Important Tax Information EnclosedImportant Tax Information Enclosed
Spend A Little Time Each Week To Prepare For The April 15, 2021 Filing Deadline
Most of the needed tax records to prepare your tax return will show up in the mail or online in January 2021. Collecting all your tax related documents is important so that we report a complete and accurate return.
The IRS also gets copies of many of these documents and will match your tax return to their records.
Let Us Review What You Should Be Looking For...
W-2s Read them carefully. Contact your employer if there is a discrepancy or if you do not receive them by the end of January.
1099s You should receive 1099-INT or 1099-DIV forms for any accounts that pay interest or dividends. Even tax-exempt interest must be reported. IMPORTANT: "Corrected" forms are always a possibility. Be alert for such announcements.
You would receive a 1095-A if you purchased Health Care through the Health Insurance Marketplace and had part of your premiums offset by the Advance Payments of Premium Tax Credit. This form is needed to calculate the actual Premium Tax Credit for which you would be entitled.
Other 1099s Real estate sales are often reported on 1099-S. Stock sales on 1099-B or Consolidated 1099 Pension, 401K and IRA distributions are reported on 1099-R. Pay special attention to forms 1099-A and 1099-C. These report foreclosures and debt consolidations or debt cancellations which may or may not result in taxable income. We need to see them to correctly prepare your return.
Form 1098 Reports mortgage interest paid to a bank, savings & loan, or credit union. These forms may also report real estate taxes (if payments are escrowed by the lender).
Other Income Look for 1099s of state tax refunds, unemployment income, prizes or gambling winnings or rents that you collect. Read each one carefully and keep them with all your other tax documents. Gambling winnings can also be reported on Form W-2G. There will also be new 1099 for self-employed called 1099-NEC.
Your Records Review records for possible income or deductions. Add up medical expenses and any taxes paid. If you recall paying a deductible expense but do not have a receipt, jot it down and we will discuss before I prepare your return. Charitable contributions are different you must have receipts, or your deduction could be challenged and denied! If you are missing a receipt, contact the charity to see if you can get the document(s) needed.
2020 is almost over…
But Healthcare Related Items Are Up In The Air!
With COVID-19 on everyone's mind other important items may not get the attention they should. One such item is Obamacare. In 2019 an appeals court ruled that the individual mandate requiring the uninsured to buy health care coverage or pay a tax is invalid since the fine for noncompliance was $0 beginning in 2019. The Supreme Court agreed to hear the case in 2020 and must decide whether the individual mandate can be severed from the rest of the law or if the entire Affordable Care Act must fall. The ruling could affect many current provisions within the Tax Code. These provisions include the Health Premium Tax Credit, the 3.8% tax surcharge on net investment income of high-income taxpayers (also known as the NIIT) and the employer mandate.
Social Security Review
Social Security Benefits are increasing for 2021. Americans who collect Social Security will receive a 1.3% increase in their monthly payouts in 2021. The extra benefits kick in on Jan. 1. Annual increases in Social Security are determined every year based on changes in a component of the consumer price index. Social Security recipients got a 1.6% cost-of-living adjustment in 2020, 2.8% in 2019, 2.0% in 2018 and 0.3% in 2017. These annual increases are meant to keep up with inflation. The average retiree received a benefit of $1,514 in June 2020, meaning that the average retiree can expect to see an increase of about $20 per month.
Social Security Recipients Medicare Premiums for 2021
Congress has made a move to head off a potential premium spike for some Medicare beneficiaries.
As part of a short-term government funding bill passed by the Senate any increase in Medicare Part B premiums for 2021 would be capped at 25% of what it otherwise would be for 2021.
While it's still uncertain what the standard premium would be for 2021 it is based on an actuarial formula and typically revealed in early November for the next year. Estimates are unusual this year due to the economic upheaval from the coronavirus pandemic. Early estimates would have most people pay $153.30 per month for Medicare Part B in 2021. This increase is 6% higher than the $144.60 per month for 2020. However, the impacts of Covid-19 were unknown and therefore could not be factored into the estimates.
Social Security benefits are increasing by 1.3% in 2021, which will cover the increase in premiums for most people.
Premiums are increased for higher ¬income beneficiaries-those with adjusted gross income plus tax-exempt interest income of more than $88,000 if single or $176,000 if married filing jointly. These beneficiaries will continue to see the income limits adjust to general price inflation annually.
Myth vs. Truth
I must start taking required minimum distributions (RMDs) from Traditional IRAs and employer¬sponsored retirement plans (special rules apply if you're still working and participating in your employer's retirement plan), and even some inherited Roth accounts by the end of the year in which I tum age 70½.
The Secure Act increased the required minimum distributions (RMDs) age from 70 1/2 to 72 beginning in 2020. The age increase will only apply to anyone born on or after July 1, 1949. In addition, The CARES Act suspended ALL retirement Required Minimum Distributions (RMDs) for 2020. If you already took your RMD for 2020 and wish to return those funds to the account to avoid paying tax, there are two options. If the initial distribution was taken within the last 60 days, you may return the funds to the account as a 60-day rollover. You are only allowed one rollover per 365-day period.
If you are already outside of the 60-day window and you are able to meet the definition for a corona virus ¬related distribution, you would have three years to return the amount you originally received as an RMD. Not everyone will qualify ... call me to discuss your unique situation.
My charitable donations are not deductible unless I itemize my deductions instead of claiming the standard deduction.
The CARES Act, passed earlier this year in response to COVID-19, allows a charitable deduction from Adjusted Gross Income (AGI) of up to $300 for taxpayers (MFJ, Head of Household or Single) that do not itemize but gave a cash ( or check) contribution to a qualified charity, with proper documentation.
Take extra time to make sure that you have all the necessary facts if any of the following situations applies to you.
Child Care Expenses. I need the full name, address, telephone number and tax ID number of your care providers, and the total paid per child to each caregiver.
Estimated Federal Tax Payments. Find the date and amount for payments. April 15, 2020, September 15, 2020, and January 15, 2021. A Federal January 2020 payment would have been claimed on your 2019 return.
Sales of Property. Most important item is the Final Settlement Statement. Include a list of home improvements in prior years since purchase.
College Tuition. Form 1098-T lists tuition paid. These forms are generally available electronically to the student. Make sure that the "student" checks for these forms and gives them to you. I need these forms as well as details on the courses, all education-related expenses for required equipment and related fees, when each item was paid and who the "student" was.
Sales of Stock. Form 1099-B shows sale prices. If this form does not show the original purchase information, you will need to provide this.
Tax Rules On Pass-Through Entities Continue. Schedule K-1 from partnerships and S-Corps always seem to arrive late. Don't worry. We can do the rest of your return and be ready to finish when the elusive K-1 arrives.
Social Security Benefits. Look for Form 1099-SSA. We must report the gross amount and not just your net monthly benefit. Your Medicare Premiums listed on the form may also show a medical deduction.
Employees - Last Pay Stub. Your W-2 is critical, but your last pay stub may reveal tax deductions that do not usually show up anywhere else, such as union dues.
Special Accounts. Do you contribute to an IRA, Roth IRA or Health Savings Account? These and others can affect your taxes. Make sure I have all 1099s and information on contribution amounts and dates.
Complex Transactions. Please call if you have a foreclosure, sale or exchange of real estate, casualties such as a natural disaster.
Would you like to read a past issue. Please check out one of these issues:
Year End 2020
Year End 2019
Year End 2018
Year End 2017
Year End 2016
Year End 2015
Year End 2014
Year End 2013