For Americans, the annual tax season is a major event. In the previous article, we discussed what you need to know beforehand, now that the start date is set, we are here to offer some news and tips from the IRS to help you fully prepare in the next two weeks and get your tax refund faster.
When Can We Start Filing Taxes?
The Internal Revenue Service announced that the nation's tax season will start on Friday, February 12, 2021, when the tax agency will begin accepting and processing 2020 tax year returns. And the deadline to file a 2020 tax return and pay any tax owed is still Thursday, April 15, for now.
There are reasons for the delay. It allows the IRS extra time to do additional programming and testing of IRS systems following the December 27 tax law changes that provided a second round of Economic Impact Payments and other benefits.
What’s New for Tax Season 2021?
Tax season 2021 will be unlike any year in history because of the ongoing pandemic. And here are 4 main differences that you should consider beforehand: Economic Impact Payments, Unemployment Benefits, Paycheck Protection Program (PPP) Loan, and Retirement Savings Withdrawals.
1. Economic Impact Payments
Taxpayers who received an Economic Impact Payment, should keep Notice 1444, the Economic Impact Payment, with your 2020 tax records. But you do not need to complete information about the Recovery Rebate Credit on tax year 2020 Form 1040 or 1040-SR when filing in 2021, unless eligible to claim an additional credit amount.
2. Unemployment Benefits
Unemployment Benefits are taxable income, you must include all unemployment compensation as income for the year. You should receive a Form 1099-G, Certain Government Payments, by January 31. And this form will show the amount paid to you and the amount of any federal income tax withheld.
3. Paycheck Protection Program (PPP) Loan
The Paycheck Protection Program provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits, mortgages, rent, and utilities. And good news is that the expenses like rent and payroll are completely tax-deductible. But business owners should keep detailed records of the spending.
4. Retirement Savings Withdrawals
While the CARES Act protects you from the 10 percent early retirement withdrawal penalty, it does not exempt the withdrawn amount from taxes. The amount will be added to your annual income and taxed as such. If you don’t ask to have a percentage of the amount set aside for taxes when you withdraw, you could end up owing a lot when you file your 2020 taxes. And the Act distributes the tax burden over a period of up to three tax years, so keep in mind and prepare ahead.
Tips on Getting the Jump on Your Taxes
To speed refunds and help with tax filing, here are 4 simple tips that you should follow:
1. Check IRS.gov for the latest tax information, online tools and services.
2. If you use an ITIN to file, make sure it hasn’t expired.
3. Take advantage of e-file and use direct deposit for the quickest refunds.
4. Be mindful and protect yourself from identity theft.
For more official information, we suggest you look into these preparation tips from the IRS.
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