Have you started gathering what you’ll need to file your 2021 tax year return? If you have, great! If you haven’t, we think this guide could help.
Our hope for you this April 18? No surprises!
Don’t worry if you don’t have time to read it through now. We summarized a few of the highlights to give you a quick overview.
2021 Tax Guide Highlights
The Child and Dependent Care Credit is fully refundable for 2021, and the maximum credit percentage has jumped to 50%—good news for working parents.
If you’ve been receiving advance child tax credit payments since July 2021, be on the lookout for Letter 6419 from the IRS in January 2022. It will detail your payments and how to report them on your return.
The third stimulus payment sent out in March 2021 won't be taxable, just like the other two.
If you didn’t receive stimulus money in 2021 but think you qualify, there is still time with the Recovery Rebate Credit.
General Tax Questions
1. When is the deadline for filing taxes this year?
The deadline for filing taxes is Monday, April 18, 2022.
2. What is a tax credit, and which ones should I take?
A tax credit is the amount of money you're permitted to subtract, dollar for dollar, from any income taxes you owe. Here are six of the most common ones:
Child Tax Credit: The Child Tax Credit is a refundable credit worth up to $3,000 per qualifying child between ages 6 and 17 and $3,600 per qualifying child under age 6. For more information on the 2021 Advance Child Tax Credit, see the section below titled: Advance Child Tax Credit Questions.
Earned Income Tax Credit (EITC): For 2021, the credit will allow taxpayers 19 and older to qualify while giving a substantial increase to the credit amount for single taxpayers. The credit ranges from $1,502 to $6,728 depending on tax-filing status, income, and number of children. Find out if you qualify by looking at the 2021 EITC tables. 1
Enhanced Child and Dependent Care Credit: For 2021, the child and dependent care credit is fully refundable, and the maximum credit percentage jumps to 50%. The credit allows up to $8,000 in expenses for one child or disabled person and $16,000 for more than one. The full credit is for families making less than $125,000 a year. After that, the credit will phase out.
American Opportunity Credit: The American Opportunity Credit allows parents to claim up to $2,500 per student for tuition, activity fees, books, supplies, and equipment during the first four years of college. Students must be enrolled at least half-time.
Lifetime Learning Credit: Congress raised the 2021 income limits for the Lifetime Learning Credit, worth as much as $2,000. The phase out now begins at $80,000 for single filers and $160,000 for joint filers for 2021. The credit can be used for tuition and related expenses paid for undergraduate, graduate, and professional degree courses for yourself, your spouse, or dependents.
Saver’s Credit: This tax credit is worth up to $1,000 ($2,000 if married filing jointly) for mid-and low-income taxpayers who contribute to a retirement account.
3. What is the Advance Child Tax Credit, and how will it impact my 2021 taxes?
The American Rescue Plan boosted the child tax credit to $3,000 for families with kids 17 and under for 2021, with an extra $600 for children under age 6.
Half the total credit amount was paid in advance monthly payments beginning in July 2021 unless families opted out of advanced payments. Taxpayers will claim the other half when filing their 2021 income tax return.
Retirement Tax Questions
4. What are the retirement plan contribution limits for 2021?
Many contribution limits on retirement plans and IRAs remain the same for 2021:
401(k), 403(b), and 457 plans: $19,500. (People born before 1972 can once again put in $6,500 more as a catch-up contribution.)
Simple IRAs: $13,500, plus an extra $3,000 for people age 50 and up.
Traditional and Roth IRAs: $6,000, plus $1,000 as an additional catch-up contribution for those age 50 and up.
5. What about required minimum distributions (RMDs) for 2021?
The CARES Act of 2020 allowed seniors to skip their RMDs without penalty. However, RMDs came back for 2021. Anyone who is at least 72 years old by the end of 2021 was required to take an RMD.
6. Are there any tax breaks for senior adults and retirees?
Yes! Here are a few to look out for:
Larger standard deduction: The standard deduction for seniors is $1,700 higher than the deduction for those younger than 65 who file as individuals ($14,250 for 2021).
Property tax breaks: Property tax rules differ by state and local jurisdiction. In some areas, people above a certain age who earn below a particular income level qualify for property or school tax exemptions. Be sure to look at specific rules in your area.
Credit for the elderly and disabled: To qualify for this credit, you must have an AGI below $17,500 ($25,000 if both spouses are 65 and older) and Social Security and pension income under $5,000 ($7,500 for couples).
Additional IRA deduction: Employees 50 and older can save an additional $1,000 in an IRA for a total of $7,000 in 2021.
401(k) catch-up contributions: older workers with a 401(k) plan can make catch-up contributions. If you were 50 or older in 2021, the catch-up limit is $6,500 for workplace plans.
No early withdrawal penalty: Once you turn age 59½, you can withdraw money from your IRA for any reason without the 10% penalty. Finally!
Qualified charitable distributions: Retirees aged 70½ and older who give up to $100,000 directly from their IRA to a qualified charity won’t owe income tax on the gift.
HSA contribution limit: Individuals aged 55 or older by the end of the 2021 tax year can contribute up to $4,600 to a health savings account (up $50 from 2020).
Higher long-term care insurance premium limit: The limits on deducting long-term care insurance premiums are higher for 2021. Taxpayers aged 71 or older can write off up to $5,640 per person ($5,430 for 2020).
As always, please feel free to give us a call at (269) 324-0080.
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