Even with the recent extension, the tax filing deadline is around the corner. Are you ready? Here are the main things you need to know—some of the top IRS tax tips—for a smooth, stress-free filing.
1. IRS Delays Tax Day—Check Your State’s Deadline
Typically, your federal tax return must be submitted every year by April 15. But because of the pandemic, the IRS pushed the deadline for filing 2020 tax returns to May 15, 2021.
If you live in Texas, Oklahoma, or Louisiana, you have even more time to file your 2020 tax return. Because of the winter weather disaster in these areas during February 2021, the IRS moved residents’ filing deadline to June 15, 2021.
This extension also means that for taxpayers outside of Texas, Oklahoma, and Louisiana, the deadline for IRA contributions that can be counted on your 2020 federal tax return moved to May 15, 2021. That date shifted to June 15, 2021 for residents of storm-affected states.
2. The Standard Deduction Changed—Give Thought to Itemizing
For the 2020 tax year, the standard deduction rose to $12,400 for single filers or married people filing separately, $24,800 for married couples filing jointly, and $18,650 for heads of households.
Keep in mind that even though you can’t itemize deductions if you claim the standard deduction, you still might qualify for money-saving write-offs for cash donations to charities, IRA contributions, health savings account contributions, educational costs, and business expenses, Kiplinger notes. Talk with your tax professional!
3. Income Tax Brackets Changed—Check Your Bracket
To adjust for inflation, the IRS bumped up most income tax brackets for 2020 tax returns filed in 2021. The top tax rate for the 2020 tax year remains 37% for individual single taxpayers with income over $518,400 ($622,050 for married couples filing jointly). The other rates are:
- 35% for income over $207,350 ($414,700 for married couples filing jointly).
- 32% for income over $163,300 ($326,600 for married couples filing jointly).
- 24% for income over $85,525 ($171,050 for married couples filing jointly).
- 22% for income over $40,125 ($80,250 for married couples filing jointly).
- 12% for income over $9,875 ($19,750 for married couples filing jointly).
4. Remember the Difference Between Tax-Deferred and Tax-Exempt Retirement Accounts
Tax-deferred retirement accounts, such as traditional IRAs and 401(k)s, let you take tax deductions on annual contributions. On the other hand, tax-exempt retirement accounts don’t let you take tax deductions on yearly contributions. However, withdrawals from these accounts that happen after you’re retired are not taxed. The prime example of a tax-exempt account is the Roth IRA. (Just note that you have to be at least 59 ½ years old and your Roth IRA must be at least five years old for you to withdraw Roth IRA earnings without owing taxes.)
A precious metals IRA is a self-directed IRA that holds physical gold, silver, platinum, or palladium. A precious metals IRA can be set up as either a traditional or a Roth IRA, meaning that your tax benefits can be immediate or long-range.
5. Beware! Tax Fraudsters Are out There
Every tax season, scammers try to take what’s not theirs. Two of the most common tax scams are:
Email scams: A fraudster impersonates the IRS in hopes of stealing your personal information, like your Social Security number, through email. Be careful when clicking on links or opening attachments in an email that’s supposedly from the IRS. Clicking on the link or opening the attachment could give a scammer access to personal information.
Phone scams: Criminals also carry out their tax scams over the phone. Be very suspicious if you receive a threatening voicemail from someone who claims to be from the IRS; get a phone call demanding immediate payment of a tax bill through a prepaid debit card, gift card, or wire transfer; or receive a phone call asking you to settle an IRS debt with a check made out to a third party (not the IRS).
6. Tax Terminology Is Must-Have Knowledge
It can be hard to decipher much of the terminology that people throw around about taxes. Here are some of the key tax terms explained:
- Adjusted gross income. This is your gross income minus your tax deductions.
- Capital gains. This refers to the profit you earn from the sale of an asset, like a property or a share of stock.
- Deduction. This is the amount of expenses you’re allowed to subtract from your taxable income.
- Estate tax. This is a tax that’s assessed if the value of a deceased person’s estate exceeds a certain amount.
- Exemption. This is a deduction you can claim on your tax return for yourself, your spouse, and each of your dependents.
Itemized deduction. This lets you write off certain expenses if the dollar amount of your itemized deductions exceeds the dollar amount of your standard deduction.
- Tax bracket. This is an income range that determines how much tax you pay, based on a percentage of your income.
This year’s tax day might have you thinking about next year’s and the year after that—and so on. Do you feel like you’re saving for the future in the best way possible? If not, request a Precious Metals IRA kit from U.S. Money Reserve to learn how you can better protect your retirement.