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Tax Season 2021: What You Should Know

Each year, tax season seems to sneak up on millions of Americans — even though tax season comes around the same time each year.

Each year, tax season seems to sneak up on millions of Americans — even though tax season comes around the same time each year. When individuals, couples, and families think of their financial wellbeing, they typically look at their paychecks and the taxes that they have elected to have taken out at state and federal levels. While it is good to look at, and carefully consider what you decide to have deducted from each paycheck, it is incredibly important to sit down and take a look at your financial records in depth before tax season sneaks up on you.

For many people, the year 2020 was extremely uncertain — as people all across the world were forced to think differently and act differently — both socially and financially. Because of this, it is more important now than ever before to know where you stand before starting your taxes.

The Financial Sherpa is more than just a provider of financial coaching, wealth management services, and divorce consulting. Instead, it is a team of individuals, led by founder Sophie Denis-Helenek, who are here to help you prepare for and overcome your financial Everests. If you need financial advice or assistance preparing for the 2021 tax season, we urge you to get in touch with us today.

Tax Season 2021 At A Glance

A lot has changed in the last calendar year, and that is bound to affect how you do your taxes. That said, there are a few basic things that you should know:

  • Tax Day is Monday, May 17, 2021. You absolutely must file your 2021 tax returns by this date.

  • The standard deduction has increased to $12,400 for individuals filing alone and $24,800 for married couples filing jointly.

  • The income tax bracket increased during 2020 to account for inflation.

  • And there is plenty more!

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Tax Deductions & Credits For The 2021 Tax Season

When it comes to taxes, it is the deductions and credits that you qualify for that determine if you get to keep a little extra hard-earned money or not. Tax deductions help lower the amount of your income that is subject to federal taxes, while tax credits lower your actual tax bill by the dollar.

Below, we have listed a few deductions that you might be able to claim on your 2020 tax return.

Charitable Donations

If you find that you are more inclined to give than others, you may be able to claim your charitable contributions on your 2020 tax return. The CARES Act is designed to encourage more charitable giving and allows you to deduct up to 100% of your adjusted gross income (AGI) — otherwise known as your total income minus other deductions that you have already taken — in qualified charitable donations.

If you are taking the standard deduction, the CARES Act has added a new “above-the-line” deduction that can help you write off up to $300 of charitable cash donations that you had made during 2020.

Medical Deductions

Due to the global pandemic that we are currently experiencing, there will be more people this year than ever before who can deduct medical expenses from their tax returns. If you have spent a significant amount of time in the hospital or have found yourself responsible for a mountain of medical debt, you may be able to deduct any medical expenses above 7.5% of your adjusted gross income.

If your adjusted gross income was $100,000, you would be able to deduct your out-of-pocket medical expenses over $7,500 in 2020. That said, this can be a complex process, and you will have to itemize your deductions if you want to write of the deductions in your tax return.

Business Deductions

If you have found yourself to be self-employed during the last year, you might be able to qualify for business deductions on your tax return. Travel expenses, in-home office costs, and other essential parts of your business might qualify as a deduction.

This rule only applies to people who are self-employed, and So if you were sent home by your employer to work in the safety of your own home, you would not be qualified to make a business deduction.

Earned Income Tax Credits

An earned income tax credit is a refundable tax credit that was designed to help low-income and middle-income workers (earning up to but no more than $56,844 in 2020) with their tax returns. Your income, filing status, number of children, and more will all contribute to determining how much of a credit that you receive.

Child Tax Credit

Raising children during the pandemic has without a doubt proven to be difficult. That said, your efforts have not gone unnoticed by the government. Families can claim up to $2,000 per qualified child with this tax credit.

Your income, number of children, and filing status can all affect whether or not you are eligible, but if you have children, you should seriously consider looking into whether or not you qualify for any child tax credits.

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Navigate Your Taxes With Professional Help

Since the beginning of time, people have viewed tax season as a nuisance. That said, it doesn’t have to be. By enlisting the help of a financial coaching professional or wealth management professional, you can rest assured that any and all deductions and credits that you qualify for will be explored — in the end, saving you money.

At The Financial Sherpa, we are proud to offer financial coaching and wealth coaching services that are designed to help you save money now while learning positive money management skills for the future. If you are interested in consulting a member of our team for financial advice regarding your 2020 tax return, we urge you to contact us today. And remember to file your 2020 tax return by May 17, 2021! We look forward to working with you and ensuring that you get the most out of your 2020 taxes.