8 Important Things You Should Know About Filing Your 2021 Tax Return

Your tax return is calling, and it’s about time to answer it.Welcome to Part 2 of our tax series, where we’ll break down some of the most important elements about filing your 2021 tax return. Now that you’re up to speed on why you can benefit from early tax planning and preparation, it’s time to walk the walk and submit your documents to the government. Read on to discover 8 critical tax filing tips you won’t want to miss this April.

1. 2021 Federal Tax Filing Deadline

Perhaps the biggest mistake you can make on your taxes is not filing on time. The federal tax filing deadlines for 2021 are

• April 18th, 2022, and if you need an extension,

• October 17th, 2022

But if you have an outstanding bill, like estimated tax payments (ETPs), be sure to pay it on time, even if you file for an extension. If you don’t, you will face fees and penalties. The specific deadlines for ETPs are

• Q1: April 15th

• Q2: June 15th

• Q3: September 15th

• Q4: January 15th

2. Thanks To Inflation, Tax Brackets Increased for 2021 (and 2022)

There are no changes to tax rates (at this time), but there are slight changes to the brackets themselves. Below is a chart of the 2021 federal tax brackets:

Tax Rate Single Filers Married Filing Jointly 10% Income less than $9,950 Income less than $19,900 12% Income greater than $9,950 Income greater than $19,900 22% Income greater than $40,525 Income greater than $81,050 24% Income greater than $86,375 Income greater than $172,750 32% Income greater than $164,925 Income greater than $329,850 35% Income greater than $209,425 Income greater than $418,850 37% Income greater than $523,600 Income greater than $628,300

The IRS also announced tax bracket changes for 2022, which increased due to inflation. But you don’t have to fret over those numbers just yet. 

3. Here’s The 2021 Standard Deduction

The standard deduction is pretty popular. According to taxfoundation.org, nearly 90 percent of taxpayers will take the standard deduction. Partly because it's simpler, and partly because it’s the best option for most people. The standard deduction is the universal amount you can deduct from your income before you account for taxes. You have the option of either (1) taking the standard deduction or (2) itemizing your deductions, whichever is higher.Below are the 2021 Standard Deduction amounts:

• Single + Married Filing Separate: $12,550

• Married Filing Jointly: $25,100

• Head Of Household: $18,800

If you have additional deductions that push you over those limits, you should consider itemizing.

4. A Refresh On Itemized Deductions

While itemizing deductions can be more work (either for you or your tax professional), it’s a great way to ensure that the IRS doesn’t tax too much of your income.Common itemized deductions (found on Schedule A) include

• Healthcare costs on any amount that exceeds 7.5% of your AGI

• Up to $10,000 in state and local taxes (SALT)

• Mortgage interest on the first $750,000 of debt

• Casualty and theft losses from a federally declared disaster on any amount over 10% of your AGI

• Charitable giving. You can deduct up to 100% of your AGI.

An extra note on charitable giving.While you have to itemize to take advantage of most tax benefits, there’s an additional opportunity for those who take the standard deduction. The IRS extended a provision in the CARES Act allowing taxpayers to deduct up to $300 ($600 if married filing jointly) in cash gifts to qualified charities. Learn more about this rule here.If your goal is to itemize, you should also consider the bunching strategy for charitable contributions. Here, you concentrate on making more significant donations less frequently. For example, instead of donating $10,000 every year, you could give $20,000 every two years, alternating between taking the standard deduction and itemizing. Bunching can be an excellent strategy to help mitigate higher-income years and optimize cumulative tax savings.

5. Take Another Look At The Enhanced Child Tax Credit

Did you receive Letter 6475?The IRS began issuing these letters to alert taxpayers of the third round of stimulus payments they received (or were eligible for) in 2021, including the advanced payments for the child tax credit. The American Rescue Plan expanded the provisions for the child tax credit to $3,600 for children under 6-years old and $3,000 for those aged 6 to 17.Parents could also elect to receive the credit through a series of advanced payments. The Advance Child Tax Credit payments were based on your 2020 tax return income numbers, so if your income spiked in 2021, you should look at the phase-out limits to see if you’ll owe any of those payments back.

6. Your 2021 Investing Swan Song

While most annual contribution deadlines for tax-advantaged investment accounts are in December, there are a few that trickle into the new year. You can still save money in your 2021 Traditional IRA, Roth IRA, Health Savings Account (HSA), and SEP IRA until April 15, 2022.Doing so opens up several tax benefits and gets you one step closer to reaching your retirement goals. If you find yourself with some extra cash on hand (and you don’t need it to pay your tax bill), consider funding one or more of these accounts. 

7. Will COVID Policies Impact Your Taxes?

For most taxpayers, it may not be clear how some of the COVID-19 policies could impact their tax situation.Take note of the following:

• Stimulus payments won’t count as income. You can think of these payments as a refundable tax credit.

• You have to pay taxes on any unemployment benefits in 2021.

• For PPP Loans, you may be able to deduct expenses on your 2021 tax return, but only if you meet several conditions and requirements. 

8. Prep Your Materials And Set Up Direct Deposit

Before you sit down to file, ensure you have all the documents you need, including personal information, W-2s, 1099s,1098s (mortgage interest), receipts for charitable giving, other income forms, deductions, etc. It’s also wise to keep your previous year’s return handy, so you know you aren’t missing a deduction, credit, or other line items.If you expect a refund, you could also set up a direct deposit with the IRS (if you haven’t already done so).

Set Yourself Up For Tax Preparation Success

Filing your taxes likely isn’t the most exciting thing on your to-do list, but it is an essential one. If you’re feeling overwhelmed by your tax situation—unsure if you qualify for certain deductions, stressed about extra income, concerned about missing something important—work with a supportive, professional team. Be sure you have a CPA or tax professional you trust to help make the filing process smooth and painless. Here at the Dala Group, we can help you create a proactive tax plan so you make your next financial move confidently. Ready to learn more? Reach out today.