By Rajbir Athwal
Our tax system works like “pay as you go”. What it means is that we pay taxes throughout the year as we work and earn money. It is true for both self-employed and salaried employees. It is accomplished by employer withholding, estimated quarterly payments or combination of both. Can you believe it that we just finished the 2020 extended tax deadline and are already thinking about the 2021 tax year? Reason I am bringing it up is that we are in the last quarter of 2021 and it is a good idea to evaluate where you are with your tax withholding. Any time you owe more than $1,000 in tax to the IRS you have the potential to pay a tax penalty. If your income is less $150,000 and you paid taxes equal to 2019 taxes, you will not pay a penalty.
Most events in events like marriages, divorce, childbirth, loss of job, new job or business, purchase or sale of home, have major effects on our financial health. All these may require taxpayers to adjust their tax withholding. Last quarter of the year is a good time to make adjustments to either catch up or reduce withholdings.
Following items may have big impact on your 2021 tax returns
Things to consider for 2021 are:
1. Coronavirus tax relief – Stimulus money from the IRS for taxpayers, businesses, and others including health plans. Keep track of your stimulus checks and any advance child tax credits.
2. Disasters such as wildfires and hurricanes – Special tax law provisions may help taxpayers and businesses recover financially from the impact of a disaster, especially when the federal government declares their location to be a major disaster area.
3. Workers moving into the gig economy (also known as Self-employment) due to the pandemic – Keep track of your income and expenses, home office personal vehicle used for business. Keep track of business miles as well as personal used miles. Also remember to include estimated tax payments to avoid a balance or penalties when ready to file.
4. Life changes such as marriage or child birth – Getting married or having a child are just a couple of life events that can affect your refund or how much you owe.
If you or someone you know has additional questions regarding estimated payment, tax withholding, business expenses tracking or other tax related matters, give me a call or send me a message.
Many tax preparers and accounting professionals are extremely busy due to the complexity of tax regulations brought about by the COVID-19 pandemic and the IRS collection efforts to contact taxpayers with unfiled tax returns. If you or somebody else you know are having IRS issues please feel free to contact me at email@example.com or call me 301-461-2022. The IRS doesn't like to be ignored. Be proactive.
Enrolled agents are federal tax practitioners licensed by the Treasury Department.