3 Important Changes to Know Before You File Your Taxes in 2021
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Are you up to date on the latest tax laws, codes, and changes? Most people don’t follow tax law closely. And that means you can easily miss out on critical changes that directly affect your annual tax return. Before you send in your forms and file this year, make sure you know what’s changed. Search online to learn more about changes for 2021 from tax prep professionals and the IRS.
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Preparing your tax return might seem easy, but each year’s changes can really complicate the process. Don’t make a mistake – know what’s changed and how it’ll impact your return and potential refund first. If you’re about to file your 2020 taxes by the 2021 deadline, make sure you search online to get the latest information and recommendations from tax experts.
1. You May Be Eligible for a Recovery Rebate Credit
Some taxpayers will be eligible for a Recovery Rebate Credit, which is a special change just for the year 2020. It’s essentially an economic impact payment – or a stimulus check – that’s available for those who did not receive one last year or who received a reduced amount¹.
You’re eligible to claim the Recovery Rebate Credit for the 2020 tax year if you did not receive the full $1,200 as an advance payment or received no check at all. You may also take advantage of this credit if you didn’t receive $500 per qualifying child in your family. Only those who are eligible for additional funds will be able to take advantage of this credit.
Keep in mind, however, that if you did already receive the full $1,200 (or $2,400 for couples who file jointly) plus $500 for each qualifying child, you shouldn’t add any information about this credit onto your tax return. You’ve already received the credit and won’t be eligible to get it again.
2. Interest is Available on Refunds – And Interest is Taxable
Because the IRS faced numerous challenges and changes during the 2020 tax filing period, some people were owed interest on their tax refunds. If you received a refund and filed your taxes by the extended July 15, 2020 deadline, you were eligible for interest earned on the amount of that refund.
However, there’s a catch for filing your 2020 return during the 2021 tax filing period. The government can tax you on the interest you received on last year’s refund². That means you’ll need to look out for a special form – IRS form 1099-INT – if you earned $10 or more in interest on that refund. You’ll need to fill out this form to report your earned interest when filing by April 15, 2021.
3. Charitable Deductions Are Changing
If you usually make donations to charitable organizations throughout the year, it’s always important to report those donations on your tax return. It can decrease your overall tax liability and earnings, increasing your odds of receiving a refund. And for 2021, there’s a change happening with these charitable donation deductions.
Now, taxpayers who aren’t choosing to itemize their deductions are able to take a charitable deduction of up to $300 for any cash contributions made in 2020 to qualifying organizations³. This means you won’t have to list your deductions item by item, line by line in order to get a deduction for any charitable contributions you made in 2020. It’s now much simpler to earn a deduction – and it’s available to anyone who doesn’t want to itemize.
However, keep in mind that if you gave more than $300 to charitable organizations last year and want credit for those in the form of a deduction, you will still need to itemize.
Hire a Professional to Help You This Tax Season
Year after year, tax changes happen. While some are announced and made very public, others tend to slip by unnoticed, leaving plenty of room for people to completely miss them. This year, the changes are small – but they could have a significant impact on your tax return when you file. It could wind up costing you extra money that could make a big difference in your refund amount.
Unsure how to handle these changes or deal with them on your 2020 tax return for the 2021 filing period? Let a professional do the work for you. A tax expert or tax preparation professional can expertly navigate all of the complexities of tax code and tax law. And they can help you maximize your deductions so you’re getting as much money back into your pocket as possible. There’s never been a better time to enlist the help of a tax professional than right now.
Search online to find a tax professional in your area. You can get started on your tax return today so the 2021 filing period is as seamless and simple as possible.