Each year, tax regulations change, keeping you on your toes. With the epidemic, recent tax law changes may appear more difficult than ever. Your tax strategy may also have an effect on how you save for retirement, which is why it’s critical to stay current on changing tax laws year after year. The most effective method to stay informed is to engage with a financial planner and a tax professional who can collaborate to develop strong financial plans and tax strategies tailored to your unique financial position.
Several modifications that you may wish to make when filing your 2021 return include the following:
Child Tax Credit Expansion
The IRA expanded the Child Tax Credit in 2021 as part of the American Rescue Plan. Taxpayers may have received this credit in advance in the form of a payment; if so, you would also have gotten a letter 6419 detailing the amount received. This letter will be necessary to reconcile the amount of prepayment received with the total credit due on your 2021 tax return. Additionally, you can visit the Child Tax Credit Update Portal to see the amount of the credit you received and any prospective credit you may be due.
This benefit is income-based, and you may have received up to $3,600 for children aged 5 and over.
Minimum Distributions Required
The IRS imposes a minimum payout amount for IRAs, however in 2020, the IRS waived this requirement as part of the CARES act, which provides relief to taxpayers over the age of 72 during a pandemic. This provision expired in 2021, and taxpayers over the age of 72 were once again forced to make RMDs on their IRAs in 2021.
Standard Deductions Inflation-Adjusted
The IRS modified the standard deduction for inflation in 2021. This occurs frequently, and in 2021 was a result of the economy’s inflation. Standard deductions lower your tax liability, and you can claim them on your return even if you do not itemise your deductions. The standard deduction amount varies according to your filing status. They are as follows in 2021:
Distributions and standard deductions
Another change for your 2021 return – traditionally, charitable contributions could not be claimed unless you itemised your deductions. This changed in 2021, and now you can deduct charitable contributions even if you take the standard deduction. The CARES legislation is to credit for this change. Married couples may deduct up to $600 in charitable contributions per person, while single filers may deduct up to $300.
Expenses for Medical Care
Tax-deductible medical expenses increased in 2021. You may deduct medical expenses that exceed 7.5 percent of your AGI, or adjusted gross income, on your 2021 return.
Numerous other changes to tax regulations occurred in 2021 that may affect how you file your return, ranging from capital gains tax rate adjustments to an expansion of the Earned Income Credit. Consult your financial advisor and tax professional to ascertain the impact of the changes on your particular financial circumstances.