You probably realized in 2020 that doing your taxes during the Coronavirus pandemic can be a challenge. New legislation, updates to the tax code, and restrictions placed on visiting your tax preparer created complications, which led to an extended filing deadline.
The 2021 tax season is not much different. The pandemic placed a financial strain on most taxpayers throughout 2020, resulting in even more legislation and tax code changes to give some relief. Here are a few of them:
- The filing deadline was moved from April 15 to May 17, 2021.
- The child tax credit increased from $2,000 per child to $3,000 per child ($3,600 for children under age six as of the end of this year).
- The standard deduction was increased to account for inflation by $200 for single or married taxpayers filing separately, $300 for heads of household, and $400 for married couples filing jointly.
- Financial aid that Americans received as part of the CARES Act from the government will not count as taxable income but rather as a refundable tax credit, like getting an advance on your 2021 refund.
- The CARES Act also allowed any funds that small-business owners received from the Paycheck Protection Program (PPP) deducted from taxable income. These loans can also be forgiven pending an application and approval by the Small Business Administration.
- Taxpayers under the age of 59½ were allowed to take up to $100,000 out of their 401(k)s and IRAs until the end of 2020 without an early withdrawal penalty under the CARES Act. Additionally, the Saver’s Credit now gives tax credits to low- and middle-income earners for contributing to their 401(k)s or IRAs. It’s open to single taxpayers with incomes up to $32,500, heads of households up to $48,750, and married couples filing jointly up to $65,000.
- The SECURE Act pushed the minimum age required for required minimum distributions (RMDs) from traditional IRAs from 70½ to 72 (if your 70th birthday was July 1, 2019, or later). The CARES Act allowed seniors to skip RMDs altogether in 2020 without penalty. The SECURE Act also allowed traditional IRA owners to continue to place money into their accounts past 70½, as of 2020.
- Interest on student loans can be deducted up to $2,500. Also, any student loan that is forgiven, will not be treated as income and taxed, as it was before.
If you have questions about these or any other changes to the 2021 tax season, seek the advice of a tax professional.
This blog is not intended to and does not constitute legal advice or financial / investment / tax advice. North American Savings Bank does not make any guarantee or other promise as to the results obtained. The consumer should consult a tax adviser for further information regarding the deductibility of interest and charges.