31 Mar Tax Planning for 2021
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) were signed into law, including several provisions related to taxes. When 2020 came to a close, many felt we could leave the chaos brought by the global pandemic behind. However, as we welcomed 2021, it was clear that COVID-19 would continue to cause widespread disruption to businesses and the economy.
As the world grapples with adjusting to the “new normal,” it’s crucial to not only be ready for significant changes but also continue to fulfill your responsibilities as a citizen and taxpayer. Here are some things to consider as you prepare for tax season this 2021:
Keep track of important dates
By March 2021, the IRS announced that they would be extending the federal income tax filing deadline for individuals from April 15th to May 17th, 2021. The postponement applies to all taxpayers and means there’s no need to file an extension to file past April 15th. If you’ve already filed your taxes and scheduled payment for April 15th, you’ll need to cancel it and reschedule. If you can’t meet the May 17th deadline, you’ll need to file an extension. Here are other things to consider as you plan for Tax Day 2021:
Maintain a detailed log of all deductions
To avoid paying more than is required, look for opportunities to write off legitimate deductible expenses. Some of these tax deductions include business-related purchases, charitable donations, and medical costs. To ensure you can claim these deductions, be meticulous about documenting receipts and implementing an orderly record-keeping system.
Fund your retirement plan
Extending the deadline to May 17th means more time to make 2020 contributions to individual retirement arrangements. Contributing to your IRA account entitles you to a tax deduction each year. By funding your retirement plan with more money, the IRS has less of your income to tax. This means shielding your earnings while boosting your retirement fund. The maximum deductible IRA contribution you can make if you are in the 25% tax bracket is $6,000; this will allow you to save $1,500 in taxes in the first year, and continuing to contribute in the future can save you thousands of dollars.
Stay updated on new tax legislation
In January 2021, President Joe Biden introduced the nation to the American Rescue Plan. The plan outlined a $1.9 trillion budget for economic relief. Under the American Rescue Plan, there may also be significant legislative tax changes, such as the income tax rate reverting to 39.6% and potential retroactive increases.
Biden also has plans to expand tax credits for low and middle-income families, which will be refundable this year. However, until any of these proposed changes are signed into law, tax planning for 2021 should proceed with the existing tax rules and regulations. Golden Tax Relief can help individuals and businesses with their tax planning and help resolve tax problems such as delinquent tax returns, bankruptcy, wage garnishments, and more. Contact us.