WEEKLY TAX TIPS
Tax filing season for 2021 tax returns officially started on Monday, January 24th, when the IRS re-opened their portal to begin accepting electronically filed tax returns. Some states, including North Carolina, have further delayed accepting and processing individual tax returns. North Carolina will not begin officially accepting and processing individual income tax returns until February 12th. Returns are due by April 18th (delayed from April 15th because of a holiday in the District of Columbia).
As usual, there have been some changes that will affect your 2021 tax return, and whether you prepare your return yourself, or have your return prepared by a paid preparer, you need to make sure you understand some of the changes so your return will be correct, and there won’t be any delays in processing.
Several years ago, the Standard Deduction was significantly increased, which resulted in fewer taxpayers having to collect receipts for medical expenses, property taxes and charitable contributions. However, taxpayers are allowed a $300 deduction for cash charitable contributions. On the 2020 return the deduction was taken on page 1 of the return, and it was limited to $300. For 2021, the deduction is moved to page 2, and it increases your Standard Deduction. It’s also changed to be per taxpayer, so you can deduct up to $600 on a joint return.
If you have children, there have been significant changes to the Child Tax Credit. The credit was increased for 2021 and it was made easier for many to qualify. However, the most significant change was that families received 50% of their estimated 2021 child tax credit (unless they opted out) through monthly payments sent between July 15 and December 15, 2021. If you received these payments, you’ll have to reconcile them with the credit you’re due on your 2021 return. You should receive Letter 6419 from the IRS, which will outline the payments you received. Be sure to save this letter and give it to your tax preparer.
Many taxpayers received three stimulus checks, which are referred to as the Recovery Rebate Credit on your tax return. The first two checks were reconciled on your 2020 return, but the third one is a 2021 item. You should receive Letter 6475 detailing the amount of rebate payment you received. You should also give this letter to your tax preparer.
This is just a sampling of changes for your 2021 tax return, but they could be significant. Be especially aware if you received child tax credit pre-payments last year, and make sure your return correctly reflects the payments. Also, be sure you report the amount of the third stimulus payment correctly. Failure to properly report these payments could result in you paying more tax than you should, or it could significantly delay processing of your return, and in turn delay processing of your refund.
I will have more information on these and other tax items as we move through filing season. As always, I am looking for article ideas that you would like me to cover. If you have an idea for a future article, or just have a topic you would like more information on, please send me an email.
At Faw & Associates, we are always available to answer any of your tax or financial planning questions. You can get more information on this or many other topics at our website – www.fawandassociates.com or you can contact us directly by calling our office at (336) 838-3080. You can also email me at firstname.lastname@example.org any time with your question or concern.