As you wrap up 2021, it’s important to take a closer look at your tax and financial plans.
Challenges and Changes for Year-End Planning
This year had its challenges and disruptions that may have impacted your personal and financial situation:
- A continued global pandemic
- Several significant natural disasters
- New tax laws
- Political shifts
Now is the time to take a closer look at your current tax strategies to make sure they are still meeting your needs. Take any last-minute steps that could save you money.
Key Tax Considerations from Recent Legislation
Many tax provisions were implemented under the American Rescue Plan Act in March 2021. This act aimed to help individuals and businesses deal with the COVID-19 pandemic and its ongoing economic disruption.
Also, some tax provisions were passed in legislation late in December 2020 that will impact this filing season.
Economic Impact Payments (EIPs)
The American Rescue Plan Act created a new round of EIPs that were sent to qualifying individuals. As with last year’s stimulus payments, the EIPs were set up as advance payments of a recovery rebate tax credit.
If you qualified for EIPs, you should have received these payments already. However, if the IRS owes you more, this additional amount will be captured and claimed on your 2021 income tax return. Your tax team at Smith Patrick can help you plan for any modification now.
If you received an EIP as an advance payment, you should receive a letter from the IRS. Keep this for record-keeping purposes to help us determine any potential adjustment.
Child Tax Credit
As part of the American Rescue Plan Act, there were many important changes to the child tax credit:
- Amount has increased for certain taxpayers
- Fully refundable (meaning taxpayers will receive a refund of the credit even if they don’t owe the IRS)
- May be partially received in monthly payments
- Is applicable to children age 17 and younger
The IRS began paying half of the credit in advance monthly payments beginning in July –– some taxpayers chose to opt out of the advance payments, and some may have complexities that require additional analysis.
Reach out to your accountant at Smith Patrick to help you navigate any questions on legislation to make sure you get the best benefit for your family.
Charitable Contribution Tax Deductions
Individuals who do not itemize their deductions can take a deduction of up to $300 ($600 for joint filers). Such contributions must be made in cash and made to qualified organizations.
Taxpayers who itemize can continue to deduct qualifying donations. In addition, taxpayers can claim a charitable deduction for cash donations up to 100% of their adjusted gross income (AGI) in 2021 (up from 60%).
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