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2021 Filing Season: 7 Things You Need to Know
As we head into the 2021 filing season here are a few things to consider:
1. Employee Retention Credit
Under the revisions to the CARES Act signed into law on December 27, 2020. Those who had received PPP funds are now eligible to take advantage of the ERC subject to Gross receipts limitations. For those with PPP forgiveness applications pending, it would be prudent to analyze wages that could be used.
2. Second Draw PPP loans
The PPP 2nd Draw loans are available to certain eligible borrowers, defined as
- Previously received a first draw PPP Loan and will or has used the full amount only for authorized uses;
- Has no more than 300 employees; and
- Can Demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 & 2020
3. Unemployment Benefits Taxability
Federal unemployment benefits are taxable, while economic stimulus payments are not. States vary on the taxability of unemployment benefits. An enhanced unemployment benefit at the federal level ($600 in federal pandemic unemployment) was added to every weekly unemployment benefit. Together, these are expected to cause confusion for many taxpayers, particularly those who did not request withholding. This may cause issues with those with children in college who received unemployment benefits, as this could cause some college children being subject to “kiddie tax”
4. NOL 5-Year Carryback
Net operating losses that arise in 2020 have a five-year carryback, but the carryback can be waived. With potentially higher tax rates ahead, it may be more valuable to carry a loss forward, depending on the individual taxpayer’s situation.
5. Money That Was Taken From a Retirement Account
Any money taken out of retirement accounts for coronavirus-related issues and does not intend to repay it within three years, one-third of the tax should be paid with their 2020 return.
6. Mortgage Insurance Premiums
Mortgage insurance continues to be deductible as mortgage interest through 2021.
7. Charitable Deduction for Non-Itemizers
Taxpayers who don’t itemize can take an above-the-line deduction for charitable contributions up to $300.
A lot has changed for the 2021 tax season and it is important to start thinking about your tax situation now while you still have the time. As always, please contact your Dermody, Burke & Brown tax advisor if you want to discuss any filing season highlights or if you have any questions.
The information reflected in this article was current at the time of publication. This information will not be modified or updated for any subsequent tax law changes, if any.