KNOW THE CHANGES TO YOUR TAX RETURN 2021 BY MARY LYNNE DAHL, Retired Certified Financial Planner ™


Money is important


Retired from MARY LYNNE DAHL, Certified Financial Planner ™

December 24, 2021
Friday afternoon

jpg Money Matters by Mary Lynn Dahl

Mary Lynn Dahl

(SitNews) Ketchikan, Alaska – Some things have changed that will affect your 2021 income tax return. It is a good idea to familiarize yourself with the changes so that you can timely and correctly collect the data you need to file your 2021 income tax. With that in mind, here is a list of some of the most notable changes:

Tax brackets have changed. For single taxpayers, the lowest tax bracket applies at 10% on taxable income up to $ 9,950, then to 12% on income up to $ 40,525, then 22% on income up to $ 86,375, and then up to 24 % for income up to $ 164,925, then up to 32% of income up to $ 523,600, and top if income is greater than $ 523,600.

For married couples filing together and eligible widows / widowers, the lowest income bracket of 10% applies to taxable income of up to $ 19,900, then increases to 12% for income up to $ 81,050, then 22% for income up to $ 172,750 and then 24% for income up to $ 329,850, then 32% of income up to $ 418,850, then 35% of income up to $ 628,300, and 37% for income over $ 628,300.

The standard deduction has changed. For annual tax returns, the standard 2021 deduction is now $ 12,550 for single taxpayers and $ 18,800 for married couples. It is $ 25,100 for married couples filing together and $ 18,800 for single heads of household. These changes are increases to the standard penalty.

Since the separate deduction has not changed, the standard deduction for most taxpayers is higher than they would generally be able to itemize their deductions, including charitable donations, so most taxpayers end up with the standard deduction as in the last years. For example, the mortgage tax deduction is capped at $ 750,000 and the property tax deduction is capped at $ 10,000. As in the past, medical deductions are capped at 7.5% of Adjusted Gross Income (AGI) and charitable deductions are capped at 100% of AGI, which will not change as of 2020. Finally, separate deductions are not allowed at all.

Another change that has been made is that the child tax credit is now $ 3,000 for children ages 6-17 and $ 3,600 for children under 6. These amounts apply to taxpayers with incomes less than $ 75,000 for single taxpayers and $ 150,000 for married taxpayers combined. For taxpayers with incomes above these amounts and up to US $ 200,000 for single households and US $ 400,000 for joint applicants, the child tax credit is US $ 2,000. Remember that a tax credit is more valuable than a tax deduction as it runs counter to your actual tax liability; it does not reduce your taxable income, it only reduces part of your actual tax owed.

For people who are 72 years of age or older, the 10% penalty issued last year has been reintroduced if the required minimum distribution is not met. This change may be overlooked by some people filing their own 2021 tax returns without professional help. So be sure to resume your RMDs as you did in the years leading up to last year when you need to make the distributions. If this is your first distribution, you have until April 1, 2022 to take it, but if it isn’t your first distribution, it is due annually by the end of the calendar year.

An important change for many people is that the maximum contribution you can make to a Health Savings Account (HSA), if you have one, is $ 3,600 for individual taxpayers and $ 7,200 for families of taxpayers under 55 and for taxpayers over 55 grant allows an additional $ 1,000 provision, i.e. $ 4,600 for individuals and $ 8,200 for families.

After all, the inheritance tax rule has changed significantly. It is now the rule that estates less than $ 11,700,000 are exempt from death tax. This may change in the coming years as the exemption is expected to expire in 2025, which would likely reduce the taxable exemption to 50% of that amount.

Tax rules can be quite complicated. So if your tax return isn’t straightforward, it is likely in your best interest to hire a paid professional to work out your tax return and prepare it for you. This requires that you keep a record of income, expenses, contributions, and any financial information that may be relevant to the correct filing. Penalties for mistakes are costly, and the IRS generally does not show compassion if the correct amount is not paid on time simply because a taxpayer claims ignorance or a personal problem. It is often cheaper to hire a professional to prepare your tax return than to make a mistake that costs more penalties and interest than the professional’s price. Be smart and get it right instead of hitting pennies wisely and silly.

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© 2021 Mary Lynne Dahl, CFP®

Mary Lynne Dahl is a Retired Certified Financial Planner TM. She is a partner and founder of Otter Creek Partners, a fee-based financial planning and investment advisory firm based in Alaska. These articles are general and intended as general guidelines for investment or financial planning and are intended for educational and financial literacy purposes only.

Mary Lynn Dahl can be reached at [email protected]

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