandemic, most of the Government processes and applications have gone paperless requiring minimal to no face-to-face contact. The IRS has also tried to limit face-to-face contact with taxpayers while filing for Taxes ahead of the tax season. And with several changes in the tax law during the pandemic, filing taxes could be a challenging and cumbersome act.
Here are some tips to help you smoothly get through the tax season.
1. File your taxes electronically
The paperless process is the key to staying safe amid the outbreak of COVID-19 and also doing your taxes in a much hassle-free manner. IRS has said that those filing their taxes using the paper-filing route will have to spend even longer to file taxes this year.
It may seldom happen that taxpayers might not get their tax refunds when using direct deposits. To correct this, taxpayers should provide the Account information for at least 3 accounts. You can also give the information of your retirement accounts where the IRS will send your tax refund. IRS Chief Taxpayer Experience Officer Ken Corbin promoted e-filing of taxes and said that it is the safest, easiest, and most accurate way of filing taxes.
2. COVID-19 related distributions
If you claimed an IRS distribution or the CARES Act 401(k), you have the option of reporting all your income including the distribution on your 2020 tax return or distribute it over 3 years. You also have the option to redirect the amount claimed back into a retirement fund and be free of the tax consequences of the distribution.
3. Tax filing for gig workers
Folks working in the gig economy should know that gig work is now taxable. Even if it is not your primary job and you started doing gig work during the pandemic, you will have to pay taxes on it under the self-employed option. If the gig work gave you more than $400, you will have to pay taxes on it. However, you can claim a deduction if you have a home office or other expenses in your work.
4. Stimulus payment and taxes
The 2 rounds of stimulus checks gave a major relief to those in severe need of money. Taxpayers can also claim a Recovery Rebate Credit on their 2020 tax return if they think they did not receive their stimulus checks. The same can be done if you think you qualify for a larger amount of stimulus and got a lesser one. The IRS will refund the money in a while if you are found eligible.
5. Taxable unemployment benefits
Basic state and other federal unemployment benefits are taxable sources of income. The weekly $600 that is being provided under the CARES Act is also taxable. Those receiving unemployment benefits receiver a Form 1099-G displaying the amount paid by the Government. States are also providing some tax relief on the unemployment benefits.
6. Charitable deductions for 2020
Those who made charitable donations and gave cash gifts in 2020 can claim a rebate for it. Taxpayers can now opt for standard deduction instead of itemized deduction and still claim the $300 rebate of charitable donations. However, you will be asked to furnish proof of the donations made. Credit card statements and even canceled checks can work as proof for gifts under $250. For donations made over $250, a note of acknowledgment will be needed from the charitable organization.
7. Increase your HAS
Opt for contributing to Health Savings Account if you have a high deductible health plan to get a triple tax benefit. This way, you can put pre-tax money in the account where it can go tax-free. You can also take the money out and pay no taxes on it when you use it for healthcare purposes. You can make the annual contribution to your health savings account before the tax deadline. Taxpayers can make the maximum contribution of $3,550 as an individual and $7,100 as a family. Individuals over 55 years of age can also claim additional leverage of $1,000. Be wary that you will have to pay 20% on the money if you take it out for a non-healthcare purpose or if you are aged less than 65 years of age.
8. Tweak 2021 tax payments
If the IRS refunded you a big chunk of money, use the IRS tax withholding estimator and check how much tax you can withhold. You will then have to file a Form W-4 which is a withholding allowance certificate. You can withhold the tax and get more money out of your paycheck. However, you will have to make estimated tax payments for 2021 by April 15, 2021.
9. Increase your IRS contributions for 2020
Eligible taxpayers can claim a deduction on the contributions made to the Individual Retirement Account in the year 2020. Individuals are allowed to make a contribution of$6,000 to any of the IRS accounts and an additional $1,000 for people older than 50 years.
10. Know the status of your refund
Check IRS’ ‘Where’s My Refund’ tool to check the status of your refunds. You should ideally get your refunds within 21 days of filing. The tool also shows your refund date within 24 hours of e-filing.
The rules and tax laws for this tax season have been tweaked and changed. Since a lot of it can be too much to take in, write to us at [email protected] with your query and we’ll get back to you at the soonest.