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Don't Let Tax Day Sneak Up On You! Here are some tips to prep for tax season in 2021

Tax filing is fast approaching. For taxpayers like you, it is confusing with the many changes that happened this year. This information will help you be better informed and prepared as you file your taxes this year.

ERC (Employees Retention Credit)

The Employee Retention Credit (ERC) is one of several benefits under The CARES Act (Coronavirus Aid, Relief, and Economic Security Act). It encourages your eligible employers to keep you and your colleagues on their payroll during the COVID-19. In December 2020, the Consolidated Appropriations Act, 2021 (CAA), changes by extending until June 30, 2021. It is good news if you want to avail this benefit. Recently, the IRS released a new version of

Notice 2020-21, in which the following changes occur:

● Eligible Employers can claim the Employee Retention Credit, equal to 50 percent of up to

$10,000 in qualified wages (including qualified health plan expenses), on wages paid after March 12, 2020, and before January 1, 2021.

● Eligible Employers are those businesses, including tax-exempt organizations, with operations that partially suspended due to governmental orders because of COVID-19 or that have a significant decline in gross receipts compared to 2019.

Second Round of PPP ( Paycheck Protection Program)

If you are a business owner who struggles with your business due to the COVID pandemic, this PPP program loan helps you fund your various costs. The payroll costs, mortgage interest, workers protection costs related to COVID-19, and expenses for operations. The Small Business Administration (SBA) is now offering the 2nd round of PPA loans until

March 31, 2021. So if you received the first round of PPP loan, apply again for 2nd round.

Luckily, with the same general loan terms from the first loan.

Unemployment Benefits Liability

And yes! Unemployment benefits are taxable. The IRS reminded you as a taxpayer to prepare a withholding tax to avoid owing taxes if you file the federal income tax return.

The latest changes were the senate democrats agreed to change from $400 to $300 per week. The first $10,200 unemployment income that has less than $150,000 gross income in 2020 is tax-free.

Recovery Rebate Credit

Recovery Rebate Credit is considered a refundable credit. It means it can lower the taxes you

owe in your 2020 tax return. If you are a U.S. citizen, a U.S. resident alien in 2020, and you have a Social Security number valid for employment, you are eligible for Recovery Rebate Credit. According to IRS and Treasury, they have issued all first and second, and third Economic Impact Payments.

Things to consider for claiming Recovery Rebate Credit:

● If you did not receive the Economic Impact Payments

● If you received the Economic Impact Payments but not in full-amount, then you can claim them.

To claim the Recovery Rebate Credit, you have to file a 2020 tax return. But if you already

received the whole amount, you won't need to include the information related to it when you file the tax return.

Net Operating Loss (NOL) 5-Year Carryback

The CARES Act includes changes to the tax treatment of business Net Operating Losses (NOLs) for corporations and other taxpayers. The CARES Act allows a five-year carryback of any NOL generated in a taxable year beginning after December 31, 2017, and before January 1, 2021.

For individuals or corporations with unrelated business taxable income can take advantage of the CARES Act NOL.

Regular Minimum Distribution (RMD)

When you reach the retirement age, you have to withdraw all your retirement money is called the RMD. This 2021, there are changes such as:

1. Waiver of RMD 2020. It means you can skip the RMD 2020 without charge since the

traditional IRA treat as taxable income.

2. The new RMD age increased from 70 1⁄2 to 72.

3. The RMD was replaced by a 10-year payout rule for many beneficiaries

Earned Income Tax Credit (EITC)

Earned Income Tax Credit is a refundable credit. You can claim your EITC if your income is low to moderate. Another requirement to claim your EITC is you have at least one dependent. According to the IRS, if your earned income is higher in 2019 than in 2020, you can use the 2019 amount to figure your Earned Income Tax Credit (EITC).

Meal Expenses

This 2021, the taxpayer enjoys the 100% deduction for business meal expenses provided by the restaurant. This benefit will expire in 2022.

Charitable Deductions

If you are an individual taxpayer who does not itemize tax deduction, you can avail $300

universal charitable deduction. It is according to CARES Act.

If you have a corporation, you may deduct charitable deductions up to 25 percent of the corporation's taxable income. It applies to federal taxes only because the state law may vary.

Mortgage Insurance Premiums

According to the IRS website, if you are a borrower for this year 2020, report MIP inbox five and file and furnish Forms 1098 according to the specifications in the Instructions for Form 1098 and the General Instructions for Certain Information Returns. Your amount will be qualified to be treated as deductible mortgage interest.

With so many changes that happened this year, you feel stuck to cope with your business. LN accounting offers various services, from bookkeeping to coaching.

Welcome to contact us if you have any questions.

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