Last year brought the pandemic and natural disasters, both life — and tax law — changing events.
Deadlines, stimulus checks and tax brackets
“As of the news feeds right at this moment, professional filing season for filing federal taxes is May 17 and for filing state taxes is June 15,” said Catherine L. Dupuis, APAC.
Another top-of-mind question is about the stimulus payments received this year.
“You should claim your stimulus,” Dupuis said.
It is technically a tax credit. The IRS will not add the amount to income, generating a bigger tax bill or reducing the refund.
“If you didn’t get your stimulus payment last year, but were owed one, your tax return might be a means to get that,” Dupuis said.
“I think the biggest worry is that laws keep changing,” said Courtney Jicks, area manager for Jackson Hewitt Tax Service.
She’s already completed 3,000 returns in Lake Charles alone. Some of those were early filers eager to get their refunds because of the impact of COVID and the hurricanes on their personal finances.
The average refund, a figure announced by the IRS, is $2,929 this year.
“This is the largest check some people get in a year,” she said.
However, after many of those returns were filed, President Joe Biden signed the American Rescue Plan Act of 2021. The $1.9 trillion coronavirus relief bill gives a federal tax break on up to $10,200 of unemployment benefits for those who made under $150,000 in 2020. More than a third of those 3,000 filers Jicks talks about received unemployment benefits in 2020.
Ordinarily, tax has to be paid on unemployment compensation.
“We’ve already gotten 300 phone calls from confused clients,” Jicks said.
The IRS will amend returns filed on March 31 or before. Individuals (and married filing jointly couples) who filed after March 31 will have completed or will be completing a new form that reflects the change.
“It’s different for state,” Jicks said.
Louisiana taxpayers who have not yet filed their 2020 state income taxes should follow the instructions on the resident or non-resident state income tax return, depending on their residency status. Those who have filed their state taxes already will need to file an amended state return to reduce their Louisiana adjusted gross income by the appropriate amount.
“It could be well worth it to amend if you owed state tax,” Jicks said.
“When President Trump invoked the Stafford act, it made this a disaster area,” said Mike Terranova of Terranova CPA Firm. “This, of course, opened doors for FEMA, but it also opened the doors to take tax deductions for hurricane losses.
Items needed to claim and document the deduction figured by your tax preparer include the adjustor’s report and cost basis for the home. The cost basis for the home is calculated based on the fair market value before the damage and the fair market value after the damage, a number that may be difficult to establish.
“The key to hurricane loss deductions is accurate record-keeping, Jicks said.
Even die-hard do-it yourselfers might want to go to an expert this year. For one thing, the IRS is backed up. They’re hard to reach.
“So far, the feds have issued three different press releases apologizing for being backed up. The usual 21-day turnaround is now 30 to 40 days.”
They fell behind due to COVID stay-home mandates.
For those who plan to go it alone when filing, be careful not to miss out on the Earned Income Tax Credit. Like everything, it depends on income and number of children, but it’s for filers who made up to $56,844 per year.
“About one out of every five eligible taxpayers either don’t claim the benefit or don’t file their taxes at all,” Jicks said.
Financial hardship caused by the pandemic and hurricanes caused some to dip into retirement accounts.
“You have the option of spreading the tax liability over three years,” Jicks said. “For instance, if you withdrew $60,000, you’ll claim $20,000 over the next three years.
This could also result in being placed in a lower tax bracket and a lower tax liability. Another factor that could make that happen is wider tax brackets this year.
Over the years, the standard deduction has gotten higher and higher, which hasn’t allowed people to claim their charitable contributions, Jicks said. “Under the CARES Act, you are allowed to directly deduct $300 of your cash donation, only on your 2020 tax return.
The “look back” is a tax break that allows taxpayers to use their 2019 earned income credit to determine eligibility on some of these new tax laws, credits and other changes.
This article is not intended to include every new change in filing taxes this year. Only to demonstrate more changes to the process than in years past, even more than 2008, which was also a memorable year in tax law changes, according to Jicks.