By Denise Howell
Washington was very busy passing legislation intended to stimulate the economy. Here are the highlights for 2021 individual tax returns:
The child tax credit has been increased for 2021 to $3,600 for children under age 6 and $3,000 for each child ages 6 to 17. There is also the $500 credit for other qualifying dependents. These amounts are subject to phaseouts.
Advanced child tax credits were paid by the IRS starting in July of 2021 to those who were eligible according to the last tax return filed. Given many complications surrounding these payments, the IRS sent out letters (titled 6419 letters) to taxpayers that were paid the advanced credit. However, the IRS has issued a statement admitting to the inaccuracies of some of these letters. They have advised taxpayers to log onto their IRS account on the IRS.GOV webpage to verify the accurate amount of credit paid. Any advanced child tax credit “paid” will reduce any eligible credit.
For the tax year 2021 only, the child and dependent care credit has been increased from 35 percent to 50 percent of up to $8,000 (one qualifying individual) and $16,000 (two or more qualifying individuals). The credit is reduced for gross income amounts in excess of $125,000. This credit is refundable for 2021.
There have been numerous changes regarding the earned income tax credit, such as removing age limits of dependents, increased disqualified income thresholds and increased amounts for individuals with no qualifying children.
The third recovery rebate was paid during March and April of 2021. You will need this amount to report on your return. The third payment started at $1,400 per individual reported on the last tax return filed and could have been reduced due to income limitations.
Charitable contributions limit for 2021 is again 100 percent for amounts paid to qualified organizations (planned to be reduced to 60 percent in 2022). If you take the standard deduction and make charitable contributions to eligible organizations, you still can take up to a $300 adjustment to your gross income.
Hurricane Ida losses due to property damage can be claimed if you itemize deductions.
Required minimum distributions are back for 2021.
For business owners, the deduction for business meals is 100 percent for 2021 if purchased at an establishment that offered dining.
Business owners, do not forget about the qualified business income deduction — up to 20 percent.
Denise Howell is president of Howell CPA, PA. Reach her at denise.howell@cpa.com.