What You Need to Know When Preparing to File Tax Returns for 2021

 Posted on December 02, 2021 in Taxation Law

The first few months of the year are often known as “tax season,” since this is when taxpayers will gather the necessary financial information to file their annual tax returns. While 2021 is not over yet, it is a good idea to begin preparing to address these issues, since filing a tax return as soon as possible after the new year will allow a person to receive a tax refund more quickly. When doing so, taxpayers will want to understand the changes to tax laws and IRS policies that may affect them. Some issues to be aware of include:

• Child Tax Credit - For 2021, the amount of the Child Tax Credit was increased to $3,000 or $3,600 for children 5 years old or younger. However, the amount of the credit is reduced for taxpayers who earn more than $75,000 when filing a single tax return, $112,500 when filing as head of household, and $150,000 for married couples who file jointly. In addition, the IRS began making advance cash payments of the Child Tax Credit to parents between July and December of 2021. Taxpayers can claim any remaining amount of the Child Tax Credit that had not been paid. If a person received payments totaling more than they will be able to claim on their tax return for 2021, they may need to repay some or all of the excess amount.

• Child and Dependent Care Tax Credit - The amount of the credit that a parent can claim for expenses related to the care of a child under the age of 13 has increased for 2021. This credit may be applied to $8,000 in expenses for one child or $16,000 for multiple children. The maximum percentage that may be applied to these expenses has been increased to 50 percent, and this percentage may be used by families who earned under $125,000 in 2021. Lower percentages will apply for families who earned more than $125,000 but less than $438,000.

• Recovery Rebate Credit - In 2021, taxpayers were able to receive a stimulus payment of $1,400, as well as $1,400 for each eligible child or other dependent. Those who did not receive the full amount of the payment they were eligible for can claim the remaining amount as a tax credit.

• Required minimum distributions from retirement plans - Owners of retirement accounts such as IRAs or 401Ks are required to withdraw a minimum amount from an account each year after reaching the age of 72. This requirement was waived in 2020, but it has been reinstated for 2021. These distributions must be taken before December 31, and a failure to take the minimum distribution before the deadline may result in a penalty of 50 percent of the amount that should have been withdrawn.

Contact Our San Jose, CA Tax Law Attorney

Providing the correct information on your tax return will help you avoid the possibility of a tax audit and potential IRS penalties. However if you are concerned about whether you may owe taxes, or if you are facing penalties due to the failure to report information to the IRS, you may want to consult with a legal professional to determine your options. At John D. Teter Law Offices, we can help you determine how to proceed, and we will provide you with representation as you address these issues with the IRS. Contact our San Jose tax lawyer today at 408-866-1810 to learn how we can help.

Sources:

https://www.irs.gov/newsroom/get-ready-for-taxes-whats-new-and-what-to-consider-when-filing-in-2022

https://www.kiplinger.com/taxes/tax-law/603037/tax-changes-and-key-amounts-for-the-2021-tax-year