What’s Different In 2021 About Saving For Retirement

2020 was a challenging year for everyone, but the retirement changes that occurred because of coronavirus legislation did offer some advantages to retirees and retirement savers.

The CARES Act (Coronavirus Aid, Relief and Economic Security Act) was a $2.2 trillion economic stimulus package that sent stimulus checks to many Americans and boosted unemployment benefits. Here’s a summary of the CARES Act “silver lining” for retirees:

Required Minimum Distributions (RMD)

The CARES Act gave retirees a pass on the required minimum distribution, which would normally require them to withdraw money from an IRA and pay income tax on it. The free pass ended in 2020 however, and retirees will have to resume taking their RMDs in 2021.

Retirement Plan Withdraws

Another positive outcome of the CARES Act is it allowed up to $100,000 of retirement account withdrawals with no penalty as long as the person was younger than 59½. It also gave permission to spread out the tax on any retirement plan withdrawals over three years, and replace the money if they wanted to as long as the withdrawal was related to COVID. The early withdrawal penalty is reinstated for 2021, and any income on withdrawals will have to be counted as income unless the person qualifies for the COVID-Related Tax Relief Act (COVIDTRA) of 2020.

Retirement Loan Plans

In 2020, savers could borrow up to $100,000 from their 401(k) accounts without making payments on those loans for 12 months. In 2019 they could only borrow $50,000. This change could continue into 2021 if the retirees qualify for the COVIDTRA.

IRA Limits for Deductible Contributions

There is no change in the amount you can contribute to an IRA in 2021, but the income limits on contributing to a Roth IRA or deducting a traditional IRA are slightly higher.

Social Security COLA

The Social Security Administration instituted a 1.3 percent cost of living adjustment (COLS) for most beneficiaries that took effect January 2021. There is a $20 average monthly increase in Social Security retirement payment this year to $1,543. For a worker at full retirement age, the maximum monthly Social Security benefit is now $3,148, up $137 from 2020. Full retirement age for those people born in 1955 is 66 years and 2 months. That number rises gradually to 67 for anyone born in 1960 or later.

Do you have questions about saving for retirement during a pandemic and beyond? Or are you unsure about how or if last year’s changes in legislation affect your personal retirement plans? You can trust experienced accounting professionals like Donohoo Accounting Services to answer your questions. We’ve been assisting individuals and businesses with their tax preparation and retirement planning for more than two decades, and we would be happy to help you, too. If you are interested in learning more or scheduling a retirement savings consultation, please call 513-528-3982. For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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How Tax Filing Will Be Different In 2021

The coronavirus pandemic brought unforeseen challenges to all aspects of business around the world, so it should be no surprise that it will impact this year’s taxes as well. Coronavirus legislation and inflation adjustments changed some of the most influential tax rules. Here is what you can expect to be different when you file your taxes this year.

February 12 is the opening date, and April 15 is the deadline

The first day to file in 2021 is February 12. We were all given a tax filing extension last year, but we’re back to April 15 for 2021. That doesn’t mean you can’t get an extension; but remember that being granted an extension only gives you more time to file your taxes, not more time to pay what you owe.

Charitable Deduction

The CARES Act allowed taxpayers to deduct up to $300 in monetary deductions in 2020 even if they chose to take the standard deduction. This was the IRS’s way to encourage Americans to contribute more money to charity during the pandemic.

Higher HSA Limits

Contributions limits for HSA-eligible workers who elected to participate in high deductible health insurance policies increased by $50 for self-only coverage (from $3,500 to $3,550) and by $100 for family coverage (from $7,000 to $7,100).

Higher Retirement Account Contribution Limits

Some workplace retirement accounts have higher contribution limits in 2020, so be sure to check yours. To illustrate, 401(k) plans had a base contribution limit of $19,000 in 2019, but that increased by $500 to $19,500 in 2020. For those who are age 50 and older, the catch-up contribution limit increased by $500 also, from $6,000 in 2019 to $6,500 in 2020. This means that if you are age 50 or older, you could potentially contribute a total of $26,000 ($19,500 + $6,500) to a 401(k) plan in 2020.

Higher Standard Deductions

Each year the IRS adjusts the standard deductions for inflation. This reduces the amount of income that is subject to federal taxes. In 2020, the IRS raised the standard deduction by anywhere between $200 and $400. The breakdown is as follows:

  • Married filing jointly: (+400 from 2019) – $24,800
  • Married individuals filing separately: (+$200) – $12,400
  • Head of household: (+$300) – $18,650
  • Single: (+$200) $12,400

Donohoo Accounting Services realizes these changing tax rules are hard to understand and stay on top of. When it comes time to file your 2020 taxes, you don’t have to do it alone. We are here to help you realize and take advantage of every tax deduction you are entitled to. We have been filing tax returns for individuals and small businesses for more than 20 years, so we are well versed in tax laws and rules and can help save you money, time and headaches.

If the thought of filing taxes fills you with dread or stress, please call Donohoo Accounting Services at 513-528-3982. We can handle the details and ensure you are receiving the tax credits, deductions and refunds you deserve. For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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It’s Not Too Late To Claim Your $1,200 Stimulus Payment

Earlier this year, the government issued roughly 160 million Economic Impact Payments — or stimulus checks — to eligible Americans. The problem is, some people have fallen through the cracks and are still awaiting the first much-needed COVID payment.

If you are in this category and have yet to receive your check, you can claim it on your 2020 taxes. Claiming the payment you were eligible for will lower your tax bill and may result in a cash refund. You will receive it in the form of a Recovery Rebate Credit on your taxes.

Qualifications For A Recovery Rebate Credit

Individuals who are a U.S. or permanent citizen, have a social security number, make less than $99,000 a year and are not claimed as a dependent on someone else’s tax return in 2018 or 2019 likely qualify for the Recovery Rebate Credit.

The exact amount depends on your adjusted gross income. If you are filing single with an average gross income of $75,000 or are a single parent with an adjusted gross income of $112,500, you are eligible for the full amount. Also entitled to the full amount are married couples with a combined adjusted gross income of $150,000 or less.

For every $100 more than the adjusted gross income, the payment is reduced by $5 until it reaches a threshold of $99,000 for single users, $136,000 for heads of household and $198,000 for married couples filing jointly.

So it’s possible that single filers would have been eligible for $1,200 plus $500 for each qualifying dependent; and married couples filing jointly could have been eligible for $2,400 plus $500 for each qualifying dependent.

How To Claim Your Money

According to the IRS, you can claim your Recovery Rebate Credit on your 2020 Form 1040 or 1040-SR. If you received a partial payment, you will need to reference the IRS’s calculated amount from the “Notice 1444 Your Economic Impact Payment” letter when you file. You can also claim any missing payments for a dependent child.

Depending on the amount of stimulus money you’re eligible to receive, your money will either show up on the 2020 tax return as an additional refund, or the amount of tax you owe will be lowered.

We understand that most individuals find the details and nuances of tax season confusing, particularly during unprecedented years like 2020. When you are ready to file your 2020 tax return, reach out to Donohoo Accounting Services. Working with our tax professionals will save you time, frustration and headaches. We would be happy to schedule a complimentary consultation to help you get the cash relief you are entitled to. Give us a call today at 513-528-3982! For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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6 Tips For Homeowners To Maximize Their Tax Deductions

Owning a home is one of the biggest investments most people make in their lifetime. Being aware of tax deductions and other credits available will give this big purchase every opportunity to pay you back a little come tax time. Here are six tips for homeowners to maximize your tax deduction:

Tip #1: Be Organized

Keep detailed records of your home-related expenses, financial documents and receipts. Most federal income tax deductions and credits require a paper trail, so the more organized your records are, the easier the process will be and the more likely it is that nothing will be missed or forgotten.

Tip #2: Deduct Your Mortgage Interest

If your mortgage is less than $750,000, you can deduct the interest you pay on the loan for no more than two residences. This could be your primary residence, summer home, or even a boat if it has plumbing or a bathroom. You can also include interest you may have paid when you closed on your home.

If you own more than two properties, be sure to use the deductions from the property that will give you the largest tax deduction — it may not necessarily be the property with the biggest mortgage payment.

Tip #3: Deduct Your Home Office Space

If you work from home in a dedicated space, you can deduct that space on your taxes. The current tax law allows you to deduct $5 for each square foot of office space, up to 300 square feet. This law has been taken advantage of by some, which is why it has earned a reputation of being an audit trigger. Make sure the space you deduct is exclusively used for your business or side hustle.

Tip #4: Deduct Your Property Taxes

With the Tax Cuts and Jobs Act of 2017, deducting your property taxes is still possible but not as flexible as it once was. You can now deduct up to $10,000, and that includes a combination of state and local tax deductions and state and local property tax deductions.

Tip #5: Consider Energy Efficient Upgrades

Tax incentives have changed for these types of upgrades, but some are worth looking into. Purchases for electric and water heating equipment, solar panels, rain barrels and drought tolerant landscaping may apply. Make sure to do your due diligence and triple check the specific requirements and deadlines for these green projects.

Tip #6: Age-In-Place Deductions

If you plan to live in your residence as you get older, you may be able to deduct expenditures for home improvement projects that will assist you as you age. Upgrades such as wheelchair ramps, lowering cabinets and electrical fixtures, and installing bathtub grab bars may qualify.

Donohoo Accounting Services is here to help you understand the IRS rules and determine the types of tax deductions you may be eligible for. With more than 20 years of experience in the business, we can help you reduce your tax burden by finding every deduction possible. If you would like to set up a free consultation, contact us at 513-528-3982. For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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