Tax Season 2021 – New Year, New Taxes (Part 1)

Welcome to 2021!

2021 is at its height, and no one wants to remember 2020 for very obvious reasons! However, before moving on to 2021, you have to solve several issues with your 2020 taxes. There are no doubts that Covid-19 already has had a huge impact on the 2021 tax season. That’s why it is better to start working on your tax season in advance in order to avoid any possible issues. Since our Prestige Auditor’s team wants you to be prepared for your tax season, we have prepared several tips telling about the main changes in this tax season.

First of all, let’s try to understand the main points that you should know about the 2021 tax season.

1. Thursday, April 15 2021, is a Tax Day, so you have to file your 2020 tax returns by this time.
2. There are also several changes in Standard Deduction, thus single filers have to overpay $12.44, and married couples $24.80. Yep! Singles get the more expensive end of the stuck, as you can read here.
3. In order to cover inflation, income tax brackets were also raised in 2020.

 

Let’s dive deeper in the details to figure out all the scrupulous aspects concerning the next tax season.

2021 Tax Season Income Brackets and Rates

Your tax rate is a percentage of income paid by you in taxes and based on your income rate. There are no changes for the 2020 tax year since the rates are the same. However, there are a few changes in tax brackets, which were adjusted by a hundred dollars from 2019, and have the aim to cover inflation.

Standard Deduction in 2020

You should probably know that by paying taxes, you are provided with the option to choose whether you want to take the standard deduction or itemize your deductions. You can read more about standard deductions in the US right here. If you decide to choose the second option, then you must calculate your deductions. Of course, it is going to be such a nerve-wracking process; however, it’s worth a shot in case your itemized deductions rise above the amount of standard deduction. It is wise to know that for the 2020 tax year, the standard deduction increased for the purpose of covering inflation.  

 

Tax Deduction and Tax Credits for 2021 Tax Season

Let’s be honest, each of us feels absolutely happy when we are dealing with tax deductions and tax credits. Why? Well, because these magic words can help you drastically reduce the number of your tax debts.

Tax Deductions:

Tax deductions can help you reduce the total amount of your income, which is subject to federal income taxes. Keep in mind that there are several deductions that are available only when you choose to optimize your deductions; meanwhile, other types are available with the standard deduction.

Tax Credits:

Tax credits, in their turn, can reduce your current tax bills. Generally, there are two types of tax bills: refundable and nonrefundable. If your credit is refundable, you will get the difference as a refund. With nonrefundables, your tax bills will be almost reduced; however, you won’t get a refund. Check out this blog to better understand the difference between tax credits and tax deductions.

 

Charitable Deductions

If you are a very generous and kind person, then we’re excited to bring you good news: did you know that you can deduct nearly 100% of your adjusted gross income? If you are taking a standard deduction, the Cares Act allows you to write off nearly $300 of charitable giving, made in cash.

For most taxpayers, each tax season can turn into a real nightmare since even a small mistake is going to lead to lots of issues for you and your business.

 

Of course, each situation is very different. Therefore, it is extremely important to consult a professional tax expert who will help you figure out which type of tax deduction suites you more. Contact Prestige Auditors’ team, and we will help you choose the best options for your unique situation.