After living through such an obscure year, many of us have restructured at least some portions of our lives. This could mean a different job, a new kid, or many other potential alterations. It is important to recognize and plan for these changes in our lives, especially when it comes to tax, doing so could save you a very large chunk of change come filing season.
The third round of stimulus payments came in March and was also the largest, up to $1,400 per household member. While the IRS has distributed over 171 million of these payments totaling over $400 billion, there is still the possibility to claim this on your 2021 tax return as long as your adjusted gross income qualifies. For married couples filing jointly AGI must not surpass $150,000, for head of household AGI must not exceed $112,500, and for individual filers, AGI must not exceed $75,000. For some filers relatively small reductions to adjusted gross income, such as making pretax contributions to 401(k) retirement plans, SEP IRAs, and many other methods. By reducing your AGI, you may be able to reap very large tax benefits.
Child Tax Credit
Currently, the new Child Tax Credit of up to $1,600 per child under 6 and $1,000 per child over six but under 18 at year-end will be available for 2021 but discontinued after. This credit is in addition to the already existing child tax credit, which can max out at $2,000 per child, these combined make up the $3,000 or $3,600 a lot of parents will be receiving. The newer credit has a lower phase-out level with recipients losing $50 of the credit per $1,000 of income over $150,000 for joint filers, $112,500 for head of households, and $75,000 for singles. Again, by reducing adjusted gross income you may be able to receive greater benefits for these credits.
This tax year, those who do not itemize deductions on Schedule A can deduct charitable donations of cash up to $600 for joint filers, and $300 for single filers. This will allow taxpayers to reduce their taxable income, but because they are not “below the line” it will not reduce adjusted gross income. Givers who do not itemize, but donate through qualified charitable distributions can also take the $600 or $300 for cash donations. On top of this, those who give large amounts relative to their income will also get a boost in the amount they can deduct. Previously only up to 60% of income could be deducted, however, this year donors can deduct cash gifts up to 100% of their income!
These tax credits are not going to last long and can help you get the most out of your tax return, however, to ensure you are eligible, it is important to plan now!
Need more guidance to receive these benefits? Give us a call at 516-541-6549!