Now that 2021 has ended, people across the United States are beginning to think about filing their tax returns. Even though they aren’t due until April, now is a good time to start thinking ahead. Tax laws changed in several ways due to the COVID-19 pandemic. It’s important to understand how those changes may affect you as you prepare to file your taxes.
Higher Standard Deductions
For the 2021 tax year, the standard deductions are $12,550 for single filers and married couples filing separately $18,800 for heads of household and $25,100 for married couples filing jointly. The standard deductions are higher for people over 65.
Child Tax Credit
Under the American Rescue Plan, families with children under age 17 qualified for a $3,000 tax credit per child, plus an extra $600 for each child under age 6. Those tax credits came with income eligibility requirements. Only single filers with an adjusted gross income below $75,000 and couples with a combined adjusted gross income below $150,000 qualified for the full credits. If your 2021 income was higher than expected, you may have to repay some of the money you received.
Health Insurance Costs
In early 2021, health insurance premium subsidies were increased to make coverage more affordable. Eligibility for subsidies was based on a recipient’s anticipated 2021 income. If you received a health insurance subsidy, but your income was higher than you expected, you may have to pay back some of that money.
If you paid for medical expenses out of pocket and didn’t get reimbursed, you may be able to write off those costs when you file your taxes. You can deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income, as long as you itemize your deductions.
Traditional IRA and 401(k) retirement accounts generally require people to take minimum distributions, which are taxable, once they reach the age of 72. Those requirements were waived in 2020, but they were brought back in 2021. If you didn’t withdraw the required amount from your retirement fund, you may have to pay a 50% tax penalty.
Student Loan Forgiveness
In the past, when student loans were forgiven, discharged, or canceled, the IRS treated that as taxable income. That has changed. Student loans that were canceled or forgiven in 2021 aren’t considered taxable income. This change is expected to last at least through 2025.
If you donated money to charity in 2021, you may be able to write off all or part of it on your tax return, even if you don’t itemize your deductions. If you’re a single filer, you can write off up to $300 in charitable donations. The maximum deduction is $600 for married couples filing jointly.
Get Professional Help with Your Taxes
If you’re feeling overwhelmed by the idea of filing your taxes, DOAAR can help. We can prepare your personal returns to make sure you get the deductions you qualify for and minimize your tax liability. Contact us today to learn more.