February 2021 Tax Tips

Hearts, flowers and a February filing season start.

February is home to the most romantic day of the year, Valentine’s Day. In 2021, the Internal Revenue Service is set to be taxpayers’ Valentine.

No, it’s not because we love the agency. It’s because the filing season this year doesn’t officially start until Feb. 12, the Friday before St. Valentine’s Weekend.

The real if not totally heartfelt reason for the delay, which is around two weeks later than usual, is, you guessed it, COVID-19. The IRS spent much of last year like the rest of the world, trying to stay safe. That meant it had to make extra efforts to safeguard its workers, while still providing regular services to taxpayers.

On top of its usual coronavirus-complicated duties, Uncle Sam’s tax collector also was in charge of distributing millions of economic impact payments designed to help folks hard hit financially by the pandemic.

And on top of it all, Congress made even more tax law changes at the end of 2020.

All these actions on top of each other forced the IRS to push back the start of the annual filing season so it could update forms, publications and its computer operating systems. And, oh yeah, it’s still operating under COVID-19 precautions since the virus just won’t let go.

So while we might never fully embrace the IRS, let’s at least not be too hard on the agency this year. As in all relationships, some slack occasionally must be cut.

With that in mind, tax tips in this shortest of months will aim to offer advice that can make your, and subsequently the IRS’, lives a little easier. It’s the obvious approach during this traditional month of love.

So with hand to heart, here goes!

1. Tax treatment of your capital gains (or losses) — If your investments pay off, congratulations. The IRS is happy, too. It gets a cut. Just how much, though, depends on whether your capital gains were long- or short-term and if you can offset your unearned income with capital losses. The recent GameStop stock market mayhem offers a chance to review the tax implications of investing. (Feb. 1, 2021)
2. Tax tips for gig workers — Whether you took some gig work last year to tide you over during your personal COVID-19 economic crisis or have been a full-time freelancer for years, these self-employment tax tips can help focus on and make the most from your jobs. (Feb. 2, 2021)
3. EITC claiming tip: use your 2019 income — Every filing season, the IRS promotes the Earned Income Tax Credit (EITC), a valuable tax break for low- and middle-income filers that too often is overlooked. This year the focus also is on an option to use 2019 income to claim the EITC on your 2020 tax return. The earnings year shift could help those who didn’t make much or any money last year because of COVID-19 get more from the EITC. (Feb. 4 2021)
4. PPE costs count toward educators’ deduction — We’re asking a lot of our teachers during the coronavirus pandemic. This year, though, there is one small tax break tweak for them. They now can count the costs of personal protective equipment (PPE) and other COVID-19 related classroom costs toward the $250 educators’ tax deduction. (Feb. 7, 2021)
5. Taxes due on unemployment benefits — Being out of work is bad enough, but you also need to pay attention to the possible tax implications. The major one, and a surprise to many, is that unemployment benefits are taxable income. You must report the amount, which should be detailed on the Form 1099-G you got, on your tax return’s Schedule 1 (line 7). (Feb. 9, 2021)
6. Don’t miss $500 tax credit for other dependents — Minor children and tax breaks for their parents or other guardians get a lot of attention. But some folks take care of older folks, too. If this is you, you need to look into the Credit for Other Dependents, or ODC in the Internal Revenue Service’s slightly reversed acronym. If you and your other dependent qualify, it could get you a tax credit of up to $500. (Feb. 13, 2021)
7. Use Form 8915-E to report, pay back early COVID-19 prompted retirement withdrawals — Did coronavirus-caused money troubles force you to break some next eggs? COVID-19 legislation made getting to retirement money easier, but you probably will still owe tax on the early withdrawals. You can get the taxes back by paying back the plan distributions and filing the finally updated Form 8915-E. (Feb. 18, 2021)
8. Take a pre-disaster inventory — Disasters strike year-round and all across the country. Just ask Texans who were hit in Feb. 11, 2021, with a freakishly cold winter storm. The best thing we can do is prepare. Part of that is taking a pre-disaster inventory of your household goods. It will help you with your insurance claims and, if the catastrophe is declared a major disaster major disaster, claim your losses as a tax deduction. (Feb. 24, 2021)

All the Tax Tip page links below are live. If, however, you click on a month later in the year, you’ll be greeted by a GIF of man enthusiastically telling us to slow down, or Whoa Up! as we say here in Texas, instead of Internal Revenue Service and tax code tips. Tax info will replace this animated fellow when the calendar finally flips to those months.

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