With 2021 drawing to a close, it’s time to start thinking about what the New Year will bring. One thing’s for certain: It’ll bring tax season, and probably much sooner than you think. While every year tends to bring some minor changes to tax law, this year has three major differences that everyone should look into to ensure that you’re filing your return correctly. Here’s what you need to know.
Charitable Contribution Changes
For the vast majority of taxpayers, specific charitable contributions don’t mean much. Typically, taking the standard deduction will offer you the most benefit on your tax return. However, there’s been a small change to charitable contributions for those that take the standard deduction. In addition to the standard deduction amount, you can also claim up to $300 in deductions for cash contributions to a qualifying charity (or up to $600 for married couples filing jointly).
This provision provides an additional benefit for those who make regular cash donations. But many who take the standard deduction each year will be unaware of this additional deduction amount. Make sure you don’t overlook it, so you can get the most out of your charitable contribution deductions. And remember, these contributions will need to be made before the end of the year to claim them on your 2021 return.
Compare Child Tax Credit Amounts
The advanced child tax credit payments many received this year were unprecedented for taxpayers, and many are still uncertain of how these payments will impact their tax returns. If you received child tax credit payments in 2021, you’ll need to compare the amount you received with the amount you can actually claim on your tax return. You’ll receive Letter 6419 from the IRS sometime next month, which will report the amount you received in advance payments this year. Compare this amount to your qualifying amount to determine if you were paid the correct amount, underpaid, or overpaid.
If you received less than the amount you qualify for, you’ll claim a credit for the remaining amount you’re due on your 2021 return. If you received more than you should have, odds are that you will not have to repay the difference. The IRS has made provisions for taxpayers that are overpaid to help avoid any undue tax burden when you file. For those who opted out of the advanced child tax credit payments, you can claim a lump sum payment when you file.
Recovery Rebate Credit
In addition to the child tax credit payments, most Americans received economic impact payments—more commonly referred to as stimulus checks. Again, these are an uncommon source of income, so you may be uncertain of how to handle them on your return. For most taxpayers, these payments won’t impact your tax return in any significant way. The exception to this is if you received less than you qualified for.
A total of three economic impact payments were sent to Americans. If you did not receive the third payment, or received less than the full amount for any of those payments, you may qualify for a recovery rebate credit. This will most likely be the case if your 2021 income was much lower than the previous year’s income.
Early next year, you should receive Letter 6475 from the IRS, which will detail your economic impact payment. As with your child tax credits, you can compare this to the actual amount you qualify for, and if you were underpaid, you can claim an additional credit on your return.
If you have questions regarding these three important changes, reach out to the Provo tax experts at The Accounting Guys. We can help you calculate the correct credit amounts for your child tax credit payments and economic impact payments, and compare them to the amount you received in 2021, so you receive the tax breaks you deserve. Call now to schedule an appointment.