Tax preparation season is upon us, and there have been several beneficial changes made to tax laws in the past couple of years. Here are just a few of those changes to keep in mind when gathering information for your tax preparer this year:
1. Medical Expense Deduction
For the 2021 tax year, taxpayers can deduct medical expenses that exceed 7.5% of your adjusted gross income. If your AGI is $100,000, this means you can deduct medical expenses that exceed the first $7,500. For example, if you had surgery in January 2021, and your medical expenses ended up being $25,000, if your AGI was $100,000, you would be able to deduct $17,500 ($25,000-$7,500).
2. Charitable Donations for Standard Deduction
Generally, taxpayers that choose to take the standard deduction are not able to benefit from deductions related to charitable gifts and donations made throughout the year. However, for 2021, taxpayers taking the standard deduction may be eligible to benefit from the charitable donation deduction. For single filing taxpayers, they are eligible to deduct up to $300 for charitable gifts and donations made, while joint filing taxpayers are eligible to deduct up to $600.
Additionally, if a taxpayer chooses to itemize their deductions, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 allows taxpayers to deduct up to 100% of their adjusted gross income for cash contributions.
3. Student Loan Forgiveness
Previously, student loan forgiveness generated income taxes on the forgiven amount. In 2021, however, the American Rescue Plan made federal, private, and institutional student loan forgiveness tax-free. This change will last through 2025, saving taxpayers thousands of dollars in income tax.
As we enter filing season, the IRS has indicated there are delays in processing returns, and requested that taxpayers file their returns (including any business filings) electronically as early as possible, to avoid further delays.
For individual income tax return, the IRS began accepting 2021 returns on January 24th. For taxpayers not quite ready to file, the due date is Monday, April 18th. If you or your business is looking for a new tax preparer for 2021, please contact our office.
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