Tax season is upon us once again, and it’s important to start thinking about your taxes early. There are a variety of tax changes that occurred in the past year and some new deductions that may benefit you. To help you navigate through the process, we’ve compiled a roundup of everything you need to know about taxes.
Firstly, let’s talk about tax brackets. The IRS has adjusted its income ranges for each tax bracket due to inflation adjustments. This means that if your income stayed the same as last year, but the income range for your previous bracket increased slightly due to inflation, then you might find yourself in a lower tax bracket this year.
Next up is standard deduction vs itemized deductions. The standard deduction for 2021 has increased to $12,550 for single taxpayers and $25,100 for married couples filing jointly. This means that if your total itemized deductions are less than these amounts, it might be more beneficial to just take the standard deduction instead of listing out all of your itemized expenses.
However, there are still some situations where taking itemized deductions makes more sense. For example, if you have significant medical expenses or charitable contributions throughout the year that exceed the standard deduction amount.
One major change in 2021 was an extension granted by Congress on student loan forgiveness until January 1st of 2026! This applies specifically towards any student loans forgiven from taxable years beginning after December 31st of 2020 through January 1st of 2016 (meaning any loans forgiven between those dates will not be taxed).This should come as welcome news for many college graduates who were worried about facing large tax bills when their student loans were forgiven.
Another area where taxpayers may benefit from new rules is in regards to cryptocurrency taxation. In recent years there has been confusion regarding how cryptocurrencies like Bitcoin should be taxed – whether they should be treated as property or currency – but with clarification provided by the IRS in 2021, we now know that they will be taxed as property. This means that if you sell any cryptocurrency for a profit, it will be subject to capital gains taxes.
For those who are self-employed or own small businesses, there are a few changes to the tax code that have gone into effect. The Qualified Business Income deduction allows certain types of businesses (such as sole proprietors and partnerships) to deduct up to 20% of their qualified business income on their taxes. Additionally, there is a new rule that allows small business owners to deduct up to $5,000 of startup costs and $5,000 of organizational expenses in their first year of operation.
If you’re someone who donates money or goods throughout the year, there are some important things to keep in mind when filing your taxes. In order for donations – whether cash or goods -to be deductible on your taxes, they must be given to an organization recognized by the IRS as tax-exempt under section 501(c)(3). You’ll also need documentation proving your donation like receipts or bank statements showing the transfer was made.
Finally, let’s talk about tax credits. These can help reduce your overall tax bill and may even result in a refund if you’ve overpaid during the year. Some common credits include:
– The Earned Income Tax Credit: Available for low-income taxpayers who work and meet certain eligibility requirements.
– Child Tax Credit: Available for families with dependent children under age 17.
– American Opportunity Tax Credit: Available for students pursuing higher education.
– Premium Tax Credit: Helps offset insurance premiums purchased through Healthcare.gov
In conclusion, while doing our taxes isn’t something we look forward too each year but taking advantage of these tips could save us time-and-money! Remember its always best practice consult with a professional accountant before making any significant decisions regarding finances and taxation!