Taxpayers are facing a long list of tax changes for the 2022 tax year
Tax planning is an important part of finances for both the individual as well as a business. However proper tax planning requires a lot of information regarding the tax changes and tax laws in the country. Another year of fighting with the Coronavirus has led to several changes in the tax law for the year 2021. While we all plan for taxes at the end of the year, it gives an added advantage of planning the taxes from the very beginning of the year itself. After all, the more tax planning you do, the more money you may be able to save. So, in order to be a smart taxpayer, you will have to be aware of the changes in the tax law. Some of the biggest changes in the tax law are:
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Expanded child tax credit- The American Rescue Plan increased the child tax credit for the year 2021 to $3,000 for families with kids 17 and under, with an extra $600 for children under age 6. While many American children and families with children received advanced credits, there are many people who earned more than the given credit limit as well. Those people might have to return the credit to the government. To qualify for the full child tax credit, single filers need a modified adjusted gross income of less than $75,000 and married couples filing together must earn under $150,000. The smart payers, those who wish to claim the full credit will start planning from the very beginning and will collect all documents and files on time to get the full return.
Charitable deductions- Taxpayers who are planning for a year-end charitable donation can take advantage of a special write-off for cash gifts in 2021. There are some major changes in the tax write off for cash donations even if they don’t itemize deductions on their federal tax return. So, if you wish to save some money from the tax, give donations in cash so that you can save your money from the tax. You can collect slips of the donations done in cash to use them for tax filing and become a smart tax payer. For 2021, single filers may claim a tax break for cash donations up to $300 and married couples may get up to $600.
Health insurance premiums- The government increased health insurance premium subsidies making coverage more affordable for millions of Americans. While the exchange has temporarily capped premiums at 8.5% of household income, the tax return filers may have to repay some of the benefits if earnings exceed the thresholds for the year 2021. So, in case any citizen has more income than the prescribed one, they might have to return some money to the government. It can really be a very unpleasant and stressful situation for those folks that have to pay the money back.
Required minimum distributions- There is a change in the minimum distribution as well. The contribution limit for traditional IRAs and Roth IRAs also stays steady at $6,000, plus $1,000 as an additional catch-up contribution for individuals age 50 and up. However, the income ceilings on Roth IRA contributions went up. Contributions phase out in 2021 at adjusted gross incomes (AGIs) of $198,000 to $208,000 for couples and $125,000 to $140,000 for singles (up from $196,000 to $206,000 and $124,000 to $139,000, respectively, for 2020).
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