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The 2020 Tax Season is Here!

Hello,

You probably never want to think about 2020 again. But there is one lingering ghost from last year that you need to get rid of before you can truly move on for good—and that’s your 2020 taxes.

Thanks to the COVID 19 (among other things),  a lot has changed for the 2021 tax season.

That’s why you need to start thinking about your tax situation now while you still have time on your side. We want you to be prepared to tackle your taxes before they tackle you. And to do that, we’re going to dig into what’s new for this tax season and what’s staying the same.

First, here are the main things you need to know right off the bat for the 2021 tax season:

  • Tax Day is Thursday, April 15, 2021. You must file your 2020 tax returns by this date! 
  • The standard deduction for 2020 increased to $12,400 for single filers and $24,800 for married couples filing jointly.  
  • Income tax brackets increased in 2020 to account for inflation. 

But that’s just scratching the surface! Let’s break down the details so you can file your taxes with confidence this year.

Here are a few of the changes:

  • Discharge of qualified principal residence indebtedness: The Act extended the exclusion from income provided for qualified principal residence indebtedness, which the IRC defines as “debt incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer,” if the debt is also secured by the residence.

The exclusion applies only to debt discharged after 2006 and in most cases before Jan. 1, 2021. The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately).

Mortgage Insurance Premiums: Premiums paid for mortgage insurance were, for payments made prior to January 1, 2018, treated as interest payments that were deductible as qualified residence interest (subject to adjusted gross income (“AGI”) limitations). The Act extends this treatment for premiums paid through December 31, 2020.

  • Reduction in Medical Expense Deduction: For tax years beginning December 31, 2016, and ending before January 1, 2019, deductions for medical expenses were generally limited to the amount of such expenses that exceed 7.5% of AGI. The Act extends this provision through tax years ending before January 1, 2021. As such, taxpayers with significant medical expenses will continue to benefit from the lower AGI threshold of 7.5% for 2020.
  • Deduction for Qualified Tuition and Related Expenses: Qualified tuition and related expenses were allowable as “above-the-line deduction” for the tax year prior to January 1, 2018. The amount of deduction was capped at $4000 or $2000 or phased out completely depending upon the taxpayer’s AGI. The Act extended this provision to apply through December 31, 2020.
  • Charitable Contribution Deduction: Taxpayers who made large donation in 2020 may deduct a larger portion of their donation. That is because many charitable deductions were previously limited to up to 60% of adjusted gross income. For 2020, those contributions can be deducted up to 100% of AGI. This applies to larger gifts (as a portion of income) and filers who itemize.
  • A new deduction for 2020 is for charitable contribution up to $300 to qualified organizations. This is available even if you don’t itemize. To determine your choses charity is qualified search for it on the IRS’s tax-exempt organization search tool.
  • IRA Changes
    • If you own a traditional IRA, you have to take money out of your account once you reach a certain age. Those withdrawals are called required minimum distributions (RMDs). The good news is the SECURE Act pushed back the age for RMDs from traditional IRAs from 70 1/2 to 72 (if your 70th birthday was July 1, 2019 or later). On top of that, the CARES Act allows seniors to skip RMDs altogether in 2020 without penalty. That’s huge, because it could lead to significant tax savings for retirees with those accounts since the money that’s taken out of a traditional IRA counts as taxable income.
    • The SECURE Act also allows owners of traditional IRAs to keep putting money in their accounts past age 70 1/2 starting in 2020. Since the money you put into a traditional IRA is tax deductible, you could lower how much of your income is taxed this year. Just remember: You will have to pay taxes on that money whenever you take it out.
    • The CARES Act allows folks under age 59 1/2 to take up to $100,000 out of their 401(k)s and IRAs up until the end of 2020 without having to pay an early withdrawal penalty. But first, taking money out of your retirement accounts before retirement is a terrible idea—penalty or not. Second, the money you take out of tax-deferred retirement accounts like a traditional 401(k) or IRA will be taxed as ordinary income, so get ready to pay taxes on any withdrawals you make.
    • If you did take some money out of a 401(k) or traditional IRA and you’re facing a huge tax bill, don’t panic! You have three years to put those funds back and get a refund on any taxes you paid on that money. More importantly, it’ll help you get your retirement savings back on track.

Don’t worry about memorizing these changes; the Bridge CPAs has you covered and is ready to file your 2020 tax returns.

Also, the 2020 Tax Organizer is ready and attached to this email.

The last day to file your 2020 tax returns is Thursday April 15, 2021. But don’t wait until the last minute – please call to schedule your appointment at (703) 942-9476 or email.

Thank you for choosing the Bridge CPAs, LLC to be your trusted tax advisor. We look forward to working with you soon!!!

The Bridge CPAs, LLC

 

Please contact us if you have any questions or if you’d like to arrange an appointment. Thank you!


The 2019 Tax Season is Here!

Happy 2020!!!

Tax season is here again and it’s time to schedule your appointment!

Each new year brings changes to the current tax laws and this year is no exception. Congress enacted, and the president signed, legislation at year-end. The 2020 Consolidation Appropriation Act (‘the Act”), which both funded the government and contained various tax changes, was signed into law on December 20, 2019.

Here are few of the changes:

  • Discharge of qualified principal residence indebtedness: The Act extended the exclusion from income provided for qualified principal residence indebtedness, which the IRC defines as “debt incurred in acquiring, constructing, or substantially improving anu qualified residence of tax payer,” if the debt is also secured by the residence.

The exclusion previously applied for debt discharge before Jan. 1, 2018, but now applies to debt discharge before Jan. 1, 2021. Taxpayers that experienced a discharge of qualified residence indebtedness should consult their tax advisors regarding a possible amendment of their 2018 income tax return.

  • Mortgage Insurance Premiums: Premiums paid for mortgage insurance were, for payments made prior to January 1, 2018, treated as interest payments that were deductible as qualified residence interest (subject to adjusted gross income (“AGI”) limitations). The Act extends this treatment for premiums paid through December 31, 2020.
  • Reduction in Medical Expense Deduction: For tax years beginning December 31, 2016, and ending before January 1, 2019, deductions for medical expenses were generally limited to the amount of such expenses that exceeds 7.5% of AGI. The Act extends this provision through tax years ending before January 1, 2021. As such, tax payers with significant medical expenses will continue to benefit from the lower AGI threshold of 7.5% for 2019 and 2020. The AGI threshold will revert to the customary 10% of AGI in 2021.
  • Deduction for Qualified Tuition and Related Expenses: Qualified tuition and related expenses were allowable as “above-the-line deduction” for tax year prior to January 1, 2018. The amount of deduction was capped at $4000 or $2000 or phased out completely depending upon the taxpayer’s AGI. The Act extended this provision to apply through December 31, 2020. Taxpayers that paid qualified tuition expenses in 2018 should consult their tax advisor regarding amending their 2018 income tax return for potential refund.
  • IRA changes: Individuals were required to take minimum distributions from certain retirement plans (employer-provided qualified retirement plans, certain IRAs, and others) when the owner of the plan reached age 70½. For distributions required to be made after Dec. 31, 2019, with respect to individuals who reach age 70½ after that date, the Act increases the age at which required minimum distributions must begin to 72.

The act also ends the 70½ year age limit for making IRA contributions, and shortens the amount of time some beneficiaries of IRAs may take distributions to a maximum of 10 years.

Don’t worry about memorizing these changes; the Bridge CPAs has you covered and is ready to file your 2019 tax returns.

Also, the 2019 Tax Organizer is ready and attached with this email.

The last day to file your 2019 tax returns is April 15, 2020. But don’t wait until the last minute – please call to schedule your appointment at (703) 942-9476.

Thank you for choosing the Bridge CPAs, LLC to be your trusted tax advisor. We look forward to working with you soon!!!

The Bridge CPAs, LLC
 

Please contact us if you have any questions or if you’d like to arrange an appointment. Thank you!


The 2018 Tax Season is Here!

Happy 2019!! Tax season is here again and it’s time to schedule your appointment!

Each new year brings changes to the current tax laws and this year is no exception. The new Tax Cuts and Jobs Act has many people not only thinking about filing 2018 tax returns but also wondering how it would impact your tax filing.

Many of you have called or emailed with questions and we are here to help you navigate the changes. The good news is that we have spent the last few months getting up to speed on the various provisions of the new tax bill.

Here are few of the changes:

  • Standard deduction amount increased to ($12K, $18K and $24K for single, head of household, and married filing jointly, respectively).
  • Increased Child Tax Credits: For families with children the Child Tax Credits is doubled to $2,000 per child. The bill also added a new, nonrefundable credit of $500 for dependents other than children. Finally raised the income threshold at which these benefits phase out from $110,000 for married couple to $400,000.
  • Personal and dependent exemptions: The bill eliminated the personal and dependent exemptions.
  • State and local taxes/Home Mortgages: the bill limits the amount of state and local property, income and sales taxes that can be deducted to $10,000. The bill also caps the amount of mortgage indebtedness on a new home purchases on which interest can be deducted to $750,000.
  • Health care: The bill eliminates the tax penalty for not having health insurance after December 31, 2018. It also temporarily lowers the floor above which out of pocket medical expenses can be deducted to 7.5%.
  • Self-employed (contractors, freelancers, sole proprietors) and small businesses: The bill has myriads of changes for business. The biggest includes a reduction in the top corporate rate to 21%, a new 20% deduction for incomes from certain type of “pass-through” entities (partnerships, S corps, sole proprietorships), limits on expensing of interest from borrowing, and eliminates the corporate minimum tax (AMT).

Don’t worry about memorizing these changes; the Bridge CPAs has you covered and is ready to file your 2018 tax returns.

Also, the 2018 Tax Organizer is ready and attached with this email.

The last day to file your 2018 tax returns is April 15, 2019. But don’t wait until the last minute – please call to schedule your appointment at (703) 942-9476.

Thank you for choosing the Bridge CPAs, LLC to be your trusted tax advisor. We look forward to working with you soon!!!

The Bridge CPAs, LLC