What is the Recovery Rebate Credit? The Recovery Rebate Credit is authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the COVID-related Tax Relief Act. It is a tax credit against your 2020 income tax. Generally, this credit will increase the amount of your tax refund or decrease the amount of the tax you owe. The Recovery Rebate Credit was eligible to be paid in two rounds of advance payments during 2020 and early 2021. These advanced payments of the Recovery Rebate Credit are referred to as the first and second Economic Impact Payments. Individuals who received the full amounts of both Economic Impact Payments do not need to complete any information about the Recovery Rebate Credit on their 2020 tax returns. They already received the full amount of the Recovery Rebate Credit as Economic Impact Payments. You received the full amounts of both Economic Impact Payments if:
Who can claim the Recovery Rebate Credit? Eligible individuals who did not receive the full amounts of both Economic Impact Payments may claim the Recovery Rebate Credit on their 2020 Form 1040 or 1040-SR. To determine whether you are an eligible individual or the amount of your Recovery Rebate Credit, complete the Recovery Rebate Credit Worksheet in the Instructions for Form 1040 and Form 1040-SR. Generally, you are eligible to claim the Recovery Rebate Credit if you were a U.S. citizen or U.S. resident alien in 2020, cannot be claimed as a dependent of another taxpayer for tax year 2020, and have a Social Security number valid for employment that is issued before the due date of your 2020 tax return (including extensions).
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The Internal Revenue Service and partners across the nation remind taxpayers about the Earned Income Tax Credit today on "EITC Awareness Day" 2021. "This year marks the 15th annual EITC Awareness Day," said IRS Commissioner Chuck Rettig. "For more than 45 years, this tax credit has been helping hard-working Americans and their families. We want to thank our partners around the country who help us reach out to those low- and moderate-income people who may qualify and not even know about it." The IRS earlier announced that it will begin accepting 2020 tax returns on February 12. Under the COVID-related Tax Relief Act of 2020, taxpayers can use their 2019 earned income to figure their 2020 EITC if their 2019 earned income was more than their 2020 earned income. To qualify for EITC, people must have earned income, so this option may help workers who earned less in 2020, or received unemployment income instead of their regular wages, get bigger tax credits and larger refunds in the coming year. With the holidays around the corner, many people will be making donations to benefit charitable organizations. However, come tax time, the person who made the donation might also benefit. That’s because taxpayers who donate to a charity may be able to claim a deduction for the donation on their federal tax return.
Here are five facts about charitable donations: 1.Qualified Charities. A taxpayer must donate to a qualified charity to deduct their contributions. Gifts to individuals, political organizations, or candidates are not deductible. To check the status of a charity, taxpayers can use Exempt Organizations Select Check on IRS.gov. 2.Itemize Deductions. To deduct charitable contributions, taxpayers must file Form 1040 and itemize their deductions. To do this, taxpayers complete Schedule A, Itemized Deductions. They file this form with their tax return. 3.Getting Something in Return. Taxpayers may receive something in return for their donation. This includes things such as merchandise, meals, and event tickets. Taxpayers can only deduct the amount of the donation that’s more than the fair market value of the item they received. To figure their deduction, a taxpayer would subtract the value of the item received from the amount of their donation. 4.Type of Donation. For donations of property instead of cash, a taxpayer can only deduct the fair market value of the donated item. Fair market value is generally the price they would get if they sold the item on the open market. If they donate used clothing and household items, those items generally must be in good condition. Special rules apply to certain types of property donations, such as cars and boats. 5.Donations of $250 or More. If a taxpayer donates $250 or more in cash or goods, they must have a written receipt from the charity. The statement must show: • The amount of the donation. • A description of any property given. •Whether the taxpayer received any goods or services in exchange for their gift, and, if so, must provide a description and good faith estimate of the value of those goods or services. As the end of the year approaches, it is highly encouraged to consider a tax withholding checkup. When taxpayers take a close look to make sure the right amount of tax is withheld now, they can avoid an unexpected tax bill next year.
Here are five examples of taxpayers who would benefit from a withholding check-up: • Taxpayers who received large tax refunds in past years When a taxpayer has too much tax withheld from their paycheck, they pay too much tax during the year. They can change their withholding to have money upfront rather than waiting for a bigger refund. • Taxpayers who owed taxes in years past Taxpayers with too little tax withheld might owe money. Under-withholding can lead to both a tax bill and an additional penalty. • People with a second job Taxpayers who work more than one job should check the total amount of taxes they have withheld and make adjustments as necessary. This will ensure their withholding covers the total amount of the taxes they owe, based on their combined income from all their jobs. • Taxpayers who make estimated tax payments Some taxpayers make quarterly estimated tax payments throughout the year. This includes self-employed individuals, partners, and S corporation shareholders. If these taxpayers also work for an employer, they can often forgo making these quarterly payments by instead having more tax taken out of their pay. • People with a new job Taxpayers who start a new job should check their withholding to make sure they are having enough taxes withheld. Their total withholding should cover the income tax owed from their new and old jobs combined. To make sure their employer withholds the right amount of tax, employees can adjust their Form W-4, Employee’s Withholding Allowance Certificate. In many cases, this is all they need to do. The employer uses the form to figure the amount of federal income tax to be withheld from pay. This takes time, so taxpayers should make adjustments as soon as possible so the changes can take affect during the final pay periods of 2017. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500.
The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2018. Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2018:
The income phase-out range for taxpayers making contributions to a Roth IRA is $120,000 to $135,000 for singles and heads of household, up from $118,000 to $133,000. For married couples filing jointly, the income phase-out range is $189,000 to $199,000, up from $186,000 to $196,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000. The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $63,000 for married couples filing jointly, up from $62,000; $47,250 for heads of household, up from $46,500; and $31,500 for singles and married individuals filing separately, up from $31,000. Victims’ of a disaster might need to reconstruct records to prove their loss. Doing this may be essential for tax purposes, getting federal assistance, or insurance reimbursement
The Home Office Deduction is often overlooked by small business owners. Many small business owners who work from a home office should be aware that there are two options for claiming the Home Office Deduction.
Starting a Business This Summer? Here’s Five Tax Tips Recommended by the Internal Revenue Service…8/14/2017 New business owners may find the following five IRS tax tips helpful:
1. Business Structure. An early choice to make is to decide on the type of structure for the business. The most common types are sole proprietor, partnership and corporation. The type of business chosen will determine which tax forms to file. 2. Business Taxes. There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax a business pays depends on the type of business structure set up. Taxpayers may need to make estimated tax payments. If so, use IRS Direct Pay to make them. It’s the fast, easy and secure way to pay from a checking or savings account. 3. Employer Identification Number (EIN). Generally, businesses may need to get an EIN for federal tax purposes. Search “EIN” on IRS.gov to find out if the number is necessary. If needed, it’s easy to apply for it online. 4. Accounting Method. An accounting method is a set of rules used to determine when to report income and expenses. Taxpayers must use a consistent method. The two most common are the cash and accrual methods: a. Under the cash method, taxpayers normally report income and deduct expenses in the year that they receive or pay them. b. Under the accrual method, taxpayers generally report income and deduct expenses in the year that they earn or incur them. This is true even if they get the income or pay the expense in a later year. Get all the basics of starting a business on IRS.gov at the Small Business and Self-Employed Tax Center. Avoid scams. The IRS does not initiate contact using social media or text message. The first contact normally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out. |
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