The IRS opened the tax season this year — or began to receive taxpayers’ filings — yesterday on January 24, 2022. As you begin preparing for your 2021 tax filing, consider taking advantage of the provisions below if you haven’t already. You can ask us at Myrick CPA or your own tax consultant for details to help you find the best tax advantages available to you. Remember that the filing deadline to submit your 2021 tax returns this year is Monday, April 18, 2022, for most taxpayers. Tax Day usually falls on April 15, but not this year due to Emancipation Day, a public holiday in the District of Columbia.
Itemized Deductions
It’s true that many itemized deductions were repealed by the Tax Cut and Jobs Act of 2017, starting in the 2018 tax year. However, there are many popular tax deductions still available, some with significant changes. Here are ten of them.
1. Recovery rebate credit (for a missing stimulus payment)
If you never received your third stimulus payment and were eligible, or if you weren't paid the full amount, you may be eligible for the Recovery Rebate Credit. Missing first and second payments can only be claimed on your 2020 tax return, but missing third payments can be claimed when you file your 2021 tax return this year.
2. Child and dependent care credit
New in 2021, thanks to a one-time expansion in the American Rescue Plan Act, parents who paid for child care in 2021 are eligible to receive up to 50% of their expenses back as a tax break or refund. The child and dependent care credit allows taxpayers to directly reduce their taxes by the amount spent on expenses related to child or dependent care, such as daycare, babysitters, or related transportation. The expanded child care tax credit maxes out at $8,000 for one dependent and $16,000 for two or more.
3. Child tax credit
As in previous years, to claim the increased child tax credit in 2021, taxpayers will need Social Security numbers for every qualifying child. There is currently legislative debate about whether the increased, refundable credit will be extended or expire next year.
4. Medical and dental expenses
You can deduct the amount of your total medical expenses for yourself, your spouse, and your dependents that exceed 7.5 percent of your adjusted gross income.
5. Health savings account contributions
If you use a health savings account to pay certain medical expenses, you are eligible for a tax deduction on contributions you made to your account.
6. Medical–related home renovations
Most home renovation costs are not deductible on your tax return. However, if improvements are made to your home for medical purposes, such as wheelchair ramps and accessibility changes in kitchens and bathrooms, you can deduct those renovations as medical expenses.
7. Mortgage interest deduction
The interest deduction on new mortgages is limited to loans of $750,000 or less unless you’re married and filing separately, the limit is $375,000. The limits of $1 million and $500,000, respectively, apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017. To claim a home equity interest deduction the taxpayer must be able to document the expenses to buy, build, or improve the home.
8. Home sale
If you sold your home at a profit, you could exclude up to $250,000 of gains from your income. Married joint filers can exclude $500,000.
9. State and local taxes
The deduction for state and local taxes (SALT) related to property and sales taxes, on federal IRS tax returns, was limited to $10,000 starting in 2018. Taxpayers will still need to itemize for this deduction but will have a cap of $10,000.
10. Charitable contributions
The deduction limit is increased to 60 percent of AGI (adjusted gross income). In some instances, the deduction may be 100 percent of AGI for cash contributions to qualifying charities. There is no deduction if the contribution secures athletic event seating rights. Taxpayers will need to produce receipts for any contribution of $250 or more, even if the charity has reported a contribution to the IRS.
Standard Deduction
As noted above, many itemized deductions were eliminated starting with the 2018 tax year. However, the standard deduction was increased. It's now $25,100 for married couples filing jointly and for qualified widows and widowers. For single filers, the deduction is now $12,550.
There are numerous other changes in the 2017 tax law that will affect individual filers in 2021. For more clarification of the specific deductions, you should consult with your tax advisor and update your tax planning as part of your long-term financial plan.
Myrick CPA offers tax preparation for individuals using a process that combines smart, personalized planning with annual tax preparation and filing. Our job is to help you know about all the available tax opportunities that meet your individual needs and circumstances. We work closely with tax lawyers, and investment advisors to ensure that all the details are legally sound, technically accurate, and working to your maximum benefit. Contact us to learn more.