Tax Changes that can affect your 2021 return
2021 Tax Season will open at the beginning of 2022, which is only a few weeks away. You should already be preoccupied with last-minute tax preparations unless you want to file your federal return late. Nevertheless, the 2021 tax year is like that troublesome cousin full of drama. Even though you want to avoid them, you find you can’t get away from them because they are family. This tax year is different from what you have been used to because of the Biden Administration tax changes that coincide with the Trump Administration changes that will be operational until the end of tax year 2025.
Therefore, you must know all tax changes for this year to be prepared to file a blameless federal return. Below, I outline these changes that you must be wary of or take advantage of.
Recipients of the Advanced Child Tax Credit will receive Letter 6419
Letter 6419 will be sent in January 2022 to all recipients of the advance child credit. It will be detailing the total amount you received during tax year 2021. You must give this letter to your tax preparer to attach to your tax return papers. If you are a self-filer, ensure to attach or upload this same document with the rest of the return documents.
You may need to claim the Recovery Rebate Credit (RRC) based on what was paid to you during the third round of the Economic Impact Payment (EIP)
The third round of the EIP was paid from March 2021 and continued through to December 2021. The total amount for this third round was $1,400 per eligible individual or $2,800 for married joint filers. More so, dependents of all ages, including children under age 19, children in college, and adults with disabilities, all got $1,400 each.
The above are the amounts you should have got if you fulfilled certain conditions. One important requirement was that income should be below,
- $75,000 for single filers
- $112,500 for heads of households
- $150,000 for married couples filing jointly
Therefore, if your income (under the stated filing statuses) was below the above limits, and you fulfilled certain citizenship requirements, you must have got the full $1,400 for yourself and your dependents. If that was not the case, you must claim the RRC on your 2021 return. This should allow you to get the difference if you received a smaller amount, or all the $1,400, in case you received nothing, or one of your dependents did not receive anything on the latest EIP.
However, there were also the phase-out amounts during the last round of EIP. These are stated below;
- $75,000-$80,000 for singles
- $112,500-$120,000 for heads of households
- $150,000-$160,000 for married couples filing jointly
Therefore, if your income was above $80,000 and you are a single filer, you would not get the third EIP. As such, if you are in that category and did not receive anything, there is no need for you to claim the RRC.
The RRC reduces the tax you owe or gets you a tax refund. This all depends on how much the IRS will owe you regarding the RRC against what you owe in taxes. To read how to claim it, visit the IRS website and get detailed directions. If you need help doing this, do not hesitate to contact us and let us help file your 2021 return to get you the EIP money you deserve.
Changes to the charitable contribution deduction
Individual taxpayers who want to claim full amounts of qualified charitable contributions deduction must itemize deductions. But if you choose not to itemize, you can still deduct the $300 charitable contribution. More so, in 2021, couples that file a joint return and take the standard deduction can claim the charitable deduction of $300 each ($600). In the past, it used to be $300 per return, meaning including joint filers, but in 2021, each person can deduct up to $300 charitable contributions.
Vital changes that allow the federal government to collect information of owners of corporations may affect multiple business owners.
On January 1, 2021, Congress passed the Corporate Transparency Act (CTA) as part of the National Defense Authorization Act for Fiscal Year 2021 (NDAA), under the scope of the Anti-Money Laundering Act of 2020. The CTA allows the government to access ownership information of millions of corporations across the country. This means that people who formed multiple companies to hide their illegal activities or evade taxes and promote money laundering will soon be caught.
This change applies to you if you own more than one registered company. If you did not declare income from another company, this change will allow the IRS to know about your other income source. They will undoubtedly demand that you pay your fair share.
In conclusion, since 2017, many tax changes have been implemented. But this year, it is even more severe and can impact your business if you do not carefully deal with this. If you want to nip these tax changes in the bud, contact my team and book a quick tax chat with me.
People have also asked the following:
1. What will tax rates be in 2021?
2021 tax rates are 10%, 12%, 22%, 24%, 32%, 35% and 37%, depending on your filing status and taxable income. For example, a single person with taxable income under $9,950 will pay 10% of taxable income.
2. What is the standard deduction for 2021 for seniors?
The 2021 standard deduction is $12,550.
3. How much of my Social Security is taxable in 2021?
Single filers with a total income that’s less than $25,000 don’t pay taxes on their Social Security benefits. For those that pay taxes on their Social Security, it must be paid on a maximum of 85% of the Social Security benefits. 15% of the social security benefits is tax-free.
4. What changes are coming to Social Security in 2021?
In 2021, the Social Security taxable maximum is $142,800. This amount is increasing to $147,000 in 2022.
5. How can I avoid paying taxes on Social Security?
To avoid paying social security taxes, you can keep your income below the taxable threshold. You can also save in a Roth IRA because, after age 59 ½, the distributions from a Roth IRA or 401(k) account that’s at least five years old are non-taxable, and they don’t contribute to the taxation of your Social Security benefits.
