As we all know, the ancient Greek quote “change is the only constant” most certainly applies to your taxes, and this year has seen more changes to tax guidelines and requirements than in many other years. So, in today’s blog, we wanted to shine a light on some of the most common ones.
Change in Charitable Donation Deductions for Non-Itemizers
In 2020, the IRS allowed taxpayers who did not itemize deductions to deduct as much as $300 in cash contributions made to charity, for both filing single and jointly. In previous years, this deduction was only an option if you chose to itemize your deductions. However, the passing of The Coronavirus Aid, Relief, and Economic Security Act (The CARES Act) allowed non-itemizers a charitable deduction. These changes are set to apply through 2021 as well with the same $300 deduction for individuals and an increase to $600 if you file as a married couple. These particular changes were made in order to encourage taxpayers to donate to charitable causes throughout the pandemic.
Higher Standard Deductions
Standard deduction amounts for each filing status have also increased. In order to account for inflation, these numbers typically rise by $200-$300 each year regardless of circumstance. An increase in standard deduction amounts ultimately reduces the amount of income you are required to pay taxes on. Here are the tax brackets and the new deduction amounts for 2021.
- Married filing jointly: $25,100 – up $300 from 2020
- Married individuals filing separately: $12,550 – up $150
- Head of household: $18,800 – up $150
- Single: $12,550 – up $150
Required Minimum Distributions (RMDs)
The CARES Act recently waived required minimum distributions from retirement accounts for the 2020 tax year for those aged 72 and older. This was a one-time exception and will not apply to the 2021 tax year, so do not forget to take your RMD or you will incur an excess accumulation penalty.
Child Tax Credits
The American Rescue Plan Act, which President Biden signed into law on March 11, has also temporarily increased the child tax credit, the amount you can claim for each of your children under age 17. The dollar amount available per child does vary depending on the age of the child. For example, taxpayers who claim dependent children aged 5 years and under are eligible to receive up to a $3,600 child tax credit, whereas taxpayers who claim children between the ages of 6-16 are eligible to receive up to a $3,000 tax credit per child for the 2021 tax year.
However, it’s important to note there are some exceptions. Those at higher income levels may receive a lower dollar amount for the credit and others may be excluded from eligibility altogether depending on their combined income level. Talk with your tax advisor to determine your eligibility and for help calculating your total tax credits. At this time, this is only effective for the 2021 tax year.
While the above mark the 4 most common changes for the year, there are a few other items that are worth mentioning.
Much like last year, the tax deadline to file form 1040 has been extended and is now due on May 17th, 2021. This applies only to form 1040 and its corresponding payment. No other forms or payments received the same extension. If you make estimated tax payments, those payments are still due on the usual due dates, although it’s worth checking the IRS website for updates as future payment deadlines may change.
Finally, in President Biden’s last round of stimulus packages, he passed a directive that the first $10,200 received will not be taxed at the Federal level. However, this only applies if you make less than $150,000 total. Please note this may not be applicable at the state level. We recommend reaching out to your tax advisor to get further information on how this is being handled within your state.
If you already filed your tax return and counted the $10,200 of unemployment as taxable income, the IRS has asked that you DO NOT amend your return at this time. Instead, be on the lookout for future guidelines and direction.
Tax season can be overwhelming, especially during a year with so many changes. However, it’s important to remember that everyone is in the same boat. There are resources available to you, including the IRS newsfeed, YouTube channel, and website, all of which you can find links to on our website. Or, feel free to reach out to our team for assistance or with questions.