2021 Tax Tips Recap

As you get ready to file 2020 taxes and look ahead to the rest of this year’s tax implications, let’s cover some of the changes you need to be aware of and answer some important tax questions.

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Transcript Of Today's Show:

Marc Killian: Hey, everybody. Welcome in to Plan With The Tax Man. Thanks for hanging out with Tony and I as we talk investing, finance, and retirement here on the podcast.

 

Marc Killian: This week, 2021 tax tips. A little recap, if you will. We'll go through some of this stuff. Since Tony is a tax man, we should go through some of these tips, because well, tax season is upon us. What's going on, my friend? How are you?

 

Tony Mauro: I'm hanging in. Very cold here, but we're digging in for a different tax season. Pretty much all virtual slash drop-off, trying to pivot a little bit and keep... I hate to say keep clients out. We're still doing the tax returns for them, but we've kind of halted all the in-person appointments.

 

Marc Killian: Yeah, kind of keep going with the social distancing as best we can and all that good stuff. But yeah, you can do the virtual thing, which is a nice help, right? I mean, sometimes technology can be our friend, until it's not.

 

Tony Mauro: Yeah, that's right.

 

Marc Killian: Until it doesn't work right, or something like that. Or until it's so cold that the internet servers don't want to work or something like that. So yeah, you guys are getting some brutalness right now-

 

Tony Mauro: Brutalness and-

 

Marc Killian: ... with those tips.

 

Tony Mauro: Our clients though, for tax, ironically, we installed a drop box through the side of the building this year, just to kind of make it a little more convenient, I should say. And they're braving it. I mean, they come out and they're dropping off their packets. It is cold.

 

Marc Killian: Okay. Well, good. Well, good. Well, listen, since you mentioned obviously some of the changes that last year and this year have brought in that respect, it actually may affect some things from a tax standpoint. So let's talk about a couple of them. We'll just dive right in.

 

Marc Killian: Stimulus packets, stimulus payments, whatever you want to look at it, however you want to view that. How does that affect anything? Are these things taxable? Anything we should know on some of this stuff, Tony?

 

Tony Mauro: Yeah, the stimulus payments are getting a lot of questions on it. Of course, the IRS and Congress kind of making it up as they go here with these things as they've been doling these out. But the fact of the matter is is the stimulus payments are not taxable. And what a lot of people don't know, and we're having to kind of go back to them and say, "Well, what did you receive for the second stimulus payment?" Which was actually, for most, received in 2021. They all say-

 

Marc Killian: Mm-hmm (affirmative). The $600 one, right?

 

Tony Mauro: Yeah. Yeah, they all say the same thing, "Well, that's for next year." It's actually not. It's actually for 2020. And what a lot of people don't realize is that this whole thing is a credit against your 2020 taxes. So if you've got the full amount of the stimulus payments, both of them, then you don't get any credit on your tax return. If you didn't, if you were limited by income or some other reason, then we get to stick it on your tax return as a credit and you get it now. So that's why we have to ask.

 

Marc Killian: Okay, okay. So any impact to the returns? I guess time-wise, they haven't changed anything, right? We're still holding for normal time this year, unlike last year.

 

Tony Mauro: We're still holding for normal time. Right now, at the time we're recording this, there's a little bit of chatter that if the new stimulus package goes through, that the IRS may have to pivot again and deal with stimulus payments to individuals and they may have to push back the season. But definitely not anything official, so you can't go by my word. That's just kind of what we're hearing. But-

 

Marc Killian: Right. Yeah. As of right now, it's normal.

 

Tony Mauro: It's on. Yeah, it's on.

 

Marc Killian: It's on. There you go. I like that.

 

Tony Mauro: We only got 62 days left, because it kind of started late because they had such a-

 

Marc Killian: Yeah, that's right.

 

Tony Mauro: ... bad year in 2020. And of course, all these tax law changes and everything else.

 

Marc Killian: Yeah, it might be a bit compacted this year. I didn't think about that.

 

Tony Mauro: Yeah, yeah.

 

Marc Killian: Yeah. Okay. Tax brackets. Any change to the brackets for 2020 filings? Which I guess would be different from '19, correct?

 

Tony Mauro: Correct. There was one little change in one of the upper brackets, but for the most part, the brackets are pretty much the same as they were in 2019. That remains to be seen with the new administration, but definitely not anything going to affect 2020.

 

Marc Killian: Yeah. I mean, obviously, that's a topic of conversation as to whether we'll get a new tax code. But as of for now, no. Right.

 

Tony Mauro: No.

 

Marc Killian: So it's kind of the same old, same old, unless you're really raking it in.

 

Tony Mauro: Yeah, that's right.

 

Marc Killian: Okay. Part of the CARES Act allowed us to do some contributions, Tony, or to deduct up to $300 in donations, I should say. Anything there from a charity standpoint to be aware of? Or just in general, I suppose, for tax tips.

 

Tony Mauro: I would say a lot of people don't think they need to keep track of their charitable contributions because they don't think they have enough to itemize, especially with some of the newer laws and the higher limits. But the new CARES Act did add this paltry little deduction whether you itemize or not. If you did give some money away to a charity, they're allowing what they call above the line deduction, meaning that you don't have to itemize to get this. You've just got to tell your tax preparer that you gave some money, and it takes $300 off your income at... If you're in the 15% bracket, you're looking at a whopping tax savings of 45 bucks, but every buck helps. So it's not a-

 

Marc Killian: Hey, $45. There you go.

 

Tony Mauro: Yeah, not a make or break, but it is there. We always tell people, "You don't want to leave any tax deductions that the government's giving on the table if you actually incurred them." So yeah, I would just encourage people to make sure they tell their preparers. Or if they're doing it themselves, make sure they answer the right question that, "I did give money away," if indeed you really did, and take that little deduction.

 

Marc Killian: Well, hey, $45, that might be a nice meal from Uber Eats or something delivered, or Grubhub or something. I don't know.

 

Marc Killian: Okay, RMDs. Since we were just talking about the CARES Act and obviously with everything that happened last year, RMDs were suspended. Still up in the air or going kind of status quo, kind of the normal is back on for 2021?

 

Tony Mauro: Well, they were suspended in 2020. Right now, they're supposed to be back on. Of course, that could change as well. But what that means for 2020, and even all the way up through the due date of the tax return, is if you're over 72, you don't have to take the required minimum in 2020. So for people that are just taking it because they had to, definitely postpone some tax. And right now it looks that they're going to be back on for 2021. But there's some talk about it that maybe they'll do the same thing again.

 

Marc Killian: Kind of the same as the dates for if they're going to move the tax deadline or not. Kind of like they did in 2020. It's still a little bit up in the air.

 

Marc Killian: So basically, Tony, if you turned 72 in 2020, you get the reprieve. You didn't have to do it last year. But obviously, you'd have to do it this year. You'd be turning 73 this year. And the deadline is the end of the year, right?

 

Tony Mauro: Yeah, that's right.

 

Marc Killian: So you just have to do your RMDs by the end of December of 2021.

 

Tony Mauro: By the end of December, yeah. A lot of people don't know what the penalty is for that. It's big.

 

Marc Killian: It's hefty.

 

Tony Mauro: It's a big one. I mean, you probably could... If they assessed it... I've actually had a couple clients where the advisors forgot to do it. It was just an error and they assessed them the penalty. We got them out of it. I mean, it was just an innocent error. Wasn't like it was deliberate. But the IRS doesn't have to abate those. So you really don't want to be in that position if you can help it, to have to fight with that.

 

Tony Mauro: I think another one though in the retirement area that we're seeing it already is a lot of people below retirement age have been forced to take money out of the retirement plans early to supplement income because of loss of job or something. The IRS and Congress have been very generous with this, because in 2020, early distributions, these are early ones, not subject to a penalty. And Congress is saying to the IRS, "We'll allow them to spread it out and they can be taxed on it over three years if they want to, versus all in one." So pretty good deal. And normally, people come in when they pull money out of retirement plans early, they're looking at big penalty, the tax, and they usually owe a lot.

 

Marc Killian: Got you. Okay.

 

Tony Mauro: I think that's helpful. People have just got to realize that.

 

Marc Killian: Yeah, no, definitely. For sure. That's one of the reasons we're doing the show, right? Hopefully to share a couple of useful nuggets of information, especially when it comes to tax time.

 

Marc Killian: Now I've got an interesting one here for you, Tony. I've heard people talking about the whole work from home thing last year. Obviously, doing taxes, right? It's a look at what's already happened, right? So we talk often because you do retirement planning as well, but there's tax planning, which is all throughout the year, and then there's tax prep, which is really just recording and putting down what happened the prior year. So many people are asking about the whole work from home and home office thing. How does that go about affecting our taxes, filing our taxes?

 

Marc Killian: My understanding is this only works if you are a contractor or own your own small business, right? Just because your company said, "Hey, you have to work from home," or the government said you had to work from home, you don't get to claim a home office, do you?

 

Tony Mauro: Not anymore. Not under the new tax law that President Trump changed is... It used to be that even if you were a W-2 employee and you had some business use of home, you were working at home and whatnot, some of the expenses you could write off in small percentages. Now though they changed it. They basically did away with that completely and just said, "If you're not self-employed," which means subcontractor or totally on your own, "you can't do it even though you've been working from home."

 

Tony Mauro: I believe that it was probably a trade-off. I think it was a trade-off when Congress changed some of the tax laws, lowered the tax rates. I don't think that the IRS has the ability to audit this very well-

 

Marc Killian: Got you.

 

Tony Mauro: ... and they know too many people are dishonest in this area and they just said, "You know what? We're just going to cut the whole thing out, and that solves the problem."

 

Marc Killian: They'll just make it easy on themselves, right?

 

Tony Mauro: Yeah.

 

Marc Killian: Yeah. Okay. So just to kind of reiterate, so in 2020, if you did work from home as a contractor, or which basically was a 1099, right?

 

Tony Mauro: Right.

 

Marc Killian: Or you have your own small business, yes, you could still do the write-off of the home office. Although with the deductions being what they are, do people even get enough to get to that point?

 

Tony Mauro: For the self-employed, see, it goes on their Schedule C, so-

 

Marc Killian: Correct.

 

Tony Mauro: ... there's no limit to get over. And it really helps them reduce their self-employment tax, which is Social Security. So it is a good deduction for them still.

 

Marc Killian: Got you. Okay. Good to know. Good to know. But if you're a W-2 employee, no, you can't, unfortunately, write it off because you had to work from home. But hey, the perk is you've got to work from home. So I guess that's one way to look at it.

 

Tony Mauro: Got to work from home. And I would say to people too, I would check with your tax advisor, because some states may still be allowing that. They didn't follow-

 

Marc Killian: That's a good point, yeah.

 

Tony Mauro: ... the Fed law when they changed. So they might be able to write that off as an itemized deduction on their state. So it never hurts to check in with your-

 

Marc Killian: That's a great point, because I was going to ask you, obviously you've got clients all over the place. Is there any state specific information that we should discuss, or because the podcast reaches a wide audience, is it really just check state by state? Or any thoughts there?

 

Tony Mauro: Unfortunately, you've got to check state by state because everybody is different. Nobody has any consistency there. But most states have pretty good info on their website. Especially if you go to... Looking at some of the tax forms and the Schedule A, they'll tell you right on there.

 

Marc Killian: And of course, if you're working with an advisory, working with a CPA, somebody like Tony, he's going to cover that stuff for you and help you know all the ins and outs.

 

Tony Mauro: Yeah, we'll research that for you. Yeah, that's right.

 

Marc Killian: Right. Exactly, yeah. Yeah, he's a CFP and an EA. So he's been doing this for quite a while, over 20 plus years. So a good resource for you.

 

Marc Killian: With that in mind, Tony, just final question. Just any filing advice or any kind of last little tidbits you want to share? I think we covered some pretty good ones here on tax tips. Any way you advise clients, whether it's something as simple as the do it as soon as you can or wait as long as possible? Whatever you think.

 

Tony Mauro: Yeah, I would say in this year for sure, I would file as soon as you can, simply because of the such backlogs that the IRS and the states due to COVID, and they don't have the staff. They're already behind from 2020. I think that's probably going to be better. I definitely see that if you do run into some problems, let's say you're expecting a refund, doesn't come, that there's going to be a lot longer time to deal with that problem required than normal, because we can't just call them like we normally do. And you're just going to have to be patient in that area. I think that's the other thing.

 

Tony Mauro: I would say too, I'm a big believer in not letting either one of them hold a lot of your money, simply because of the fact that in times like this, something happens, you've got to wait until they give it to you. So I don't like to ever be in that spot, and it's not bad to get a little bit of a refund, but I wouldn't use it as a forced savings for sure.

 

Tony Mauro: The other thing too is I would just... It's going to be a very difficult year, I think. For any of those people that are normally out doing it on their own, there's a lot of new things. This might not be a good year for you. And of course, I'm biased. I've got to throw that in there.

 

Marc Killian: That's okay.

 

Tony Mauro: But to try to do it on your own, if you've got anything other than maybe one or two W-2s, because there's the rebate credits you might be missing, there could be a lot of things that are missing. One thing about both of them, they generally don't send you a nice letter saying, "Hey, you missed this. Here's some more money." They only do it the other way.

 

Marc Killian: True. Yeah, very true. Well, that's a good point too, because for a lot of our podcasts, our listening audience, it's going to be typically folks that are pre-retirees and retirees anyway. So the odds are they're going to have a bit more complication anyhow.

 

Marc Killian: But for folks that might be listening that have a pretty simple W-2 or whatever, I was going to ask you, with all the extra stuff, I imagine those boxed services or software-based services probably have some of that stuff taken into account. But again, for our target demographic, it's probably a good idea to sit down and talk with somebody because there's a lot of little nuance.

 

Tony Mauro: There is. And the software itself, doesn't matter which one you pick. And even on the IRS, and the IRS does offer it for low income people, the free E-file. The software is dead on. It's just can people pick the right answer-

 

Marc Killian: Great point. Yeah.

 

Tony Mauro: ... to the questions? That's where they tend to get themselves into trouble is that they pick one or the other and for whatever reason, you just think, "Well, it must be all right." But the software is only going to do what you tell it to do. And most of us aren't willing to do the research to figure out if it's right or wrong. Now, some of them... It's kind of interesting. That's a whole topic for another show is some of them now offer paid advice and things like that. And then before you know it, your tax prep bill is up there [crosstalk 00:15:21].

 

Marc Killian: Yeah, you might as well go with a local CPA and just get it done. Yeah. Go to a local service. Exactly. Well, and-

 

Tony Mauro: But...

 

Marc Killian: Go ahead.

 

Tony Mauro: It does have its purpose. People with a couple of W-2s, something like that, pretty simple returns, it probably doesn't make sense to spend a couple hundred dollars plus or wherever you're at in the country to pay to have it done. Especially if you're young and kind of techie. It's pretty straightforward.

 

Marc Killian: Yeah, yeah. I'd probably agree with that. But as we age, we start to have a few more things or we have some more complications in there. I switched to having a professional handle it for me a couple of years ago as well. There's definitely some benefits, right? So you've got to weigh that out. But certainly, coming off the year we had last year, there's a lot of little nuances that you might want to check. And hopefully, the podcast here helped you with a few of those things you might've been thinking about.

 

Marc Killian: If you have some other questions or some more detailed questions you need some advice on, go to yourplanningpros.com, drop them an email. Yourplanningpros.com. Or get on the calendar, schedule some time to go through your situation. Obviously, it's tax season, so they're filling up pretty quickly. So reach out to them if you need some help, and they'll find a way to get you some help that you need. 844-707-7381 to talk with Tony and his team at Tax Doctor, Inc., serving you here in the Central Iowa area. 844-707-7381. Of course, they serve other places outside of that. But you can find them online, that's the easiest way to do it, yourplanningpros.com. And don't forget to subscribe to the podcast on Apple, Google, Spotify, whatever platform you like to use at Plan With The Tax Man.

 

Marc Killian: Tony, that's going to do it this week, my friend. Thank you so much. If we covered everything. We get it all?

 

Tony Mauro: I think we got it all. All I would say is now in this environment and with technology the way it is, don't be afraid to use a lot of the virtual stuff, the uploads. And especially if you're working with your advisor, you can upload your docs electronically. You could do a Zoom call at the end-

 

Marc Killian: True.

 

Tony Mauro: ... to get your questions answered. And we're trying to do the same thing. We're trying to make it as easy as possible and help the client not only get a great tax return, but value their time. Because I know in this day and age in these stages, they've got a lot of other things going on.

 

Marc Killian: Yeah, we kind of have to embrace that a little bit too, just because of everything we've been pushed into. I realize for some people, it's a little nerve-racking sometimes to want to think you've got to share your documents online or through some sort of portal. But typically, those things are pretty secure. They're always set up with security and things in place. And if you really think about it, our data's out there anyway, so be smart, be protective, but don't limit yourself under the fact, thinking, "I've got to physically walk in and see somebody," because there's just changed a lot, obviously due to COVID. So embrace some of the technology. That's good advice as well.

 

Marc Killian: All right, folks, that's going to do it for us this week. Don't forget, subscribe to the podcast or reach out to Tony at yourplanningpros.com. And we will see you next time here on Plan With The Tax Man with Tony Mauro.

 

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