Tax Planning 2021: Are You Ready for Tax Season?

Tax planning is extremely important. Start getting ready today to file your 2020 tax return by gathering the forms and documents you’ll need.

The IRS needs to know exactly who is filing and who is covered in your tax return. To do this, you will need Social Security numbers and dates of birth for you, your spouse, and your dependents.

Gather your documents

Taxpayers should gather the following documents:

  • Income from jobs β€” Form W-2 for you and your spouse
  • Investment income β€” various forms, 1099, and K-1s.
  • Income from state and local income tax refunds and/or unemployment β€” Form 1099-G
  • Taxable alimony received β€” for divorces finalized before January 1, 2019
  • Business income β€” profit/loss statement or a breakdown of income and expenses.
  • Home businesses β€” home size, office size, home expenses, office expenses.
  • IRA/pension distributions β€” Form 1099-R.
  • Rental property income/expense
  • Social Security benefits β€” Form SSA-1099
  • Income from sales of property β€” original cost and cost of improvements, escrow closing statement, cancelled debt information (Form 1099-C)
  • Other miscellaneous income β€” jury duty, gambling winnings, Medical Savings Account (MSA), scholarships, etc.

Adjustments to Your Income

The following can help reduce the amount of your income that is taxed. This can increase your tax refund or lower the amount you owe.

  • IRA contributions
  • Energy credits
  • Student loan interest
  • Medical Savings Account (MSA) contributions
  • Self-employed health insurance payments
  • Keogh, SEP, SIMPLE and other self-employed pension plans
  • Alimony paid that is tax deductible (applies to divorces finalized before January 1, 2019)
  • Educator expenses

Itemized Tax Deductions & Credits

Several deductions and credits are available to help lower the tax burden on taxpayers. Good tax planning means you need to track this throughout the year. Make sure you have the following information and supporting documentation available:

  • Childcare costs β€” provider’s name, address, tax id, and amount paid
  • Education costs β€” forms 1098-T, education expenses
  • Adoption costs β€” SSN of child, legal, medical, and transportation costs
  • Home mortgage interest and points you paid β€”Form 1098
  • Charitable donations β€” cash amounts and value of donated property, miles driven, and out-of-pocket expenses
  • Casualty and theft losses β€” amount of damage, insurance reimbursements
  • Medical and dental expenses

New in 2021: Recovery Rebate Credit

Taxpayers may be able to claim the Recovery Rebate Credit if they met the eligibility criteria in 2020 and meet the following requirements.

  • They did not receive an Economic Impact Payment this year, or
  • Their Economic Impact Payment was less than $1,200 ($2,400 if married filing jointly for 2019 or 2018) plus $500 for each qualifying child.

EITC / ACTC Refund Availability

By law, the IRS cannot issue refunds for people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) before mid-February. The law requires the IRS to hold the entire refund βˆ’ even the portion not associated with EITC or ACTC. The IRS expects most EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards by the first week of March, if they chose direct deposit and there are no other issues with their tax return.

Migration Resource Center Tax Services

The Migration Resource Center staff has a team of tax consultants, tax attorneys,
enrolled agents, and CPAs. We can assist you with tax planning as well as reducing tax liabilitieseliminating tax disputesnegotiating IRS payments, and providing ethical tax representation and tax resolutions.
Please contact us at (646) 827-2959 or use our webform to schedule a free tax consultation.

By: Fatima Kandri, U.S. Tax Court Practitioner, December 21, 2020