While year-end tax planning is always important, recent adjustments – and the opportunity to do more on the horizon – can offer unique benefits as well as potential pitfalls.
Here are some of the biggest changes for individual taxpayers and how to prepare for them, according to financial experts.
Expanded child tax credit
While millions of Americans have received advanced credits, tax filers who earned more than expected may have to repay some of it, experts say.
To qualify for the full credit, single filers need a modified adjusted gross income of less than $ 75,000, and married couples filing together must earn less than $ 150,000.
Filers should organize themselves by reconciling their payments, said Larry Harris, certified financial planner, director of tax services at Parsec Financial in Asheville, North Carolina.
After that, tax filers can try to estimate the adjusted gross income for 2021 to see if they are still eligible for the payments they received.
However, if any credits are missing, Harris suggests starting the filing process early, as many taxpayers have had repayment delays in 2020 related to stimulus payments.
“Get your return filed as quickly as possible,” he said. “It will at least turn the wheels on what could be another slow year for IRS processing. “
For 2021, single filers can claim tax relief for cash donations of up to $ 300 and married couples can get up to $ 600, IRS says, extended coronavirus relief measure from 2020 .
Health insurance premiums
While the stock market has temporarily capped premiums at 8.5% of household income, tax filers may have to repay part of the benefits if income exceeds the thresholds for 2021.
“This can really be a very unpleasant and stressful situation for people who have to repay,” Harris said.
Minimum required distributions
“You have to take it out by Dec. 31 and if you don’t, the penalties are pretty stiff,” said Harris, someone facing withdrawals of 50% of the amount they were due.
For example, if someone were to withdraw $ 50,000 and skip the distribution, they would have to pay a penalty of $ 25,000, he said.
The IRS covers the rules, including ages, time limits, and per plan requirements here.