One of the elements that make our Federal Tax Code so hard to follow is that different laws apply to you based on you or your dependents’ age. To help you navigate through some of this maze here is a chart that outlines key ages and how it applies to your tax obligation.

Please note: These age triggers outline some of the major tax events that relate to your age. In most cases the impacted year is the year you turn the age on this chart. Example: If your qualified dependent turns 17 any time during the year, they no longer qualify for the Child Tax Credit. This chart is not meant to be all-inclusive and there are exceptions to some of these age qualifications. Use this information to know when to ask for help.

Action step. When you or anyone in your family approaches any of the ages in this chart it is a sure sign you need to spend some time understanding the tax implications of the age event. Call if this impacts you!

While 2020 winds down, there is still time to reduce your tax burden. Here are six ideas that can save money for most of us.

1. Leverage pre-tax savings. Take advantage of opportunities to set aside income on a pre-tax basis. This includes;

• Participation in your employer’s retirement savings program.
• Fully funding Health Savings Accounts (HSA), and “Flex Benefits” accounts that allow using pre-tax earnings to pay for childcare and out-of-pocket medical costs. Remember, however, unlike HSAs it is important to use up any funds in your Flex health care accounts and dependent care accounts prior to the end of the plan year as any unused funds will be forfeited.
• Take full advantage of employee benefits like pre-tax child care, parking reimbursements, and any tuition reimbursement programs.
• Paying any health care costs with pre-tax dollars.

2. Defer Income and Accelerate Deductions (or vice versa!). When possible think about whether it is better to reduce taxable income in this year or next year. By understanding which tax year will be more advantageous to you, you can act to defer income into a subsequent tax year and accelerate deductible expenses into the current tax year. On the other hand you may believe tax rates will be higher next year. If this is the case you will want to move as much income into the current year and defer expenses. Here are some ideas if your strategy is to minimize taxable income this year:

• Delay receipt of a bonus check
• Make an extra house payment
• Make extra charitable contributions (that you would make anyway)*
• Make next year’s church donations this year.*
• Make extra trips to donate non-cash items prior to January 1st*
• Review your investments to book gains and/or losses

*Note: With higher standard deductions, many of you will not be itemizing deductions each year. If this is you, consider bundling two or three years of deductions into one year. This is especially beneficial with charitable contributions.

3. Harvest gains and losses. Each year up to $3,000 in investment losses can be used to offset ordinary income. This is done after using the tax code’s netting rules. Furthermore, any donation of appreciated stock can avoid paying tax on the capital gains of the donation. Make full use of this knowledge to make tax efficient moves with any investment gains and losses.

4. Maximize tax-exempt and tax-deferred Investments. The higher your tax bracket the more tax savings you’ll realize with tax exempt and tax deferred contributions such as employer sponsored 401(k)s, IRA’s, tax-free municipal bonds, and Section 529 College Savings Plans.

5. Make full use of your marginal tax. The U.S. ordinary income tax has seven different tax rates with a maximum rate of 37%. The higher rates are like stairs, you go to the next highest rate instantly, when you pass a dollar amount. Knowing this, make full use of a lower rate until you step up to the next level. Those that are taking money out of retirement accounts should make full use of this idea.

6. Avoid Penalties. The IRS has become penalty crazy, as our tax system slowly migrates from a voluntary compliance system to a punitive one. For instance the minimum failure to file penalty has increased from $100 in 2009 to $435 in 2020. So avoid costly penalties and interest charges getting your tax records in order now. That way filing on time will be a breeze.

The IRS recently announced key tax figures for 2021, using information based on the Consumer Price Index published by the Department of Labor. Use these early figures to start developing your tax strategies for next year.

Tax Brackets: There are currently seven tax brackets ranging from 0 percent to 37 percent. Each of the income brackets increases between 0.71 and 1.00 percent. In 2020 the range was 1.59 to 1.80 percent.

Standard Deductions:

Other Key Figures:

Caution: Remember, these early IRS figures are prior to any potential tax law changes under consideration in Washington, D.C.

As important tax records start filling mailboxes, how can you make sure your tax preparation goes smoothly and efficiently this year? Here are some tips.

It is very easy to overlook something given the lengthy list of taxable income items, deductions and credits. By following these tips you can greatly reduce that risk.

A common misconception in tax filing has been that if you use the Standard Deduction versus itemizing your deductions you now have few additional benefits available to reduce your tax bill. This is often not the case.

Standard or Itemize?

Every taxpayer can take the Standard Deduction to reduce their income. However, if your deductions are going to exceed the standard amount you may choose to itemize your deductions. The primary reason someone itemizes deductions is generally due to home ownership since mortgage interest and property taxes are deductible and are generally high enough to justify itemizing. But with higher Standard Deductions, fewer taxpayers are able to itemize.

Common sources of itemized deductions are: mortgage interest, property taxes, charitable giving, high medical expenses, and other miscellaneous deductions.

What is Available

So what opportunities to reduce your taxable income are available if you use the Standard Deduction? Here are some of the most common:

• IRA Contributions (up to $6,000 or $7,000 if age 50 or over)
• Student Loan Interest ( up to $2,500)
• Educator Expense Deduction (up to $250)
• Alimony Paid (for divorce decrees prior to 2019)
• Health Savings Accounts (if you qualify)
• Self-employed health insurance premiums
• ½ of self-employment tax
• Numerous education incentives like; Savings Bond Interest, Coverdell accounts, American Opportunity Credit and Lifetime Learning Credit
• Plus numerous credits including; Earned Income Credit, Dependent Care Credit, Child Tax Credit, Retirement Savings, and Elderly Credit

Income limitations often apply to these tax reduction opportunities, but for those who qualify, the tax savings can be significant. This list is by no means complete. What should be remembered is to rely on a complete review of your situation prior to jumping to the conclusion that tax breaks are just for someone else. That someone else might just be you, the Standard Deduction taxpayer.

There’s usually an element of relief after your annual tax return has been filed. But what do you do if you find an error on your tax return? Should you always file an amended return? Here are some things to consider.

Errors in the IRS’s favor

Errors discovered that lead to an additional tax obligation are legally required to be fixed by filing an amended tax return. This is especially true if the discovered error is from missing information found on a Form 1099 or a Form W-2. Why? This information is being reported to the IRS and matching programs will typically catch the error. The sooner you amend your return and pay the tax the lower the possible interest and penalties.

Errors that result in a lower tax liability

If correcting the error or omission results in a large additional refund, the answer is usually obvious. File the amended return. But this is not always the case.

1. The period of time during which the IRS can audit your tax return could be extended. Federal tax returns are typically subject to audit for three years after the original tax return due date OR the date the return was filed, whichever is later. If you file an amended tax return, the audit clock may change based on the amended return filing date and degree of change requested. It may trigger a request from the IRS to extend the audit review period. The refund also resets the IRS erroneous refund recovery statute, adding another two to five years during which a review by the IRS is possible based upon the date of the latest tax return refund.
2. The amended return may become examined. Amending a tax return puts a spotlight on your tax return. The IRS has certain topics that trigger individual examination when amended returns are requested. Amended tax returns based on things like the Earned Income Tax Credit, Small Business Income and the Research Tax Credit for small businesses, could result in a visit from your local IRS examiner. Because of this, keep all the necessary records to substantiate your amended tax return close at hand.
3. Amending one tax return may require amending several other returns. Making a minor change in one year may require you to make changes in other tax years. Is it worth it?
4. Don’t forget other taxing authorities. Making a change on your federal tax return may require you to file an amended state or local tax return. Do not assume that an amendment in your favor at the federal level will necessarily also be in your favor at the state and local level.
5. Don’t expect the refund to be timely. Amended tax returns can take a long period of time to be processed. There have been cases where the IRS has delayed initial review of an amended return for more than a year, then decided to examine the return. While not typical, the process could take up to 18 months to resolve.
6. Timing is important. Remember there is also a time limit to request a change to your tax return and receive an additional refund. This is typically set at three years after the initial filing deadline of the tax return. Make sure you file these tax returns using certified mail. Should the IRS delay responding to your amended return, you may need to prove it was filed timely.
7. You have a chip in your pocket. If the refund amount is not large enough to justify an amended tax return, still keep the documentation. Should you be chosen for an audit, you can often present your case at that time to offset any additional tax.

While finding an error or omission on your tax return can be unsettling, rest assured there are ways to fix the problem, but it is often worth taking a balanced approach to determine the best solution.

The Social Security Administration announced a 1.3 percent boost to monthly Social Security and Supplemental Security Income (SSI) benefits for 2021. The increase is based on the rise in the Consumer Price Index over the past 12 months ending in September 2020.

For those contributing to Social Security through wages, the potential maximum income subject to Social Security tax increases 3.7 percent this year, to $142,800. A recap of the key amounts is outlined here:

2021 Key Social Security Benefits

What does it mean for you?

• Up to $142,800 in wages will be subject to Social Security taxes, up $5,100 from 2020. This amounts to $8,853.60 in maximum annual employee Social Security payments. Any excess amounts paid due to having multiple employers can be returned to you via a credit on your tax return.
• For all retired workers receiving Social Security retirement benefits the estimated average monthly benefit will be $1,543 per month in 2021 – an average increase of $20 per month.
• SSI is the standard payment for people in need. To qualify for this payment you must have little income and few resources ($2,000 if single/$3,000 if married).
• A full-time student who is blind or disabled can still receive SSI benefits as long as earned income does not exceed the monthly and annual student exclusion amounts listed above.

Social Security & Medicare Rates

The Social Security and Medicare tax rates do not change from 2020 to 2021.

Note: The above tax rates are a combination of 6.20 percent Social Security and 1.45 percent for Medicare. There is also 0.9 percent Medicare wages surtax for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in these figures. Please note that your employer also pays Social Security and Medicare taxes on your behalf. These figures are reflected in the self-employed tax rates, as self-employed individuals pay both halves of the tax.

If you were married, divorced, or changed your name for any reason during the past year, do not forget to file to change your name prior to preparing next year’s tax return. The IRS automatically conducts a name match on the first few letters of your last name.

The problem

If the name on your tax return does not match the name on file at the Social Security Administration for your Social Security number, here’s what could happen:

• Your tax return might be rejected when you try and e-file
• The IRS automatically accepts your income as taxable, but then disallows any deductions
• You may receive a notice from the IRS with taxes owed and underpayment penalties

Here’s what you can do

• Prior to filing your tax return, go to www.ssa.gov and download form SS-5. Fill the form with the name change and file it as soon as possible.
• Also notify your employer. Double check the W-2 you receive to ensure the change was made correctly. If the change is made on your W-2, you must make sure it is also changed with the Social Security Administration.
• If you are planning a major financial transaction in the near future, you may wish to adjust the timing of the transaction or the timing of your name change to avoid complications.
• Don’t forget to also change your name on other important documents like auto titles, driver’s licenses, property titles, bank accounts, loan agreements, beneficiary documents and other accounts.

If you are unable to make the name change in a timely manner, use the name on file at the Social Security Administration AND with your employer when filing your taxes to avoid the automatic notification of a name mismatch.

Here is a link to the Social Security Administration’s website and Form SS-5 that walks through the name change process. Please be forewarned, this process is not as simple as it was in the past. You now need to provide proof of citizenship and submit documents that show the original and new names. Spend some time going over the name change process and plan accordingly.

One of the more popular provisions in the tax code is the $250,000 capital gain exclusion ($500,000 for a married couple) of any profit made when selling your home. As long as you follow the rules, most home sales transactions are not a taxable event.

Your best defense to a potentially expensive tax surprise in your future is proper record retention.

The problem

The gain exclusion is so high, that many of us are no longer keeping track of the true cost of our home. This mistake can be costly. Remember, this gain exclusion still requires documentation to support the tax benefit.

The calculation

To calculate your home sale gain, take the sales price received for your home and subtract your basis. This basis is an IRS tax term that equals the original cost of your home including closing costs, adjusted by the cost of any improvements you have made in your home. You might also have a reduction in home value due to prior damage or casualty losses. As long as the home sold is owned by you as your principal residence in at least two of the last five years, you can usually take advantage of the capital gain exclusion on your tax return.

To keep the tax surprise away

Always keep documents that support calculating the true cost of your home. These documents should include:

• Closing documents from the original home purchase
• All legal documents
• Canceled checks and invoices from any home improvements
• Closing documents supporting the value when the home is sold

There are some cases when you should pay special attention to tracking your home’s value:

The best way to protect this tax code benefit is to keep all home-related documents that support calculating the cost of your property. Please call if you wish to discuss your situation.

All too often taxpayers take action that will cost them dearly when they file their tax return. With a little planning, however, the IRS can still receive its fair share but not a dollar more. Here’s what you need to know.