To say 2020 has presented unique economic challenges may be the understatement of a lifetime. Along with health scares, political uprisings and shelter-in-place orders, many income earners experienced business closures. Whether temporary or long-term, the threat to financial stability will inevitably show its face in upcoming tax returns.
Stimulus payments provided some semblance of relief for many Americans struggling to make ends meet. And while another check could potentially come to fruition, it’s important to consider the ramifications of the assistance offered by the federal government.
Stimulus payments and 2020 returns
If you worry about whether you need to report your stimulus check as income, you can rest assured. Although you will need to include your recovery rebate credit on your tax return, your liability should not reflect the amount of money you received from the government
If you don’t earn enough money to meet filing requirements, the IRS may not have a current address or bank account on file. Therefore, pandemic relief checks are still in the works for roughly 9 million Americans whose annual earnings total less than $12,000.
However, money not claimed by the October 15 deadline won’t be issued until next year. To further complicate matters: a potential delay in your Earned Income Tax Credit. Likely filed by mail. Sent to an organization that fell behind months ago.
With or without affordable tax preparation help available, the structure of the stimulus program requires filing. Additional anticipated challenges surrounding the stimulus include:
- Inaccessibility. There are a variety of reasons why some people cannot access the money issued to them. Lacked access to a former joint account, for example, or matters of domestic abuse.
- Knowledge. If you don’t typically have to file a tax return, will you recognize the need to do so next year?
- Status. Regardless of your employment history, if someone else claimed you as a dependent, they may have reaped your benefits.
Unfortunately, those most in need of help may be the ones who must overcome obstacles to receive it. Yet, low-income earners aren’t the only ones who can expect changes in requirements.
Updated liability and closed loopholes
With the hopeful economic recovery in the pandemic’s aftermath during the new calendar year, you may begin to see a financial increase once again. Though, there’s no guarantee this will reflect in your profits.
For tax year 2021, the anticipated alternative minimum tax exemption may be $73,600 for a single taxpayer, while married couples who file together could expect to see $114,600. Other projected changes include:
- Contributions to a health flexible spending account max out at $2,750, allowing a $550 carryover.
- The $2,500 student loan interest deduction will not apply for modified adjusted gross incomes at or above $85,000.
- The estate tax exemption is set to rise to $11.7 million per decedent.
- Certified seriously delinquent tax debt of $54,000 may allow for passport revocation.
With informed guidance, there may be some moves you can make before the end of the year to ease your tax burden in the year to come. Despite potential adjustments ahead, your right to protect your interests remains the same.