BREAKING THE CODE

CHANGES TO NOTE

If you haven’t already, it’s time to start thinking about your Federal Tax Return. Here are five changes you should be aware of that may make figuring out and paying them slightly less painful. Under the American Rescue Plan of March 2021, this credit, that’s a dollar-for-dollar reduction in your tax bill, jumps to $3,000 (up from $2,000) for children 17 and younger and $3,600 for children five and younger.

As in the past, however, there is a phase-out for higherincome earners. If your adjusted gross income is over $75,000 as a single filer, over $112,500 as a head of household, or over $150,000 filing jointly, your child tax credit payments begin to phase out by $50 for every $1,000 in income over those amounts.

For single, non-itemizing taxpayers, the standard deduction for 2021 is $12,550 (up $150 from 2020) and $25,100 for married couples filing jointly (up $300 from 2020).

For seniors, the standard deduction is even higher. If you’re 65 or older, married, and filing jointly, you can add $1,350 each to the standard deduction (up from a $1,300 add-on in 2020). Those who are single or head of a household and 65 or older can add $1,700 to the standard deduction (up $50 from 2020).

In the past, the total charitable deduction for filers who did not itemize, either single or a married couple filing jointly, was $300. When filing your taxes for 2021, non-itemizing married couples filing jointly can each take a $300 charitable deduction for a total of $600.

This particular tax break is for qualified tuition and other expenses paid for undergraduate, graduate, and professional degree courses, including courses to acquire or improve job skills. The previous credit was $2,000 per student per year, but the stimulus legislation of December 2020 raised the credit to $2,500.

Under previous tax law, you could only deduct medical expenses over10% of your income. Under recent changes, you can now deduct medical expenses that exceed 7.5% of your income.

As an example, under previous tax law, if you made $50,000 and had $8,000 in medical bills, you could only deduct $3,000, as the other $5,000 (10% of $50,000) didn’t qualify. Now, however, with that same income and expenses, only $3,750 (7.5% of $50,000) would not qualify, and you could deduct $4,250.

Keeping up with changes in the tax code can be extremely perplexing, and hiring a professional to prepare your taxes will help you simplify the process.