Properly Preparing for the 2021 Tax Season

While the pandemic still carries on, Tax Day in the United States has return to its traditional deadline of April 15th. Those who remember filing federal income taxes later last year (it was pushed to July 15th in 2020) will need to prepare accordingly. Like in all other years past, tax returns must be postmarked by midnight on April 15th and anyone filing electronically must submit them by midnight on April 15th in their time zone. The only slight change administered by the Internal Revenue Service (IRS) was the delay in processing returns, which was shifted to February 12th.

There are a few notable pieces of information about the upcoming filing season in light of the interesting year that was 2020.

Stimulus Checks

The stimulus checks issued to many Americans do not count as income and taxpayers will therefore not owe taxes on them. However, there are some people who did not receive a stimulus check when they presumed they should have been eligible for one or more. If this is the case, a Recovery Rebate Credit can be claimed on a 2020 Form 1040 or 1040-SR. This can be submitted for missing checks as well as issues with not receiving the full amount owed.

Even if someone does not typically file taxes, the IRS is requesting that those in the above situation should file and claim the credit.

Unemployment Taxes

First of all, unemployment income will be taxed. With a lot of lost jobs in 2020 came a lot of filing for the expanded unemployment benefits. Many of those who filed for unemployment benefits may not have realized that they are counted as taxable income. According to the IRS, income received via unemployment benefits must be reported and failing to do so could mean that taxes are owed. Failing to pay the IRS if taxes are owned could result in interest as well as potential penalties.

In addition to the above unemployment taxes, it should be noted that taxes were not automatically withheld and that beneficiaries’ paychecks can be withheld a flat federal tax rate of 10 percent. If federal taxes were not withheld, taxpayers may have to send quarterly payments to the IRS, which is typically for individuals anticipate owing more than $1,000 once their tax return is filed.

Taxpayers will typically see the withheld taxes and unemployment income on the 1099-G statement.

Important Tax Deadline Dates

While we are approaching the 2021 tax season, it is important to note that a backlog has continued to accrue from last year’s tax returns. In fact, the IRS has claimed that they still have unopened tax returns from 2020. Estimates from the IRS are that there are millions of individual tax returns still in the “processing pipeline”. As the IRS works through the backlog, keep in mind the following important IRS tax deadline dates for 2021:

  • January 15th: final 2020 estimated tax payment due
  • January 15th: the IRS Free File service officially opens for 2020 returns preparation
  • January 19th: the Free MilTax service for the military opens for 2020 returns preparation
  • February 12th: IRS processing for 2020 returns begins
  • April 15th: 2020 tax return deadline
  • April 15th: first 2021 estimated tax payment due
  • June 15th: second 2021 estimated tax payment due
  • September 15th: third 2021 estimated tax payment due
  • October 15th: 2020 tax return deadline extension (after filing for an extension – Form 4868)

Some people expected to see similar extensions in place for the 2021 tax season, however, it is clear that the IRS expects people to file on time this year. At Ellrich, Neal, Smith & Stohlman, P.A., our tax services include the preparation of federal and state income tax returns for all business, not-for-profit organizations, and personal entities including individuals, estates, trusts, partnerships and corporations as well as business and individual tax planning and consulting.

Our tax planning service goes far beyond filing a tax return. We assist new businesses with basic ownership options and tax consequences and guide growing businesses through year-end planning and projections. We offer a broad range of consulting services that include evaluating material transactions, mergers and acquisitions, international taxation strategies, and estate and trust planning.

Contact our Palm Beach Gardens or Miami offices today to learn more.