There are some key items to consider involving credits, deductions, and refunds.
This year, there are some key items to consider involving credits, deductions, and refunds. To make sure you don’t miss out on tax benefits or make mistakes, you can take a few simple steps now to make filing your taxes easier in 2021.
Here are a few things to consider:
Recovery Rebate Credit/Economic Impact Payment
If you received an Economic Impact Payment, keep Notice 1444, Your Economic Impact Payment, with your 2020 tax records. You may be eligible to claim the Recovery Rebate Credit on your tax year 2020 federal income tax return if:
- you did not receive an Economic Impact Payment, or
- your Economic Impact Payment was less than $1,200 ($2,400 if married filing jointly for 2019 or 2018), plus $500 for each qualifying child you had in 2020.
If you did not receive the full amount of the Economic Impact Payment for which you were eligible, you may be able to claim the Recovery Rebate Credit when you file in 2021.
You do not need to complete information about the Recovery Rebate Credit on tax year 2020 Form 1040 or 1040-SR when filing in 2021 unless you are eligible to claim an additional credit amount.
Interest on Refunds
Interest on refunds is taxable. If you received a federal tax refund in 2020, you may have been paid interest. Refund interest payments are taxable and must be reported on federal income tax returns. In January 2021, the IRS will send Form 1099-INT to anyone who received interest totaling $10 or more.
Do not rely on receiving a refund by a certain date, especially when making major purchases or paying bills. Some returns may require additional review, and processing may take longer.
For example, the IRS along with its partners in the tax industry continue to strengthen security reviews to help protect against identity theft and refund fraud.
Just like last year, refunds for tax returns claiming the Earned Income Tax Credit or Additional Child Tax Credit, cannot be issued before mid-February. This applies to the entire refund, even the portion not associated with these credits.
The fastest and safest way to receive a refund is to combine direct deposit with electronic filing. You can track your refund using the Where’s My Refund? tool on IRS.gov.
A Final Note
Since this will be our final post for 2020, we want to wish each of you a joyous Holiday Season. 2020 has been an unusual and trying year for most of us. Due to COVID-19, many of us will not celebrate the holidays as usual among family and friends. We are all looking forward to a more uplifting 2021 as strides are being made to combat the coronavirus.
Stay safe. Stay well. Stay home.
Bayshore CPA’s, P.A. are your local Certified Public Accountants
and Tax Resolution Specialists conveniently located
in Mooresville, North Carolina
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