3 Important Topics to Brush Up on Before Filing Your Taxes
The New Year is here, and in the next few weeks, many people will begin to receive their first tax-related documents from the IRS and their employers. But before you file your tax return this year, it's important that you brush up on a few important changes and considerations for 2021. Keep reading to learn what you need to know before filing your 2021 tax return.
Your Economic Impact Payments
This year included a never-before-seen source of income for many Americans: economic impact payments, or as they're more commonly called, stimulus checks. A total of three economic impact payments were sent out to most Americans this year, and many people had questions about how those payments would impact your 2021 tax returns. Well, now is the time to work that out.
The good news is, for most people, those stimulus checks won't have any impact on your return at all. The payments were issued as an advance on a brand new tax credit. Essentially, the government decided everyone under a certain income threshold qualified to receive that credit on their 2021 tax returns, then sent out the checks early. The only way these payments might impact your return is if you were underpaid.
If you received less than the full amount, or if you didn't get all three payments, you'll need to calculate the actual amount you should have received and compare it to how much you were given. If you don't remember the amount you were paid, don't worry; the IRS will send you Letter 6475 with this information. If it turns out you should have been given more in your stimulus checks, the remainder will be issued to you as a credit on your tax return.
In the rare occurrences where taxpayers were overpaid in their economic impact payments, the IRS has decided to waive the excess amount for most taxpayers. This can prevent any excess tax burdens that overpayment may cause when filing your return.
Your Advanced Child Tax Credit Payments
Though the child tax credit has been around for a long time, 2021 introduced two big changes to it: First, the credit amount was increased, and second, the credit was given to taxpayers early (similar to the way economic impact payments were issued). Because the child tax credit is nothing new to American parents, you might be expecting that credit on your 2021 return. However, if you received those advanced payments, it's important to keep in mind that you've already been given your child tax credit, so you might owe a little bit more in taxes than usual as a result.
As with the economic impact payments, if you were underpaid, you'll receive an additional credit on your tax return to bring you up to the full amount you were owed. The IRS will send you Letter 6419 with this information, so you can compare it to the amount you should have received. Additionally, if you opted out of the advance payments, you'll receive the full amount owed to you in a lump-sum credit on your 2021 return.
Overpayment on the advanced child tax credits will be handled differently for most individuals, as compared to the waiver offered for overpayment on stimulus checks. Because parents were given the opportunity to update their dependents to ensure accurate payment, you may owe any excess amount you were paid.
Your Charitable Contribution Deduction
Again, deductions for charitable contributions are nothing new to the American tax system. However, there was a small change to charitable contribution tax laws in 2021 that many taxpayers are not aware of. If you take the standard deduction (as about 90% of tax filers do), you can now also take an additional charitable contribution deduction of up to $600 for joint filers, or up to $300 for individual filers. If you donated to qualifying organizations in 2021, be sure to deduct the amount you donated, up to the maximum amounts previously mentioned. A few hundred dollars may not seem like much, but when it comes to taxes, every penny counts.
There's no doubt that 2021 was a strange year for everyone, and some of the tax-related changes can cause confusion among taxpayers. If you're uncertain how to handle your economic impact payments, advanced child tax credit payments, or other aspects of your 2021 tax return, contact Camputaro & Associates today to speak to one of our experienced CPAs. We'll help ensure you receive the full credit amounts you deserve, and make filing your tax return easier than ever.
Camputaro and Associates
Certified Public Accounting Firm
136 N. Orchard Street, Suite 8
Ormond Beach, FL 32174