This Tax Season May Be A Little Less Taxing Than Usual
I am writing this article on April 15th, the day federal tax returns are usually due to be filed and outstanding taxes to be paid. It’s usually a pretty stressful day. However, this year we taxpayers have until May 17th to file due to the pandemic. This is not quite as long as the extension we were granted last year, but it is enough to provide much-needed breathing room to deal with the continued challenges presented by the COVID-19 pandemic.
With all the changes that have occurred in the tax law, and the PPP loans extended, taxpayers are understandably confused, and tax preparers are inundated. In addition, many people have had to withdraw funds from their retirement accounts and 401k plans just to make ends meet during the past year and a half. Unemployment issues plague others, while many still haven’t received any of the three stimulus payments. It is without question a confusing time for so many.
Additional Tax Breaks
In addition to the extended time frame for filing your tax returns, there are other tax benefits to be aware of when preparing your taxes. For instance, the COVID relief package, which President Biden signed into law earlier this month, enables taxpayers who earned under $150,000 in modified adjusted gross income to exclude unemployment compensation up to $20,400 if they’re married filing jointly, or $10,200 for all other eligible taxpayers. Be aware that this only applies to 2020 unemployment benefits.
However, if you have already filed your taxes and are eligible for this benefit, the IRS will automatically begin making the appropriate refunds later in the spring and summer. The good news is that you don’t have to file an amended tax return.
Taxes On Early Withdrawals From Retirement Accounts
If you had to take early withdrawals from your retirement account, don’t worry, you are not alone. Fortunately, legislation that was enacted in March 2020 allows you to withdraw, up to $100,000 from qualified retirement accounts last year without facing a 10% early withdrawal penalty if you were under the age of 59½, for COVID-related reasons, Those reasons can include but are not limited to getting laid off from your job, working fewer hours or a spouse being diagnosed with COVID. While you can also spread that withdrawal as income across three years, your 2020 return should include at least one-third of the taxes due. You’ll want to double check this with your tax preparer.
Some People Are Actually Saving More Money
While untold numbers of people are suffering tremendous losses as a result of the pandemic, many are actually able to save money during this unprecedented time. People who are working from home are saving on wardrobe and transportation costs going to and from the workplace. Spending is down on travel and dining out as well. Many of our clients have been able to continue contributing to their retirement accounts as well. Everyone has restricted travel and moving about in general and this has led many into looking into more disciplined saving strategies.
If you are interested in exploring more efficient strategies to save for retirement, give us a call. We can look into ways that may be more advantageous to you and help keep you steady in any financial storm.