Top Considerations for the 2021 Tax Filing Season

By Philip “Rusty” Ross, Senior Wealth Advisor

Last year was unlike any other when nearly all facets of our lives were turned upside down. Taxes are no exception.

Whether it be COVID-19 relief legislation or remote work, filing your returns for the 2020 tax year could be more challenging than normal. And with the tax deadline right around the corner, we wanted to unpack the key items and changes filers should be aware of this year.

• Extensions. The Internal Revenue Service (IRS) pushed the tax filing deadline for individual taxpayers to May 17, 2021, citing unusual circumstances related to COVID-19. This announcement is for 2020 federal filing, payments and Individual Retirement Accounts (IRA) contributions, but is up to individual states to push back their respective state filing deadlines. Of note, Q1 2021 estimated payments are due on the original deadline of April 15, 2021.¹ Additionally, the IRS extended the filing deadline for clients and businesses located in Texas, Oklahoma and Louisiana to June 15, 2021, following the devastating winter storm in February.² This extension applies to filing, payments, IRA contributions and Q1 2021 estimated payments. Both Oklahoma and Louisiana have extended their state due date to match the federal delay.
• Unemployment tax waiver. The American Rescue Plan Act passed in early March includes a tax provision that waives up to $10,200 on taxes for unemployment benefits in 2020.³ It also waives up to $20,400 for those married filing jointly. Of note, if your adjusted gross income in 2020 was $150,000 or greater, you will not qualify for this deduction.
• Stimulus checks. Stimulus payments from both The Coronavirus Aid, Relief and Economic Security (CARES) Acts passed last year were an advanced tax credit,⁴ so be sure to inform your tax team whether you received them. Of note, the IRS will not claw back stimulus for those who no longer qualify based on income limits, but it will still be a credit on your overall return. Additionally, if you returned the checks to the government, it will also reflect as a credit toward your overall return.⁵
• Standard deduction. The CARES Act also introduced a new above-the-line deduction for charitable giving for the 2020 tax year. Married filing jointly or single filers who take the standard deduction are able to claim an additional $300 in charitable contributions.⁶ Make sure to gather a record of receipts for the cash donations you made to maximize your deduction.
• Cryptocurrency transactions. With the growing popularity of bitcoin and other digital currencies, the IRS now asks about cryptocurrency transactions on your return.⁷ This can be difficult to navigate as the crypto exchanges do not necessarily produce 1099s or other tax documents you or your tax team can reference. That said, you must make note of this on your return and should have a record of your transactions to review and look for your cost basis in those positions.
• Paycheck Protection Program. The first CARES Act in March 2020 denied businesses from applying for the employee retention credit (ERC) if they took the Paycheck Protection Program (PPP) loan.⁸ However, the second CARES Act introduced the Consolidated Appropriations Act, 2021, which reversed this provision.⁹ Of course, there are some stipulations involved here, but if your business took the PPP loan you can take advantage of the ERC as long as you meet certain qualifying criteria.
• Backlogs. In February, the IRS distributed a press release announcing incorrect CP59 notices that were sent out due to pandemic-related backlogs.¹⁰ These notices are issued to those who have not filed a tax return that was due the previous year. With employees out of the office and unable to promptly process mail, the IRS is working to resolve these issues. If you received a CP59 notice and did file your 2019 taxes, there is no need to respond or take action.
• Remote work environment. Last year, many remote workers chose to hunker down in a different state or location from their permanent address. If your situation is similar, you may need to consider the sourcing of your days as states have different residency rules for taxes.¹¹ As such, you should inform your tax team regarding the best course of action and potentially allocating days to those states.

As always, there are several things to keep in mind when filing your taxes. This year, however, filing your return could look different due to the coronavirus pandemic. If you have questions or last-minute changes, please contact your Exencial advisor or visit www.irs.gov.

Sources:

1. IRS (3/17/21) – Tax Day for individuals extended to May 17: Treasury, IRS extend filing and payment deadline
2. IRS (data as of 3/19/21) – Tax relief in disaster situations
3. CNBC Select (3/15/21) – You may receive a tax waiver on up to $10,200 of unemployment benefits – here’s how
4. Investopedia (7/31/21) – Advanced premium tax credit definition
5. IRS (5/12/20) – What people really want to know about Economic Impact Payments
6. CNBC.com (11/24/20) – The CARES Act added a new $300 charitable contribution deduction for 2020. Here’s what you should know
7. IRS (1/6/21) – Virtual currencies
8. IRS (3/1/20) – COVID-19-related employee retention credits: Interaction with other credit and relief provisions FAQs
9. Bloomberg Tax (2/18/21) – How the expanded employee retention credit will save small businesses
10. IRS (2/18/21) – IRS statement about CP59 notices
11. Real Simple (2/7/21) – Did you work from a different state for all or most of the pandemic this year? Here’s how your taxes might be affected

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