In this article, we’ll explore ways to help you prepare for the upcoming tax season. Keep in mind, this is for informational purposes only and is not a replacement for professional advice, so make sure to consult your Kaizen Advisor, tax, legal, and accounting professionals before modifying your strategy.

The IRS will start accepting returns on February 12, 2021, two weeks later than usual. April 15, 2021 is the deadline the Internal Revenue Service sets for filing your 2020 tax returns. If you believe you will miss that deadline, you should consider filing for an extension.

Here’s a quick summary of the major changes for 2020:^1,2

• Each of the tax brackets will see an increase.
• The deduction limit restrictions increase for traditional IRAs.
• A rise in income limits for Roth IRA contributions.
• Contribution limits increase for employer-sponsored plans.
• A rise in the standard deduction for every filing status
• A rise in limits for HSA contributions.
• A rise in estate tax exemption limits.
• And no required minimum distributions (RMDs) for 2020

The Tax Brackets

The tax brackets are: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Here are the tax brackets and the corresponding income ranges.³

These new rates are scheduled to expire in 2025 unless Congress acts to make them permanent. Exemptions also changed under the new tax code.

Here is an overview of the standard deductions:²

The higher standard deductions may make it more attractive (compared to itemizing) for many taxpayers.  Some taxpayers who had itemized, to take advantage of deductions for high mortgage interest, large charitable donations, or local taxes, may be unable to reach the standard deduction’s higher limit.

Looking at Itemizing

The IRS has revamped the way itemized deductions can be claimed on Schedule A. Schedule A is a separate tax form attached to standard 1040 forms.⁴
 

Changes to the itemized deductions for 2020 include:

• Itemized deductions are not limited if your adjusted gross income (AGI) exceeds a certain amount. Your adjusted gross income is the portion of your income that is taxable.
• Total deductions from state and local income, sales, and property taxes are limited to $10,000. It’s $5,000 if you’re married and filing separately.
• Job-related and other miscellaneous expenses – that were subject to the 2% AGI limit – can no longer be deducted.
• Certain other expenses, such as gambling losses, can still be deducted.
• Deductions for the interest on mortgage debt – incurred after December 15, 2017 – are limited to up to $750,000 of the home’s loan amount.  
• The cash charity contribution limit is 60% of your AGI.

Other Changes in Deductibles Include:

You may no longer deduct moving expenses unless you’re on active duty in the U.S. military.

The Child Tax Credit rose to $2000 per qualifying child. The refundable portion of the credit (referred to as the additional child tax credit) is limited to $1,400 and applies when taxpayers are unable to fully use the $2,000 non-refundable tax credit to offset their taxes. The credits phase out at income thresholds of $200,000 or $400,000 for married taxpayers filing jointly.⁵

The tax code established a tax credit of up to $500 for other dependents who may not qualify for the child tax credit. Children who you plan to claim as dependents must have Social Security numbers prior to the due date of your tax return. Children who don’t have Social Security numbers, but have individual taxpayer-identification numbers, may be claimed under the new credit for other dependents.

Mark your calendar with the following key dates^4,5:

April 15, 2021

2020 INDIVIDUAL TAX RETURNS DUE

Most taxpayers have until April 15 to file tax returns.

INDIVIDUAL TAX RETURN EXTENSION FORM DUE

If you can’t file your taxes on time, file your request for

an extension by April 15 to push your deadline

back to October 15, 2021.

1^ST QUARTER 2020 ESTIMATED TAX PAYMENT DUE

Pay your first estimated tax payment for 2021 by April 15.

LAST DAY TO MAKE A 2020 IRA CONTRIBUTION

If you haven’t already contributed fully to your

retirement account for 2020, April 15 is your last chance

to fund a Traditional IRA or a Roth IRA; however, if you

received a filing extension, you have until October 15

to contribute to a Keogh or SEP plan.

June 15, 2021

2^ND QUARTER 2021 ESTIMATED TAX PAYMENT DUE

Pay your second estimated tax payment for 2021 by June 15.

September 15, 2021

3^RD QUARTER 2020 ESTIMATED TAX PAYMENT DUE

Pay your third estimated tax payment for 2021 by September 15.

October 15, 2021

EXTENDED INDIVIDUAL TAX RETURNS DUE

If you received an extension, you have until October 15 to file your 2020 tax return.

January 15, 2022

4^TH QUARTER 2021 ESTIMATED TAX PAYMENT DUE

If you are self-employed or have other fourth-quarter income that requires you to pay quarterly estimated taxes,

postmark this payment by January 15, 2022.

Preparing for the Tax Season

Here are a few reasons why you may want to consider preparing early:

• Your home, job, or relationships changed in 2020.
• You need to start saving money if you think you may owe taxes.
• You want to ensure you qualify for tax deductions.

You can make changes throughout the year to ensure your tax preparations go smoothly.

Specifically, you can make periodic assessments of your paycheck withholdings, so that you’ll get a refund or reduce or eliminate your tax burden.

You should keep track of and store your tax and other financial records to avoid delays or frantic preparations as the filing deadline approaches. Records may include W-2 forms, canceled checks, certain receipts, and previous year returns.

Items to Remember

Here is a list of other items to start gathering:⁶

• Pay stubs
• Mortgage payment records
• Closing paperwork on home purchases
• Receipts for items or services you may want to claim as itemized deductions
• Records on charitable giving and donations
• Mileage logs on cars used for business
• Business travel receipts
• Credit card and bank statements to verify deductions
• Medical bills
• 1099-G forms for state and local taxes
• 1099 forms for dividends or other income

How do I get 1099s from Kaizen? Kaizen Financial Advisors, LLC does not issue 1099s to clients. Our clients can access Schwab tax forms on Schwab’s 1099 Dashboard (login to your Schwab account). If your form is not yet available, Schwab’s 1099 Dashboard will let you know the expected availability.

During the first three months of 2021, make sure you receive your W-2 and 1099 forms as well as other tax documents. Leave adequate time to collect documents and prepare to file your taxes prior to the April 15, 2021 deadline.

Get Organized: Find a place to store your tax documents until it’s time to prepare to file. A good record-keeping system may alleviate concerns later as the deadline gets closer.

How Long?

The IRS provides recommended timelines for retaining financial documents:⁷

1. You should keep your tax records for three years if item number 4 (below) does not apply to you.
2. You should keep records for three years from your original filing date of your return (which is typically prior to the April 15 deadline) or two years from the date you paid your taxes. Select whichever is the later date. This is if you claimed credit or refund after you filed your return.
3. You should keep your records for seven years if you claimed a loss from worthless securities or a bad-debt deduction.
4. You should keep your records for six years if you failed to report income that you should have and the income was more than 25% of the gross income listed on your return.
5. You should keep employment tax records for at least four years after the due date on the taxes or after you paid the taxes. Select whichever is later.