The time is here to start preparing for that dreaded activity we must do every year—our taxes! Last year with Covid-19, the IRS gave us extra time to get them done, but this year the deadline stands at April 15. In fact, did you know the IRS starts accepting and processing 2020 returns as early as February 12? So, if you already have your necessary paperwork together, you can move forward with preparing them and sending them in! In fact, the IRS urges taxpayers to file electronically with direct deposit as soon as you can to speed up refunds during the pandemic.
But, if you are like most of us, you probably still need to get your stuff together. Start now to gather your pay stubs, W-2 forms, charitable donations, 1099-G forms for state and local taxes, 1099 forms for dividends or other income, etc.
Try to make it a habit to put all of it in the same place every year, so that when you sit down to do your taxes, you will be ready. As a Sterling Financial Management client, you can access your 1099 in Account View starting February 19 (Don’t have access to Account View? Call Courtney Dowler at (301) 733-7777, and she will get you set up! You will receive your 1099 in the mail, if you have not already.)
What do you need to know for 2021?
· Consider whether you have had any major life changes over the past year such as a new baby, new job, got married or moved to a new house. You can no longer deduct moving expenses unless you are on active duty in the U.S. military.
· You can still make contributions to your ROTH or IRA accounts for 2020. You may contribute up to $6,000 per year, per person. Deadline is April 15.
· The Coronavirus Aid, Relief and Economic Security Act or better known as the CARES Act waived the 2020 Required Minimum Distributions (RMDs) for all retirement accounts. This includes inherited IRAs, SEP IRAs, SIMPLE IRAs, 401(k), 403(b) & 457(b) plans. As this is a true waiver, 2020 RMDs do not have to be made up in 2021.
· You will have to pay taxes on unemployment benefits for federal and possibly state. However, you will not have to pay taxes on any stimulus checks you received over the past year.
· The Child Tax Credit remains the same at $2,000 per qualifying child.
· Contributions to Health Savings Accounts’ are pretax, enjoy tax-free investment returns and the money comes out tax-free if used for qualified medical expenses.