Be Ready for the 2021 Tax Season With Northside Tax Service
As we enter the prime of the 2021 tax season, it’s
important to be aware and prepared for what’s changed since
Tax Service has you covered. Their team of experienced tax preparers is
ready to help you get the most from your deductions and leave you with the most
favorable tax bill possible.
Crystal Sprague, a Northside preparer, is entering her 18th
year of professional tax work. She’s an expert in family tax returns and those
with foreign income. Here are just a few things she says to consider when
filing your 2020 returns:
and Stimulus Payments
People with low to moderate incomes often receive an earned
income tax credit (EITC) and additional child tax credits (ACTC),
both based on earned income in a given year. This year, the IRS is letting
people use either their 2019 income or 2020 income to determine their EITC and
ACTC. This means that you can use the income from whichever year will get you
the largest EITC and ACTC.
Regarding economic stimulus payments, Sprague says they
don’t count towards taxable income. However, not everyone eligible received
them, or received them in full. If that describes you, you’re still in luck,
thanks to the Recovery
Rebate Credit, which allows you to claim stimulus as a tax
credit. This credit also applies to former dependents.
“If somebody turned 18 in 2019, and now they’re filing
their own tax return, they can qualify to get both stimulus payments now,” says
A new IRS change allows a charitable deduction of up to
$300 for cash donations in 2020 to qualifying organizations, Sprague says,
provided you don’t itemize all your deductions. Allowed because of
pandemic-related economic hardship, the deduction will help reduce taxable
income further. Next year, this deduction is set to increase to $600 for
married couples, Sprague says.
Those with health savings accounts, or HSAs, will be happy
to know that their accounts can be used to reimburse even
more this year than the usual deductibles, copays and prescription
medications. As of January 1, 2020, HSAs can now be used for over-the-counter,
non-prescription medicines, diapers, and feminine hygiene products, among
others, Sprague says. More information is available on the IRS website.
The passage of the CARES Act provided special
coronavirus-related options for distribution income from retirement accounts.
Sprague says that individuals were able to take out up to
$100,000 last year for issues directly related to COVID-19, whether the
negative impacts were medical or just financial. Those who do so have the
options of only declaring a third of their amount taxable each year. There’s
also the option of repaying within three years, which will earn you a
Minimum distribution requirements were also suspended last
year in the wake of the pandemic, and age at which the RMD rule kicks in has
also changed, up to 72 years from the previous 70.5. To meet this requirement,
individuals must have been at least 70.5 years old as after 12/31/2019.
Finally, those expecting a child via traditional birth or
adoption can take out $5,000 from a retirement account without the 10 percent
penalty that’s usually issued for those under the age of 59.5.
Get a Letter
Because the IRS is significantly behind in processing
returns from last year, some people may be receiving letters saying the IRS
hasn’t received their 2019 returns. Sprague says it’s important to not panic if
you did your part last year, and to contact any numbers listed in such a letter
to update the issue. If you have questions about an IRS letter you received, Northside
Tax Service offers free assistance with IRS letters and notices. Just bring
your letter in and one of their tax preparers will be happy to help you
determine next steps.
While there are no major changes for self-employment tax
returns, known as Schedule Cs, there is a subtle difference to remember when
filing, Sprague says.
The IRS now asks self-employed workers to use 1099-NEC contractor
forms. The 1099-MISC form is still being used, but only for rental and other
types of miscellaneous income. NECs will only be sent to you by entities which
paid $600 or more, Sprague says, meaning income less than $600 per entity is
your own responsibility to keep track of.
“I really recommend that contractors use some sort of
software for their bookkeeping,” she says. “Quicken, or QuickBooks, or even
their own spreadsheets, to keep track of income and expenses.”
If you’re new to filing a Schedule C, it’s important to
remember deductions can be made for any business-related expense, including
office supplies, business cards, web design, advertising, and mileage.
When deducting mileage, Sprague notes that you must keep
track of both overall mileage and business mileage, and report them both. Business
meetings can also be used to deduct meals, but Sprague cautions it’s critical
to keep every receipt, in the event you’re audited. And too many “business”
meals, she says, are more likely to get you audited.
Finally, equipment purchases can be claimed as depreciable
items, spreading out the money spent on equipment over several tax years.
What To Remember
When coming to Northside, be sure to bring photo
identification or other verifiable documentation (social security card,
previous year’s tax return) to prove you’re you! Sprague says a previous return
is also a good reference for the preparer, ensuring nothing’s been missed.
Currently, Northside is encouraging their drop-off
service to limit time in the office. Appointments can be easily made by
phone or their website. They are also offering an online tax prep service, so you don’t even have to leave your home to file
with one of their tax preparers.
Still, things will get very busy as April 15 approaches.
“March is a good month,” Sprague says, of getting your taxes done. “I recommend not waiting until the last minute, because you might not get an appointment.”