March 15, 2021
5 Tax Tips for Filing Your US Tax Return in 2021
We hope your 2021 is off to a great start so far and that your friends and family are healthy and happy. To help you get ahead of the game, we put together a few 2021 specific tax tips to help you get the most benefit from filling your 2020 US Tax Return.
Tax Tip #1: Double Check Your Charitable Contributions
New for some 2020 US tax returns, cash charitable contributions can lower taxable income, even if you normally take the standard deduction. Now most everyone can take a $300 deduction for donations made in cash. Just remember, that this does not include donating stock or items such as clothing to Goodwill (unfortunately, for those of us who ‘Kon Mari’d’ our closets during shelter-in-place).
For some background – prior to 2020, a deduction was only available to those that took the itemized deduction. In other words, items such as state income taxes, property taxes, mortgage interest, and charitable contributions needed to total more than the standard deduction ($12,400 for Single, $24,800 Married Filling Joint).
Tax Tip #2: See If You Can Deduct Your New Home Office
The Covid-19 pandemic forced a lot of individuals to begin working remote. A question we now face is, can I deduct for home office expenses? The answer is yes and no. Before 2017, employees working from home may have been eligible for the home office deduction. But, beginning in 2018 the home office deduction is only available for those who are self-employed – good news for those who became their own boss in 2020.
Tax Tip #3: Track Your Virtual Currencies (Bitcoin, etc.)
If you are invested in virtual currencies, the IRS appears to be increasingly scrutinizing this income. New for 2020, a question on the front page of the tax return (Form 1040) appears asking individuals if they received, sold, exchanged, or acquired virtual currency during 2020. This question was previously included on a later schedule in 2019. Even if an individual only purchased virtual currency during 2020, it must be included. Additionally, any sale or even use of the currency is treated as a sale and needs to be reported on Schedule D (Capital Gains and Losses).
Tax Tip #4: Account for Stimulus Payments
For those that received the correct first and second stimulus check amounts, no action is required on your 2020 US tax return. If you did not receive your stimulus checks or the payment was less than the full amount, then you may claim the Recovery Rebate Credit. Below are a few reasons why the Recovery Rebate Credit might be claimed:
- You were a dependent on parents’ tax return in 2019, but not on their 2020 tax return.
- You had a new child born in 2020.
- Your income in 2020 decreased from 2019; therefore, your 2020 income was below the qualifying income thresholds ($75,000 Single, $150,000 Married Filling Joint).
- You did not have a social security number valid for employment in 2018 or 2019, but you received one by the due date of your 2020 tax return.
Tax Tip #5: Analyze Your State’s Unemployment Tax Policy (If You Were Unemployed)
Unemployment benefits/ income received during 2020 is taxable on an individual’s United States tax return. However, tax policy varies state by state on whether the benefits are taxable or non-taxable. For example, California does not tax unemployment benefits, but if you are in Arizona, Illinois, and New York, these states do tax unemployment benefits.
The pandemic year of 2020 may have made filing in 2021 just a little bit more complicated. However, by implementing these 5 tax tips for filing your US tax return in 2021, hopefully taxes are now a little less stressful.
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