meet
Discuss backgrounds, financial planning process, what to accomplish and how to help.
plan
Detail current finances, strengths, vulnerabilities, needs, priorities, risks, liabilities and goals.
recommendations
Explain assumptions, alternatives, plan, followed by questions and putting plan into action with timeline.
partnership
Collaborate to review performance, progress, changes in circumstances, with support and guidance.
With the 2021 tax deadline approaching soon on April 15, one federally licensed tax practitioner and local certified financial planner assures that tax filings for his clients are done on or by March 15.
"We work with our small business clients with all-year tax planning strategies, which enables us to prepare their tax returns with relative ease," says Richard Omobogie, owner/ CEO at Zuwa Financial LLC / Zuwa Tax Consulting LLC.
He encourages all taxpayers to avoid the risk of waiting until the last required day to file. "One major tax document that taxpayers should note is the reintroduction of the 1099 NEC (Non Employee Compensation) for Independent Contractors, and not the usual 1099 Misc.," he adds.
Zuwa services include:
- Bookkeeping with QuickBooks online (including payroll and payment processing)
- Financial planning advice
- Tax preparation for individuals and small businesses
- Personal and small business tax planning, advanced tax strategies and IRS representation
- Small business registration and agent assistance
- Wealth management and retirement planning
- Investment management through partnership with Betterment LLC
Richard says two main considerations to know for the 2021 tax season is the standard deduction for 2020 increased to $12,400 for single filers and $24,800 for married couples filing jointly; and that income tax brackets increased in 2020 to account for inflation.
"The closest things to 'magic words' when it comes to taxes are deductions and credits. Both keep more money in your pocket, but they do so in slightly different ways," says Richard. "Tax deductions help lower how much of your income is subject to federal income taxes. Tax credits lower your actual tax bill dollar for dollar."
To encourage more charitable giving, Richard says the CARES Act allows taxpayers to deduct up to 100% of their adjusted gross income. AGI is one's total income minus other deductions already taken, in qualified charitable donations when itemizing deductions. "However, when you use standard deduction, you can still deduct up to $300 in 2020," he adds.
"If you spent a lot of time in the hospital, or found yourself with some hefty medical bills last year, you might be able to find at least some tax relief," Richard suggests.
"You can deduct any medical expense more than 7.5% of your AGI. For example, if your AGI was $100,000, you can deduct out-of-pocket medical expenses above $7,500 in 2020. But you have to itemize your deductions to write off those expenses on your tax return," Richard says.
Richard says those who are self-employed can claim deductions on tax returns, including travel expenses and home offices. "But if you're one of the millions of workers who were sent home to work remotely, you can't claim the home office deduction because it’s reserved for self-employed individuals only."
The Earned Income Tax Credit is a refundable credit designed to help out low- and middle-income workers who earned up to $56,844 during the 2020 tax year.
COVID-19 Pandemic Conditions Will Affect People's Taxes In Significant Ways
"Unfortunately, the coronavirus, and the government’s response to it, has created a ripple effect that will be felt when you file your taxes for last year," says Richard.
As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s $2 trillion relief package, the government sent up to $1,200 in the form of a stimulus check to millions of Americans shortly after the pandemic shut down most of the country. "The good news is your stimulus check won't count as taxable income. Instead, it's being treated like a refundable tax credit for 2020," explains Richard.
He says the CARES Act also offered Payroll Protection Program (PPP) Loans, which were designed to be "forgiven," if those loans were used on payroll, rent, utilities or interest on mortgage payments. "But, heads up, small business owners: Any expenses paid with money from those PPP loans can be deducted from your taxable income with the recent COVID-19 Relief Act. Plus, you'll have to get your loan forgiveness application approved by the Small Business Administration before you're off the hook for the amount you borrowed," he adds.
"But because the SBA is processing applications for $525 billion in loans given to 5.2 million borrowers at the speed of a sloth wearing ankle weights, we don't recommend holding your breath."
For Americans out of work (at least temporarily due to the pandemic's effect on the economy) who turned to unemployment insurance for help, Richard says those who received unemployment benefits will need to pay income taxes on that money. "If you chose not to have taxes withheld from your benefits when you signed up, then you’ll either have to pay quarterly estimated taxes or set aside enough money from your unemployment benefits to pay your taxes come Tax Day."
Any money taken out of a 529 plan or Educational Savings Account (ESA) must be used for qualified educational expenses to be tax-free. "Makes sense. But a lot of schools went remote or canceled classes this year—which means your college might have refunded some or all your 529 or ESA money. If that's the case, you have 60 days to put the money back in the account or use it to cover other educational expenses. If you didn't, you might have to pay income taxes and a withdrawal penalty," explains Richard.
He says there also are new ways to use 529 plans in 2020 without having to pay any taxes. "First, use 529 Plans to pay for costs of certain apprenticeship programs, including fees, books, and supplies. Second, use money from a 529 plan to pay off up to $10,000 in student loan debt (that’s $10,000 total—not annually) without having to pay any penalties or taxes," he adds.
There were changes to retirement plans in 2020—and some of those changes could impact tax bills this year, forewarns Richard.
"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," he adds.
Benefits of Financial Planning
Creating financial plans help people to define financial goals; comprehend whether goals are realistic; understand how to spend in line with goals; see money mistakes; measure progress toward goals; find new ways to maximize money; identify risks; become more confident with money; build wealth; and live more comfortably.
Retirement planning impacts both current and future standard of living. A successful plan contributes significantly to a higher net worth, and should encompass budgets, taxes and investments.
richard@zuwataxconsulting.com OR r.omobogie@gmail.com
972.891.1831
ZuwaTaxConsulting.com
ZuwaFinancial.com
Plenty of tax credits and deductions might be up for grabs. If you don't want to miss tax savings, work with a credentialed tax expert to make sure you’re not leaving any deductions or credits on the table.