How Will Tax Changes Affect Your Financial Situation?

Posted by on Apr 14, 2021 in Legal News | 0 comments

Everyone’s financial situation is different, so it can be a little difficult to determine exactly how your financial situation will be affected by the tax changes in place for 2021. However, what is important is knowing what these changes are, as there’s a good chance you might end up with more money in your pocket at the end of the day.Changes range from deadline adjustments to increases in income tax brackets and deductions. A lot has changed, and it’s important to be aware of changes to not only maximize your savings, but also reduce mistakes. No one likes to have the IRS contact them about fixing paperwork. As always, you can contact a tax attorney if you need assistance. 

Big Changes to Note 

COVID has caused some pretty big changes, including this main one: the tax deadline has moved. The IRS extended the federal tax return deadline to May 17, 2021. Another big change revolves around the standard deduction, which increased to $12,400 for singles and $24,800 for couples filing jointly. Income tax brackets have also gotten an increase, thanks to inflation. 

Below are some other changes of which to be aware.

Standard Deduction Changes

When you’re doing your taxes, you have the option to take itemized or standard deductions. These deductions lower your taxable income. The former is more of a pain that the latter, but, if itemized deductions save you more money, then the hassle is worth it. 

Note that the standard deduction has changed. If you’re single, it has changed from $12,200 to $12,400. Married filing jointly has changed from $24,400 to $24,800. Married filing separately has changed from $12,200 to $12,400, and head of household has changed from $18,350 to $18,650. Other deductions, including charitable, medical, business, EITC, and child tax credit, have seen changes as well.

Changes to Other Deductions 

The CARES (Coronavirus Aid, Relief & Economic Security) Act is responsible for many of the changes below. 

Charitable

With the CARES Act, you can deduct up to 100% of your AGI (Adjusted Gross Income), in qualified charitable donations if you itemize deductions. If you take the standard, you can write off up to $300 of donations made in cash.

Medical

Medical bills are nothing new, but the pandemic made them even more prominent, as costly COVID-19 hospital visits put many Americans into the red. You can deduct medical expenses over 7.5% of your AGI, if you’re itemizing your deductions. So, if you make $150,000 per year, you can deduct out-of-pocket medical costs above $11,250.

Business

Self-employed workers know that they can claim a lot of deductions on their tax returns, such as home offices and travel expenses. However, if you were working remotely, you are not able to claim this home office tax deduction. It is only reserved for those who are self-employed. 

EITC

The Earned Income Tax Credit helps out people earning up to $56,844 during the tax year. 20% of taxpayers don’t file for the EITC, which is crazy, as it can save you a lot of money. Make sure to file for the EITC if you earn up to that $56,844 mark. 

Child Tax Credit 

Families can claim a tax credit of a maximum of $2,000 per qualified child. The income limits for claiming the credit are $200,000 for singles and $400,000 for married parents. The credit is refundable, which means families can get up to $1,400 for each kid as a refund. The American Rescue Plan will change this number in 2021, increasing the child credit to $3,000-$3,600 depending on how old the kid is.

COVID: What’s Taxable? 

Plans like the CARES Act provided a lot of aid for Americans struggling to pay bills. However, which of this aid is taxable, and which is not? 

Stimulus Checks

If you received any of the three stimulus checks sent out, you’ll be happy to know that that money is not taxable income. It’s treated the same way as a refundable tax credit. Consider it an advance on your refund.

PPP Loans

Paycheck Protection Program loans are designed to be forgiven, as long as you used them on business expenses. Money from the PPP loans that you used to pay off your expenses can be deducted from AGI. But, make sure you fill out your Small Business Administration loan forgiveness application. Otherwise, you won’t be off the hook to repay the PPP loan.

Unemployment 

The first $10,200 of unemployment benefits are tax-free, as long as your household income is under $150,000. This means that you might owe less than you originally thought on your taxes. If you have unemployment benefits of over $10,200, you have to report any excess as taxable income. For example, if you got $11,000 in unemployment benefits, you must declare that $800.

This list isn’t exhaustive, but it does hit on some of the biggest changes for the upcoming tax season. Our recommendation is that you contact a tax attorney or other tax professional to make sure you’re doing your taxes correctly and maximizing your savings. 

Stay informed and read more useful facts on our website.

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Taking Charge During Stress Awareness Month

Posted by on Apr 6, 2021 in Legal News |

April is Stress Awareness Month (ironic, considering that both April Fool’s Day and Tax Day fall during April). Stress can have an enormously negative effect on your body, causing problems ranging from high blood pressure to depression. Financial problems are one of the main causes of stress. 

In 2019, before COVID-19, 70% of Americans said that they were in financial trouble. It stands to reason that that number has only increased since the pandemic hit, causing financial hardship for millions of Americans and their families. Financial stress ranges from debt repayment, high costs of living, and lack of emergency savings to overall poor financial health. In this article, we’ll discuss possible ways to reduce financial stress.

What Happens When You Die? 

When you die, your assets will be distributed, whether to your creditors or to family and loved ones. If you don’t want your estate to go through the hassle of probate court, considering setting up trusts as a way to avoid that process. Whichever financial vehicle you choose, you should make sure that it is comprehensive, providing both a way to distribute your assets to your loved ones and satisfy debts with creditors. 

If you die intestate, which means you have no estate plan, your estate will go to probate court, and a judge will pay off creditors and give your family what is left at the end of the repayment process. Probate likely will add a lot of stress to your family, as the entire ordeal is quite unpleasant. To avoid that potential source of stress, contact an attorney to set up a comprehensive estate plan. 

Protecting Your Business from Creditors

No one is immune to a lawsuit, no matter how careful someone thinks they are America is a litigious society, and millions of lawsuits are filed every year. Asset protection for business owners is something that every single business owner, from a huge corporation to a small mom-and-pop shop, needs. 

Consider changing the structure of your business to a corporation to protect yourself from personal liability. Assets receivable financing, trusts, and insurance are other ways to safeguard your company against creditors. Insurance is especially vital if you are a doctor, lawyer, or other professional. Check with an attorney to make sure you’re doing as much as you can to protect yourself within your state’s particular laws.  

Fixing Tax Issues

A huge source of stress for Americans is running afoul of the IRS. IRS penalties range from fines to imprisonment, and it’s fair to say that the U.S. has a healthy fear of the Internal Revenue Service. However, all is not lost if you owe back taxes or make a mistake. 

If you owe back taxes, still make sure that you file your tax return by the deadline. Immediately contact the IRS to discuss payment options. The IRS will respond far better to someone who is reaching out proactively than to someone trying to hide from them. Whatever your issue, call 800-829-1040 to speak with a representative. You will likely find that the IRS is far more flexible than their fearsome reputation. The worst thing you can do is try to ignore or avoid the situation. 

Dealing with Ill Family Members 

A sick or elderly family member puts a huge strain on family members, especially if that family member is unwilling or unable to take charge of their financing. If you’re in that position, try to convince them to at least set up a power of attorney. This power of attorney will oversee financial and/or healthcare decisions if the elderly or ill person is too incapacitated to handle these decisions themselves. 

Another important financial document for a sick or elderly family member is a healthcare directive, which will communicate end-of-life wishes to the doctors and nurses in charge of their care. Even if the patient cannot voice their wishes themselves, the healthcare directive will act in their stead.

This list is by no means exhaustive. We all lead different lives, and our sources of financial stress vary from person to person. Hopefully, this article at least covers some of your financial health stressors. As always, you can contact an attorney to learn more about protecting your financial well-being. 

Visit our website to find out more, stay informed and reduce stress when you know how to take charge of your financial future. 

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