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Tax season is just around the corner, so it’s time to get a start on the best practices for paying your taxes. But thanks to the unique year that was 2020, there are some things you should know.
We may want to leave all of 2020 behind us, but there is no way around it–we have to pay those taxes. There have been some changes for the 2021 tax season that you should take into account. Here are three things you should know:
1. Because of inflation, income tax brackets have increased.
2. The standard deduction for 2020 is higher.
3. If you received a stimulus check in 2020, you do not have to pay taxes on it.
Now, let’s take a closer look:
What does an increased income tax bracket look like for you?
While the tax bracket has only changed slightly, this is the percentage you’ll need to pay based on your income.
So, in 2021, when paying your 2020 taxes, if your income is within the $9,875 to $40,125 single-person tax bracket, you’ll be looking at a 12% tax rate. While the tax rate is the same as the previous year, the tax bracket has changed by a few hundred dollars.
Should you take the standard deduction or itemize deductions?
With the standard deduction increased from $12,200 to $12,400 for someone with a single filing status, and $24,400 to $24,800 for those who are married and filing jointly, and so on, some people may choose to simply take the standard deduction in 2021.
However, if you believe your itemized deductions surpass the standard deduction, it may benefit you to take the extra hassle and time to itemize your deductions when paying your taxes.
Keep in mind, that if you’re a self-employed person, you could get numerous deductions on your tax return.
You don’t have to pay taxes on the stimulus checks, but did you receive unemployment benefits in 2020?
For many people who faced hardships in 2020, the stimulus checks were a welcome relief, especially with the knowledge that they didn’t have to pay taxes on them.
However, if you lost your job as many others did throughout the COVID-19 pandemic and received unemployment benefits, and you didn’t choose to have taxes withheld, you will need to pay taxes on them by Tax Day 2021.
Now that you know what to expect out of the 2021 tax season, these tips below can help make life easier for you:
— If you run a business or are a self-employed freelancer, consider using an option like tax software hosting with ProSeries and Lacerte. This makes it easy to have everything organized and readily available online.
— If you’re an individual, you may want to consider using a website that simplifies the process for you or hire a tax professional to help you understand the ins and outs so you can achieve the best outcome in your tax returns.
— With April 15th as the final day to pay taxes, it’s wise to get ahead and do your taxes as early as possible. First, this helps to ensure you’re not rushing to do it in the middle of April. Second, the sooner you get it done, the sooner you can focus on your important financial goals for 2021. You can start filing as soon as the 12th of February.
Are You Ready To File Your Taxes?
While there have been a few changes in percentages, deductions, and brackets, for the most part, the process of paying your taxes isn’t much different from years past.
Whether you choose to work with a professional to help simplify tax filing for you or you choose to handle your taxes yourself, knowing what to expect can help you make the right choices when it’s time to file your taxes.
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