The COVID-19 pandemic has pushed the global economy into disarray and has had telling impact on every aspect of the business: operations, sales, revenue and even the taxes. The quick and direct economic assistance provided in the form of business loans, relief packages, and tax provisions under the CARES Act along with other updated tax rules and regulations meant that filing taxes can vary a lot for both individuals and when compared to the previous year.
So faster you educate yourself about the tax provisions and changes, easier it is to take benefit from them and Back Office Accountants is here to help you. This blog is second in the series about the Tax Preparation for 2020-21. While we helped you with essential tax planning tips in our previous blog here, today we are going to help you know how tax filing changes in the year 2021. So read on:
Adjusted Tax brackets for Income:
Every year, IRA, according to the cost of living makes adjustments to the tax brackets, standard deductions, credit and personal exemption. So first things first here are the updated tax brackets adjusted according to inflation for the year 2020:
|Tax Rate||Income Range for Married Filing Jointly||Income Range for Single Filing|
|37%||For taxable income greater than $622,050||For taxable income greater than $518,400|
|35%||For income less than $622,050 and more than $414,700||For income less than $518,400 and more than $207,350|
|32%||$414,700 – $326,600||$207,350 – $163,300|
|24%||$326,600 – $171,050||$163,300 – $85,525|
|22%||$171,050 – $80,250||$85,525 – $40,125|
|12%||$80,250 – $19,750||$40,125 – $9,875|
|10%||$19.750 or less||$9,875 or less|
Waiver on Required Minimum Distributions:
Required Minimum Distribution (RMD) is the minimum amount you are required to withdraw from traditional IRAs or 401Ks where your money is saved with the tax deferred. IRS mandates the account holder to withdraw a certain amount of money back in intervals (and also pay the tax), after you hit a certain age.
The minimum distributions (withdrawals) must begin at a certain age which before 2020 the age is 70 and a half years. In 2020 the age is pushed to 72 years and CARES Act passed by the congress in the late March waived down these RMDs for the tax year 2020 and this applies to inherited accounts as well. While in a normal year, the withdrawal is taxable, the waiver lowers the taxable income releasing the tax obligation.
Updated Standard Deductions for 2021:
Deduction lowers the taxable income and reduces the tax bill and these deductions are subjected to change year on year. You can either opt for standard or itemized deductions and as for year 2020 that are to be due in 2021, the deductions are slightly increased as follows:
|Category||Deductions||Increased as on 2019 tax returns|
|Head of household||$18,650||$300|
|Married filing separately:||$12,400||$200|
|Married filing jointly||$24,800||$400|
CARES Act – Tax Provision Social Security Tax Deferral of Employer:
CARES Act allows the businesses to defer the 6.2% Social Security tax on wages paid up to Dec. 31, 2020, from March 27, 2020, with 50% due on Dec. 31, 2021, and other 50% due on Dec. 31 of 2022. This rule also applies to 50% tax liability (self-employment) for sole proprietors and partners. However, employers who take benefit from the Paycheck Protect Program of CARES Act are initially made ineligible for this provision. In addition to Social Security Tax, other tax provisions brought under CARES Act include NOL carry backs, recovery rebates for individual’s suspension of excess business loans, employment retention credits, and a refund of minimum tax credit carryovers for businesses. These tax provisions does help business and individuals makes sizeable savings and we recommend you seek help from a qualified tax professionals to know the complete details about these provisions.
Tax Deduction on Charitable Donations & Changes in Adoptions Credits:
With the pandemic casting a disaster for millions of employs and families around the country, IRS to encourage charitable donations has made a special tax law. According to this law, cash donations up to $300 made by the citizens to qualified non-profit organizations before December 31, 2020, are now made deductible when they file the taxes in 2021. The charitable cash donations can include donations made by credit card, debit card or even by the check. This provision is available for people who choose standard deduction instead of itemized deduction.
In addition to the charitable deductions, tax credit for expenses incurred for qualified adoptions were increased by $220. The maximum allowable credit amount which was $14,080 for 2011 was fixed for the year 2020 at $14,300. In addition to the above, there are more tax provisions and minute changes which a tax professional can leverage to improve tax savings for both business and indivisibles. If you are looking for help with tax preparation for 2020-21 out tax professionals at Back Office Accountants are right experts to help you leverage the updated tax rules and provisions. In addition to offering expert back-office accounting services – Remote bookkeeping, Accounts Payable & Accounts Receivable Processing, Bank Reconciliation and Full-scale Accounting Services we have also been offering tax preparation services for years now. For help, you can contact us here: https://www.backofficeaccountants.com/