There are a number of changes for filing in 2020. A second round of stimulus checks was sent late in the year for taxpayers with income below the threshold, so compile your records early and be prepared to file on time.
With the stimulus checks and any expected tax returns, 2021 is the perfect time to jumpstart your plan to save for a down payment on a house. To help you prepare and set you on the right path, take a look at what you can expect from filing your taxes this year.
Changes in the tax code for 2021
First and foremost, taxes are due on April 15th, 2021. Last year during the pandemic, the federal government extended the deadline to July, but it has returned to what it was pre-COVID-19.
To ensure that you receive your refund as quickly as possible, follow the steps advised by the IRS. Last year, more than 150 million tax returns were filed with an average refund of about $2,500.
There are also a number of changes to the tax code for filing in 2021. The standard deductions have increased for both single and married taxpayers, along with a change to the brackets that denote the tax rates that apply to your income level. For single filers, the standard deduction for 2020 increased from $12,200 to $12,400, and for married filers, it increased from $24,400 to $24,800. The change to the tax brackets (compared to 2019) is a few-hundred-dollar difference to account for inflation.
Deductions versus credits
Tax deductions and tax credits are two completely different things. Tax deductions lower the amount of your taxable income while credits reduce your tax bill by the precise amount of the credit. Standard deductions are automatic for taxpayers while tax credits are dependent on certain eligibility for work status, the purchase of qualified equipment or other specialized circumstances.
Taxable status for stimulus funds
While the tax codes note that income from all sources is taxable, there is a loophole that exempts the stimulus checks by government distribution from income taxes. Technically, stimulus payments are classified as an “advance payment of a tax credit” and are not taxable.
Importantly, the stimulus check will also not reduce any refund owed to you, so you can benefit from the double effect of the stimulus and your tax refund to add to your down payment savings plan.
Deductions can increase your tax refund
If you are preparing your taxes yourself, make sure to take advantage of all the deductions available to you. With many people working from home, there might be new opportunities to deduct expenses incurred in creating a home office, along with purchasing non-reimbursed equipment and supplies used in operating your business.
Many people are surprised to learn about some of the lesser-known types of deductions. You can deduct expenses like babysitters, health insurance and continuing education as well as unusual business expenses like entertainment, gifts and mileage driven for business purposes if they qualify through the provisions in the tax code.
Heading into the spring season, it is time to prepare your taxes and plan for your new home. First Centennial Mortgage provides all types of home loans and has a dedicated team to help you through the home loan and purchasing processes. Contact us to discuss your unique home loan needs.