Over the years, we’ve learned a lot about what the IRS looks for on your tax return. We put together the list below for our clients to help them avoid the pitfalls of missing or inaccurate information that can delay tax returns by 6 months or more. Especially during the continuing pandemic at the time of this posting, since the IRS is working with limited staffing, you’ll want to make sure the information you provide is accurate and complete. We encourage you to “check off” the items on the list before submitting your tax paperwork to ensure a smooth and efficient filing!
1
STIMULUS PAYMENTS If you received a stimulus payment in 2020 and January 2021 your tax professional needs to know the amount of the payment you received. $________________ This payment is not taxable but the amount must be reconciled on your tax return.
2
UNEMPLOYMENT If you collected unemployment benefits in 2020 you will receive a 1099-G form in the mail in by January 31, 2021. We have included an image of the 1099-G form below for reference. FRAUD ALERT for Massachusetts residents: If you receive a 1099-G form and did not collect unemployment benefits please contact the Massachusetts Department of Unemployment Assistance (DUA) at 617-626-5647 immediately! Likewise, if you did receive unemployment benefits and do not receive a 1099-G form, again, you will need to call MA DUA at 617-626-5647.
3
ESTIMATED TAX PAYMENTS If you made estimated tax payments in 2020 please provide your tax preparer copies of the cancelled checks. We have seen issues this past year with these checks not being cashed, and not being applied properly. If we have copies of the cancelled checks we can speak with IRS on your behalf to resolve any issues that may arise.
4
FORM 1095A (Health Connector for Massachusetts Residents) If your health insurance is through the Massachusetts Health Connector please provide your 1095A. This form will be mailed to you by January 31, 2021. If your insurance is through the health connector, IRS will not process your tax return and delay your refund. Please see a copy of the 1095A form below for reference. You can also obtain your form online at welcome to health connector | health connector (mahealthconnector.org)
5
RENT PAYMENTS DURING COVID If you paid rent in the last calendar year please indicate the total rent you paid in 2020 $____________.
6
NEW BABY IN 2020? Congratulations! Please make sure to provide the baby’s date of birth and social security number. This information is necessary to determine if you qualify for an additional stimulus payment, as well as the normal credits for a child.
7
DEPENDENT CHILD FILING HIS OR HER OWN TAXES THIS YEAR? Tax preparers need to know if you have dependent college-age kids who are filing taxes and “claiming” themselves under their Social Security Number. This will trigger the IRS to disable your ability to e-file your own return, forcing you to file on paper and have your return delayed by as much as 6 months.
8
PERSONAL CONTACT INFORMATION Have you changed addresses, phone numbers, e-mail addresses, or jobs since last year? Make sure your tax preparer has your up-to-date information!
Below is an example of Form 1099-G. Individuals who collected unemployment in the last year should receive this form in the mail by January 31, 2021, and must include it with their tax paperwork. Please note: This is for reference purposes only and cannot to be downloaded, reproduced, or used for filing.
Below is an example of Form 1095-A. Individuals who are insured through the MA Health connector should receive this form in the mail by January 31, 2021, and must include it with their tax paperwork. Please note: This is for reference purposes only and cannot to be downloaded, reproduced, or used for filing.
Some of you may have already received your money from the second stimulus package that recently passed but it is important to note that the amounts and calculations are different this time around.
The Basics:
IRS began issuing payments via direct deposit on December 29, 2020.
Standard payment amounts are $600 for each qualifying U.S. citizen, resident alien, and dependent child under age 17, based on adjusted gross income (AGI) limits. (See chart below)
Payment amounts are reduced by $5 for every $100 above the determined income thresholds.
Confirmed direct deposit accounts will receive payments first, followed by mailed paper checks.
Please note: The IRS has not set up a procedure to change your direct deposit information through their website at this time, so if your direct deposit information has changed in the last year, you will likely need to wait for a paper check. Attempting to change your direct deposit information through the IRS website at this time may jeopardize your electronic filing for tax year 2020.
How much can you expect?
The graphic below shows the standard payments based on income limits.
Payments are reduced by $5 per $100 above the qualifying income thresholds, and will phase out completely at $87,000 AGI for individuals and $174,000 AGI for couples filing jointly.
We found an article on the Forbes Advisor website that provides an excellent comprehensive overview of the second round stimulus package, including a payment calculator and notable changes from the original CARES Act that was passed last spring. You can read the entire article here.
The IRS website also issued a press release regarding details of the second round stimulus, which can be found on their website here.
Just like taxes themselves, annual changes to the IRS tax code are a certainty. Luckily, the changes are mostly minor for 2021, but there are still a number of changes to provisions and limits that will affect millions of taxpayers.
For instance, now that most people take the standard deduction, slight increases for inflation are welcome news. According to the IRS, here are the new amounts for 2021:
Filing Status
Standard Deduction for 2021 Tax Year
Change from 2020
Single
$12,550
+$150
Married filing jointly
$25,100
+$300
Head of household
$18,800
+$150
Married filing separately
$12,550
+$150
Retirement Accounts
There are measurable tax benefits to putting money into retirement accounts, which is why IRS puts limits on just how much of that money you can deduct or contribute in any given year.
For the coming year, the actual allowable contribution amounts will stay the same, but there are changes in the income limit for some types of accounts. For example, both traditional and Roth IRAs have income thresholds , and allowable contributions and deductions gradually phase out as income increases and/or surpasses those limits. Again, the changes are minor for the coming year, but valuable to know. Here is the IRS chart outlining the income thresholds and phase-out limits:
Filing Status
Roth IRA Phase-Out Range
Traditional IRA Phase-Out Range if Worker Has Employer-Sponsored Retirement Account
Traditional IRA Phase-Out Range if Spouse Has Employer-Sponsored Retirement Account
Single
$125,000 to $140,000
$66,000 to $76,000
N/A
Married filing jointly
$198,000 to $208,000
$105,000 to $125,000
$198,000 to $208,000
Married filing separately
$0 to $10,000
$0 to $10,000
$0 to $10,000
2021 Tax Brackets
Tax brackets are changing slightly for the coming year also. It can be hard to say precisely what bracket you’ll end up in until you have figured out your AGI (Adjusted Gross Income) for next year, but we have provided the IRS tables below for singles, married filing jointly, and married filing separately to give you an idea of the adjusted ranges.
Brackets for Singles
Bracket for Singles
Tax is this amount + this percentage
Of the amount over
$0 to $9,950
$0 plus 10%
$0
$9,950 to $40,525
$995 plus 12%
$9,950
$40,525 to $86,375
$4,664 plus 22%
$40,525
$86,375 to $164,925
$14,751 plus 24%
$86,375
$164,925 to $209,425
$33,603 plus 32%
$164,925
$209,425 to $523,600
$47,843 plus 35%
$209,425
Above $523,600
$157,804.25 plus 37%
$523,600
Brackets for Married Filing Jointly
Bracket for married filing jointly
Tax is this amount + this percentage
Of the amount over
$0 to $19,900
$0 plus 10%
$0
$19,900 to $81,050
$1,990 plus 12%
$19,900
$81,050 to $172,750
$9,328 plus 22%
$81,050
$172,750 to $329,850
$29,502 plus 24%
$172,750
$329,850 to $418,850
$67,206 plus 32%
$329,850
$418,850 to $628,300
$95,686 plus 35%
$418,850
Above $628,300
$168,993.50 plus 37%
$628,300
Brackets for Married Filing Separately
Bracket for married filing separately
Tax is this amount + this percentage
Of the amount over
$0 to $9,950
$0 plus 10%
$0
$9,950 to $40,525
$995 plus 12%
$9,950
$40,525 to $86,375
$4,664 plus 22%
$40,525
$86,375 to $164,925
$14,751 plus 24%
$86,375
$164,925 to $209,425
$33,603 plus 32%
$164,925
$209,425 to $314,150
$47,843 plus 35%
$209,425
Above $314,150
$84,496.75 plus 37%
$314,150
There are a number of other changes to various tax provisions for 2021 that may affect your situation. These include capital gains and estate taxes.
We have found a comprehensive overview of the 2021 changes on The Motley Fool websitehere. It’s definitely worth a look as you start thinking about tax planning for the New Year!
Feeling charitable this holiday season? According to a reminder issued just before Thanksgiving, it appears the IRS is, too. Lucky for a lot of generous people this year, one of the components of the CARES Act you may no be aware of is a provision that allows for an “above the line” cash deduction for some charitable contributions.
It’s not life-changing money, but for people who could use some incentive to support their favorite charity this year, the IRS is making an allowance for cash donations up to $300—even if you claim the standard deduction rather than itemizing.
The standard rules apply, of course. For instance, it must be a legitimately recognized charitable organization, and you’ll need to to provide proof of your contribution if asked. So as long as you keep your receipts handy, your generosity during this particularly difficult year can be rewarded.
You can read the IRS press release and access additional resource links on their website here.
For everyone who has ever said “I would never fall for that,” there are numerous stories of people who lost money, time and credit ratings to cyber criminals. We all want to believe that the holiday season is a time that brings out the best in people. Thankfully, that’s true in most cases. Still, there are astonishing numbers of scammers who continue to find ways to trick people out of their hard-earned money, often without you knowing until it’s too late. And worse, the incidence of “ransomware” attacks—where foreign scammers literally kidnap sensitive information from companies online until they pay—are increasing.
That’s why it’s so important to pay attention to recommendations for keeping your information secure and not becoming an easy target for identity theft.
As part of the 5th Annual National Tax Security Awareness Week, the IRS has issued new warnings, noting that a combination of factors have presented more opportunities than usual for scammers to gain access to your personal information this year. For instance, more people working from home, increased online shopping, and the backlog of unemployment claims.Whether you are using a desktop computer, a laptop, or your smartphone(!) there are a number of basic steps we can all take to help protect ourselves from identity theft and cyber scams.
The list below from the IRS outlines a number of things you should do:
Don’t forget to use security software for computers and mobile phones – and keep it updated.
Make sure purchased anti-virus software has a feature to stop malware, and there is a firewall that can prevent intrusions.
Phishing scams – like imposter emails, calls and texts – are the No. 1 way thieves steal personal data. Don’t open links or attachments on suspicious emails. This year, fraud scams related to COVID-19 and the Economic Impact Payment are common.
Use strong and unique passwords for online accounts. Use a phrase or series of words that can be easily remembered or use a password manager.
Use multi-factor authentication whenever possible. Many email providers and social media sites offer this feature. It helps prevents thieves from easily hacking accounts.
Shop at sites where the web address begins with “https” – the “s” is for secure communications over the computer network. Also, look for the “padlock” icon in the browser window.
Don’t shop on unsecured public Wi-Fi in places like a mall. Remember, thieves can eavesdrop.
At home, secure home Wi-Fis with a password. With more homes connected to the web, secured systems become more important, from wireless printers, wireless door locks to wireless thermometers. These can be access points for identity thieves.
Back up files on computers and mobile phones. A cloud service or an external hard drive can be used to copy information from computers or phones – providing an important place to recover financial or tax data.
Working from home? Consider creating a virtual private network (VPN) to securely connect to your workplace.
You can find additional information and resource links on the IRS website here.
