With the end of the 2021 quickly approaching, income tax return season will arrive before we know it! Start planning now to minimize the tax implications in your next return.
Read on to understand what’s new and updated from the previous year, and as always, contact your tax advisors at Lodovico & Associates for tailored tax guidance.
- Deadline: Unlike the filing extensions previously caused by the pandemic, the deadline for all federal tax returns and payments is back to April 15, 2022.
- The standard deduction increased to $12,550 for single filers and $25,100 for married couples filing jointly.
- Tax brackets increased to account for inflation.
- Tax deductions and credits. Remember, some deductions are only available if you itemize your return and some are options even if you decide to take the standard deduction.
- Charitable deductions: Two charitable giving changes created by the CARES Act are still in place. If you plan to itemize your return, you can deduct up to 100% of your adjusted gross income in qualified charitable donations. If you take the standard deduction, you can claim a deduction of up to $300 ($600 for married filing jointly) for cash charitable contributions.
- Medical deductions: If you’re itemizing, you can you can deduct any medical expenses above 7.5% of your adjusted gross income.
- Business deductions: If you’re self-employed, schedule a consultation with our tax pros. We can help you best navigate deductions for your business.
- Child tax credit: If you have kids, you’ve likely received monthly payments starting in July rather than waiting until filing your return to claim this credit. Half of the 2021 credit amount is being paid through monthly payments that started on July 15 and will end on December 15. The other half of the credit is applicable on your 2021 tax return. Remember, if you elected the monthly payments, it will reduce the amount you get at tax time.
- Child and Dependent Care Tax Credit: The child and dependent care credit is fully refundable and in 2021 the maximum credit percentage increases and makes more of your care expenses applicable for the credit.
- Education credits: If you or your children are in college, the American Opportunity Tax Credit is a partially refundable credit for educational expenses for a student for the first four years of college.
- Recovery rebate credit: Some who were eligible for a third-round stimulus check didn’t receive a payment or got less than what they should have received. In these cases, relief may be available through a 2021 tax credit.
- Retirement plans: Several changes have been made to 401(k)s, IRAs and retirement plans. Required minimum distributions (RMD) are back for 2021, requiring anyone who is at least 72 years old by the end of 2021 to take an RMD for 2021. Separately, the 2021 contribution limit for traditional IRAs and Roth IRAs stayed at $6,000, plus $1,000 as an additional catch-up contribution for individuals age 50 and up. The income ceilings on Roth IRA contributions increased.
- Long-term capital gains: No changes were made for 2021 on tax rates on long-term capital gains and qualified dividends. Although, the income thresholds were adjusted for inflation.
- Self-employed: Self-employed people and owners of LLCs, S corporations and other pass-through entities can deduct 20% of their qualified business income. And, the deduction for business meals is increased from 50% to 100% for 2021. Note, the $250,000 cap on deductible business losses is back after being paused over the past few years.