Paying Taxes


Since 1913, Americans have been paying taxes to the federal government with states adopting similar tax programs in 1930. Though this annual process has continued for decades, many Americans have been feeling anxious about taxes in recent years. According to a 2019 Nerd Wallet Report on taxes, 26 percent of Americans feel stressed or anxious about filing their taxes. Part of that negative outlook may come from the perception that they may end up needing to pay the government. Only 51 percent of those filing in 2019 expected an income tax refund, compared with 86 percent in 2018.

A larger part of that unease likely comes from fear of the unknown surrounding the IRS and its functions. According to the NerdWallet report, about 21 percent of 2019 federal filers said they feared getting audited if they discovered they filed their income taxes incorrectly. Slightly more, or 27 percent, said they are most worried about having to pay more if they filed incorrectly.

But Americans’ negativity about taxes may be appeased with the various changes to tax filings this year because of the COVID-19 pandemic. For example, the standard deduction for 2020 increased to $12,400 for single filers and $24,800 for married couples filing jointly, with income tax brackets increasing in 2020 to account for inflation.

The Coronavirus pandemic has changed the ways Americans can file taxes this year. Below are some tax deductions and credits to consider during the 2021 tax season from The Dave Ramsey Blog:

 

Tax deductions and credits for the 2021 tax season

·       Charitable deductions – The CARES Act allows tax filers to deduct up to 100 percent of their adjusted gross income – total income minus other deductions already taken – in qualified charitable donations if there are itemized deductions. If you take the standard deduction, the CARES act allows a write off up to $300 of charitable contributions made in cash.

·       Medical deductions – Filers can deduct any medical expenses above 7.5% of adjusted gross income (AGI).

·       Business deductions – There are a myriad of deductions self-employed filers can claim on tax returns, including travel expenses and the home office deduction. Unfortunately, these deductions do not apply to employees who have begun working remotely. 

·       Earned Income Tax Credit – The EITC is a refundable credit to help low and middle-income workers earning up to $56,844 during the 2020 tax year. This tax credit could save filers anywhere from a few hundred to a few thousand dollars depending on income, filing status and number of dependents.

·       Child tax credit – Families can claim up to $2,000 per qualified child with this credit. Since this is a refundable credit, a filer could receive up to $1,400 per child as a refund.

 

Note: Any stimulus money received as relief from the COVID-19 vaccine will not be taxed. Visit irs.gov to learn best practices to ensure a seamless and speedy tax return during the pandemic.

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