Federal tax outlook for 2021-2022

There are a lot of factors affecting the federal tax outlook for 2021-2022: a global pandemic and recession; business closures and job losses; both houses of Congress controlled by the Democrats; and a significant policy shift in the Executive Branch. We can expect some major changes in tax laws, which will affect the finances of all Americans in one way or another.

While Congress and the Biden White House are still in the process of ironing out the details, some general trends are emerging, which will likely characterize the operations of the federal tax system for at least the next four years. Without spending too much time on the details of the laws and regulations, let’s consider what you need to do to lower your tax bill in light of the new fiscal outlook.

Make the most of the standard deductions

While some of the deduction guidelines and limits are set to change, your approach should remain the same: always strive to get the maximum benefit. If your total itemizable deductions are close to your standard deduction amount, consider accelerating any charitable deductions in the current year to exceed the standard deduction. In this way, you will be making payments that will lower this year’s tax bill.

Be mindful of the Biden administration’s proposed changes

President Biden will be introducing a number of changes to the tax laws that are set to favor lower-income earners while placing heavier obligations on the wealthy. Those who earn in excess of $400,000 per year will have to pay more in taxes. Tax breaks on real estate and inheritances will fall away, and more stringent limits will be placed on itemized deductions.

Individuals and families in lower to middle-income brackets will receive a few additional tax breaks. Speak to a certified public accountant about how these will affect your situation and how you can adjust to accommodate the changes, and either soften their impact or make the most of the potential benefits.

A certified public accountant can help you navigate the changes to tax laws, manage your gains and losses and get the most of the deductions and benefits while maintaining 100% compliance with shifting regulations. Contact Georgen Scarborough to see we can assist you with your federal tax outlook for 2021 and 2022.

President Biden’s proposed tax laws – what they mean to you

How are President Biden’s tax laws likely to affect your finances for the next four years?

When he was on the election trail in 2020, the president made his tax policy quite clear in a series of statements and speeches. Even before he spelled out the specifics, it was apparent which way his administration would go: higher taxes for corporations and the very wealthy and some much-needed relief for everybody else. Now that he is beyond his first 100 days, it is time to look at how these general policy statements will translate into actionable laws and how they will affect you. Here are five of the most important tax plans that the Biden administration has in store:

1. Higher maximum rate

Biden said that he would raise tax rates on all individuals earning more than $400,000 a year. In more concrete terms, the top individual tax rate on ordinary income has increased to 39.6% from the 37% rate that has been in effect since 2017. So, if you fall into that tax bracket, you can expect to pay 2.7% more on your federal taxes.

2. Itemized deductions

The president intends to limit the tax benefit of itemized deductions to 28% for high-income individuals. This means that, if you fall into the 39.6% tax bracket, every dollar of allowable itemized deductions will reduce your tax bill by no more than 28 cents.

3. New credits for home buyers

Eligible first-time homebuyers are set to be entitled to a new refundable tax credit of the lesser of 10% of the purchase price or $15,000. A major plus is that qualified individuals can collect the credit at the time of the purchase of the home, rather than waiting until they file their tax returns.

4. Increased corporate federal income tax

The Tax Cuts and Jobs Act (TCJA) of 2017 reduced the corporate income tax rate from a maximum of 35% to a flat 21%. The Biden administration will not return this rate to its pre-TCJA level, but will raise it to 28%.

5. Increased child and dependent care credits

The Biden tax plan includes provisions to double the minimum refundable child care tax credit from $2,000 to $4,000 for one child. This applies to families earning less than $125,000 a year. Families that earn between $125,000 and $400,000 per year will receive reduced credits.

There are several other tax reforms forthcoming from the Biden administration. To understand how each of them affects you (or doesn’t, as the case may be), you should enlist the help of certified public accounts. Based in Vienna, Virginia, Georgen Scarborough helps individuals, families, estates, and trusts to manage their tax affairs. Contact us for more information on our services and how we can assist you with your taxes in light of President Biden’s new tax laws.

How Do I File for an Extension?

federal tax return

From individuals and families to non-profits and government contractors, tax season seems to appear faster and faster each year. An extension of time to file gives you more time to prepare your federal tax return.

Although you may request up to an additional six months to file your individual income tax return, this does not grant you any extension of time to pay your taxes. It is also essential that you apply for an extension no later than the regular due date of your return.

Here are three ways you can request an extension:

1. E-file Your Extension Request 

Regardless of your income, individual tax filers can submit their Extension Request with the assistance of a tax professional who uses e-filing. Keep the electronic acknowledgement that the IRS has accepted your filing for your records.

2. Make a Payment and Get an Extension

Another way to get an extension is to pay all or part of your estimated income tax due and indicate that the payment is for an extension. Use IRS Direct Pay, EFTPS: The Electronic Federal Tax Payment System, or your credit or debit card. The confirmation number you receive for your records means that you do not have to fill out a separate extension form.

At Georgen Scarborough Associates, PC we have never wavered from our commitment to give each client the personal attention they deserve. For more information on how to apply for a tax return extension, please contact us today. Our tax preparation experts are ready to assist you with tax returns for individuals and small businesses.

What Tax Bracket Am I In?

federal income tax brackets

Did you know that there are a whopping seven different federal income tax brackets and that each one has its own marginal tax rate?

Determining which tax bracket you are in is dependent on your 2020 taxable income and your filing status, i.e. Single Filer, Married Couples Filing Jointly or Separately, Head-of-Household Filer.

Tax Bracket Table 

The table below refers to the 2020 tax brackets:

  Taxable Income in US$
Tax Rate Single Married Filing Jointly Married Filing Separately Head of Household
10% Up to $9,875 Up to $19,750 Up to $9,875 Up to $14,100
12% 9,876 – 40,125 19,751 to 80,250 9,876 to 40,125 14,101 to 53,700
22% 40,126 – 85,525 80,251 – 171,050 40,126 – 85,525 53,701 – 85,500
24% 85,526 – 163,300 171,051 – 326,600 85,526 – 163,300 85,501 – 163,300
32% 163,301 – 207,350 326,601 – 414,700 163,301 – 207,350 163,301 – 207,350
35% 207,351 – 518,400 414,701 – 622,050 207,351 – 311,02 207,351 – 518,400
37% Over $518,400 Over $622,050 Over $311,025 Over $518,400

It’s Not as Bad as It Seems 

Before you calculate the appropriate percentage of your income – take note that it is not a straightforward flat rate, which works in your favor.

For example, a single person with a 2020 taxable income of $100,000 does not pay ($100,000 x 24% =) $24,000. Rather, the taxable income is broken down into the applicable tax brackets that would have applied as your income accumulated:

The first $9,875 of your income is taxed at the 10% rate = $988.

Next you work out the difference between the top figures in the following rates. In this case, $40,125 – $9,875 = $30,250. That amount falls into the 12% rate, totaling ($30,250 x 12% =) $3,630.

Keep going: $85,525 – $40,126 = $45,400. That amount falls into the 22% rate, totaling ($45,400 x 22% =) $9,988. The final step is: the difference between your total income and the bracket maximum, i.e. $100,000 – $85,525 = $14,475. Only that amount will be taxed at the 24% rate = $3,474.

Add up all the tax amounts ($988 + $3,630 + $9,988 + $3,474) and your total due is $18,080. ($5,920 less that a flat rate of $24,000)

If you are still confused about which tax bracket you are in, or for any other tax tips, visit our website or contact the tax experts at Georgen Scarborough today.

Tax Laws That Can Save You Thousands

Tax regulations

Tax laws are continually changing, and it’s essential to be aware of all the new regulations, so you file your income taxes correctly and efficiently. By taking advantage of all new tax laws, you can potentially save thousands of dollars on your next tax return. Here are three of the recent income tax changes for the 2020 tax year that will affect many American taxpayers when they file their next return.

Recovery Rebate Credits 

The first round of stimulus payments ($1,200 single, $2,400 for couples), along with the second round ($600 per person) are tax free. These Recovery Rebate payments will not add to your 2020 taxable income. As these payments were technically advanced payments, you will have to calculate the amount you should have received. If you are owed more, you can get the difference back in the form of a refund, or a lower tax bill. Best of all, if you were overpaid, you will not need to repay the difference!

Sick and Family Leave Credits for Self-Employed

The new Families First Coronavirus Response Act has tax relief for self-employed people who couldn’t work due to coronavirus. Self-employed people might qualify for tax credits if they were unable to work for a reason that would have allowed them to claim coronavirus-related sick or family leave had they been an employee.

Boost Your Retirement Savings 

For those saving for retirement, the IRS has increased the employee contribution limit for 401(k), 403(b), and most 457 plans to $19,500, from $19,000 in 2019. For those over 50, the catch-up contribution limit has been raised to $6,500, from $6,000 in 2019.

Not being aware of changes in income tax laws could have you leaving thousands of dollars on the table. To make sure you maximize your refund, consider having your taxes done by a professional tax expert who will know all the relevant tax laws for your situation.

At Georgen Scarborough Associates, PC, we provide various accounting and tax services to people in Virginia, Maryland, and District of Columbia (DC). We provide tax preparation services for individuals, families, estates and trusts as well as other accounting services. If you need help or advice filing your tax return, please contact one of our tax preparation experts today.

Tax Tips for First-Timers

tax filing tips

Whether you have just reached adulthood, or are a new resident in America, the first time you file your income tax return can be a daunting experience. Here are some tips to help you through the process.

Do I even need to file a tax return? 

It’s possible that if your income is below a certain amount, you will not need to file an income tax return. However, if you want to claim any refundable tax credits, or get a refund for any income tax withheld from your paycheck, you must file a tax return.

Make sure you have all your tax documents 

Before you start, make sure you have all your tax documents ready. These can include:

  • W-2 (Wage and Tax Statement)
  • 1099 (Income other than employment income)
  • Educational expenses
  • Supporting documents such as receipts

What forms you need will depend on your individual circumstances, so think about things that could impact taxes like any change in your job, selling stocks or other investments, opening retirement accounts, or medical expenses.

Remember all your side income

If you have earned income from freelancing work like rideshare driving or deliveries, don’t forget to report that income on your tax return. You can often deduct expenses related to your work like maintenance costs to your car, insurance, supplies etc.

Claim all your relevant deductions and credits 

Deductions and credits can lower the amount of tax you owe or increase your refund, but you must file and claim them to take advantage of these. Common deductions for first-time filers include:

  • Education credits
  • Student loan interest deductions
  • Home office deductions for self-employed people

Choose how to file 

There are many ways to submit your income tax return. You can go old-fashioned and file by paper through the post office, but if you want your refund quickly, you should consider filing online or having your taxes done by a tax preparation service.

At Georgen Scarborough Associates, PC, we provide various accounting and tax services to people in Virginia, Maryland, and District of Columbia (DC). We provide tax preparation services for individuals, families, estates and trusts, and other accounting services. If you need help or advice filing your tax return, please contact one of our tax preparation experts today.

Top 5 tax tips for Individuals

personal tax tips

None of us gets out of filing our taxes and dealing with the IRS – it’s one of life’s certainties. Taxes can be complicated and intimidating, so here are five expert personal tax tips to make them a little easier to manage.

1. Never ignore the IRS

People who ignore the IRS do so at their peril. If you don’t file or pay your taxes, or do either of these after the stipulated deadlines, you could face hefty penalties and the IRS can seize assets. If you receive any communication from the IRS, pointing out any errors or missed deadlines, respond immediately. The worst thing you can do is ignore it.

2. “Bunch” your deductions

To ensure you can take the maximum deductions applicable in a particular year, you can “bunch” them together. What this means is that you time your deductible expenses into the same calendar year. You can achieve this by moving forward certain deductions from the current year into the next, assuming that you meet the thresholds for the current year.

3. Max out your retirement plan contributions

Whatever you are paying into your 401k or other tax-deferred retirement scheme, do your best to increase your payments if you can. The money you pay into these accounts reduces your tax liability. You won’t have to pay taxes on it until you withdraw it. This excellent saving incentive is also a great way to lower your tax bill.

4. Be careful of tax scams

If you start getting phone calls or emails claiming to be from the IRS or the U.S. Treasury, do not respond to them. It is quite common for scammers to try these tactics as tax season approaches. Be careful not to fall into their trap. Don’t worry though; it’s pretty easy once you know that the two government institutions will never contact you in this way; they will only reach out to you by mail when necessary.

5. Get the help of a certified public accountant

Tax laws and procedures seem to get more complicated by the year. Even if you successfully manage to file your own taxes, you may very well not be getting the full benefits of the various deductions and tax breaks that might be available to you. Get the help of a professional when it comes to filing your taxes. It takes the burden off your shoulders, ensures that it gets done correctly, and may help you get more money back into your pocket.

Georgen Scarborough CPAs is based in Vienna, Virginia. Aside from offering expert personal tax tips, we can help you with your tax preparation and filing. Contact us today.

Top 5 small business tax tips

Every small business wants to find the best ways to reduce their tax liability and better conduct their affairs with the IRS. Also, in 2021, as many companies face reduced income due to the COVID-19 pandemic, business owners will be looking for ways to cut costs wherever possible. Here are five key small business tax tips to help you do so.

1. See if your business is eligible for different tax treatment

Many small businesses can deduct 20% of their qualified income in calculating their taxes. This deduction generally applies to pass-throughs (companies where the owners pay the taxes themselves). The Tax Cuts and Jobs Act of 2017 reduced C-corporations’ tax rate to a flat 21%. Your tax practitioner can advise you as to whether it is better to stay a pass-through business or make the transition to a C-corporation.

2. Increase your business savings plan – or get one started

Small businesses have the option of running a variety of retirement plans for their employees, such as 401k, Simple IRA and SEP IRA. The contributions the company makes to these funds are tax-deductible. If you already have one of these plans in place, it might pay off to increase your contributions. If you don’t have one, you should definitely get one going this year.

3. Invest in new equipment

If you buy new or used equipment and put it into service before the end of the tax year, you could be entitled to a federal tax deduction of up to $1.05 million. The cap on this expenditure is $2.62 million. If you spend on new equipment within those limits, you could claim back a considerable amount of money.

4. Contribute to charity

 Charity contributions are a well-known method of reducing tax liability. You can usually deduct the equivalent of the fair market value of the assets you donate. Consult your certified public accountant to find the best way to make this method work for you.

5. Make the most of your losses

If, like many business owners, you have seen a significant reduction in income during 2020, you can use the provisions of the CARES Act to apply a net operating loss to income from the past five years for a potential immediate refund. Speak to a tax practitioner to see if this applies to you and how to make the claim.

Georgen Scarborough CPAs is based in Vienna, Virginia. For more small business tax tips and professional help filing your taxes, contact us

Reasons you need a CPA to do your taxes

Filing your taxes can be stressful, especially if your tax return is any more complex than a standard individual W-2. Getting a CPA to do your taxes, rather than doing it yourself, can save you a lot of hassle and possibly some money. Here are five reasons why you may want to hire a certified public account to take your tax filing burden off your shoulders.

1. You have a small business or additional income streams

If you run a small business, you may not be aware of the numerous tax write-offs you can claim to save you money. If you have a side hustle or are working in the gig economy with several income streams, your return becomes a lot more complicated, but a professional can help you complete it without too much fuss.

2. The IRS asks for specific information

Many people find it very stressful if the IRS reaches out to them to ask for substantiation of income or expenses or other documentation. If you get a professional tax practitioner on your side, you can eliminate this stress. They will know how to deal with the IRS and help you comply.

3. You’re self-directing your retirement

If you have other investments to fund your retirement, aside from your 401k, that’s called self-directing. Filing for personal investments such as cryptocurrency or real estate can get a little tricky for the layperson. That’s why you may need a CPA to do the filing for you.

4. You have a rental property

If you are earning income by charging rent on one or more of your properties, you should seek the advice of a tax practitioner to see where you can make deductions.

5. You want to send your children to college

If you are planning on filling out a Free Application for Federal Student Aid (FAFSA), you would do well to seek out the help of a CPA. Unwanted assets or income in your child’s name could adversely affect the application, even if it works from a tax planning perspective. Let a professional help to make the right adjustments in this regard.

Georgen Scarborough CPAs is based in Vienna, Virginia. Contact us to find out how we can make your tax filing much easier.

Help from an accountant when filing for bankruptcy

bankruptcy

Bankruptcy can happen to anyone and is not necessarily due to financial irresponsibility. It is often due to job loss, divorce, illness, to name a few. Many people worry that bankruptcy will be a permanent or long-term setback, which is not the case. Your credit score can change in just two to three years after your discharge (most people are discharged after 9 months; however, the bankruptcy will show on your credit history report for 6 years after that date). Bankruptcy

Bankruptcy provides a financial fresh start by eliminating debt that you may have struggled for years to repay. A Certified Public Accountant can help you with areas that your attorney may not be sure about, such as: determining eligibility and discharge, knowing exactly when you should file, procure an offer in compromise, and represent you to the IRS.

What documents do you need when filing for bankruptcy?

Chapter 7 and Chapter 13 bankruptcy are the two most common programs you can use to reduce or eliminate your debt. The documents are the same for both, with slight variations. Make sure to check the guidelines provided by your state and your bankruptcy trustee. You will also be required to present the following documents:

  • Tax returns
  • Income documentation
  • Proof of real estate fair market value and mortgage statements
  • Vehicle registration, proof of value and insurance
  • Retirement and bank account statements
  • Identification
  • Other documents (child support, alimony, etc.)

By law, you are also required to complete a credit counseling class and obtain a certificate before you can file for bankruptcy. 

Bankruptcy is a serious decision and we do not want you to have any surprises along the way. Contact Georgen Scarborough Associates today should you have any questions regarding bankruptcy.