Planning ahead is an important part of managing your finances and taxes are no different. There are more than a few tax law updates that could catch you completely off guard if you are not careful.
For instance, were you one of the many people who decided to spread the tax on your $100,000 retirement distribution from 2020 between three years? If so, you should ensure that you have enough tax withheld from your paycheck to cover this additional income. If you haven’t been withholding the extra money to cover those taxes, you might consider making an estimated tax payment for the fourth quarter of 2021 to pay in the tax shortfall to avoid underpayment penalties and interest when your tax return is filed.
There are several other items that have been updated for the 2021 tax year.
Here is a list of those items.
The Consolidated Appropriations Act of 2021 became law at the end of 2020. Have you been receiving monthly advances of your child tax credit? If so, you won’t see this credit reducing your tax liability on your tax return. You can opt-out of advance payments for the 2021 tax year if you choose by going to https://www.irs.gov/credits-deductions/child-tax-credit-update-portal. You can also do other things via this portal like update your annual income. If you are married and choose to opt out, both spouses must go into the portal to do so. Other items in this act include a 100% meals deduction for businesses.
Married couples may deduct charitable contributions up to $600 if they use the standard deduction with a $300 deduction for single filers. Make those contributions now to take advantage of this benefit.
Don’t forget to check the 2021 list of special Arizona Qualifying Charitable Organizations (QCO), Qualifying Foster Care Charitable Organizations (QFCO), and Certified School Tuition Organizations. If you live in Arizona, donations to these charities give you better deductions on your Arizona tax return.
The income tax brackets will adjust in 2021 for inflation as will the standard deduction. Married filers will see their standard deduction increase to $25,100 with single filers increasing to $12,550. Head of Household filers standard deduction will increase to $18,800.
There are changes to the phase-out adjustments for several items.
If you think you are not going to have enough tax paid for the 2021 tax year, you can request a tax projection for the year.
There is a small fee for this service; however, the projection will give you ways to catch up on paying the expected 2021 tax balance due before the end of 2021, not to mention peace of mind.
If you have questions regarding any of these changes, please reach out to your MOD Ventures LLC tax preparer. Here. We are happy to assist you.