Tax Tips from Watercolor Financial Group

There’s good news and not-so-good news when it comes to filing your 2020 tax return.

Good news – If you live in Texas, because of the February storms you have until June 15, 2021 to file your individual and business tax returns. Most other people had until May 17, 2021, rather than April 15, due to COVID. These extensions also apply for paying any 2020 taxes you may owe with your tax return and for first quarter, 2021 estimated tax payments. If you request an extension to file your taxes, that deadline is still October 15, and you cannot extend the deadline to pay taxes.

Not-so-good news – You still owe those taxes!

However, you may be able to reduce your taxes by taking advantage of some of these rules:

  • The deadline for making IRA and Roth IRA contributions for 2020 was also extended to the date for filing your return (May 17 or June 15). In a “normal” year, the deadline would have passed on April 15. Important to note: due to the extension, processing your IRA contributions takes a little more time, so please plan to contribute by June 10, 2021 if you want to make a 2020 contribution.

  • What if you have been working from home for much of the past year? If you work for yourself (but not if you are an employee of a company), you may be able to deduct expenses of setting up and maintaining that home office. Be sure to talk to your tax specialist to get the details on this.

  • Did you make any charitable contributions in 2020? Since the standard deduction was increased to $12,400 for most singles and $24,800 for most married couples, only about 14% of people itemize their deductions, less than half as many as before the increase. However, the CARES Act allowed taxpayers to take a deduction in 2020 and 2021 of up to $300 for cash contributions per return, even if they don’t itemize. In 2021, this will rise to $600 for couples filing joint returns.

  • If you are expecting a refund, you will need to be more patient than usual this year. Due mostly to the pandemic, the IRS is behind on issuing tax refunds. People who filed electronically normally receive a refund in less than three weeks. However, it could take a while longer this year. Filing your return online and requesting an electronic deposit can significantly speed up your refund. Electronic filing also reduces errors because the software catches most of them.

Finally, we suggest that you hire a professional to help you with your taxes. They can save you time and money, not to mention marital friction and stress. If you need help gathering any of your tax documents, or if you or your tax preparer has other questions, feel free to call us for assistance. We love to help.

Bleckley Dobbs, Cass Grange and Megan Poore

Watercolor Financial Group provides advisory services through NWAM, LLC, dba Northwest Asset Management, an SEC registered investment adviser. Cass Grange, Megan Poore, and Bleckley Dobbs are investment advisor representatives of NWAM, LLC. Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.