THE 2022 Tax Season is very much underway for tax year 2021. Due to the pandemic, there are new tax laws that were enacted like the American Rescue Plan to mitigate the needs of taxpayers especially those who were affected.
In addition, tax deductions and credits can reduce the amount we pay to Internal Revenue Service or Franchise Tax Board. Let me count the ways:
- If you are qualified and you didn’t receive the Economic impact Payment under the Recovery Credit Rebate of the Biden Administration in 2021, you might still be entitled to receive $1,400. The threshold of Adjusted Gross Income (AGI) to be qualified are: $75,000 and below for single; $112,500 and below for Head of Household; and $150,00 and below for Married Filing Jointly.
- If your income is too low and are qualified, you’ll be entitled to an Earned Income Tax Credit (EITC) which will provide you additional credits and refunds. The is a tax credit designed to help low to moderate income taxpayers. For taxpayers who qualify, it provides a significant tax break that can offset taxes owed or can increase the amount of their refund. Eligibility for the EITC is determined by several factors, like the amount of money earned in a given year and the number of qualifying children.
- The easiest way to calculate a client’s EITC is using a TaxSlayer Professional software, which I’ve been using for many years now.
- Some closing costs on a sale of your main home are tax deductible.
- Charitable contributions are still very much in place if you want to increase you itemized deductions. If you are a high income taxpayer with plenty of qualified itemized deductions, the tax software will choose the itemized deductions. Otherwise, the standard deduction which has increased since three years ago will be the better option.
- If you are a home owner and you pay the monthly mortgage, the following are still deductible: mortgage interest, mortgage insurance premiums, and real estate taxes paid which is subject to a total cap of $10,000.
- In 2021, the child tax credit can be worth as much as $3,600 for each child aged five and under, up from a maximum of $2,000 per child in 2020. Most parents who qualify for the credit began receiving advance payments of $1,000 in July 2021. The credit phases out for high income taxpayers.
- If you are a business owner, you can deduct many of the costs necessary of running your business.
- If you have an employer and you work at home or remotely, you cannot deduct home office expenses unless you work for yourself.
- A taxpayer may qualify to exclude from their income all or part of any gain from the sale of their main home. Generally, taxpayers can exclude up to $250,000 if filing single and $500,000 if married and filing jointly from the gain of a sale of a main home.
- If you sell your second or vacation home, the sale is called Personal Capital Asset. The capital gains are taxable unless you reinvest it within the 180 days on another property.
- Contributions to an individual retirement account or IRA can reduce once’s taxable income.
- A Student Loan Interest up to $2,500 in interest paid on qualified student loan is deductible.
- Doctor’s visits and out of pocket prescription medications are tax deductible.
There are many other guides, common deductions and credits that are out there. Just consult your tax preparer or consultant. These deductions can help lower the amount you pay the IRS and increase your chances of refunds. If you are retired and receive your 1099R (distributions from Pensions or Retirement), make sure that you deduct adequate tax withholding so you don’t have to pay large some of taxes during the tax season.
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The opinions, beliefs and viewpoints expressed by the author do not necessarily reflect the opinions, beliefs and viewpoints of the Asian Journal, its management, editorial board and staff.
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Should you have some questions, please don’t hesitate to write or call me at 562-508-8099 or email me at [email protected].
The author wear several hats. He is a lifelong journalist, community leader, tax practitioner (income tax, sales tax and non-profit organizations), business consultant and motivational speaker based in Cerritos, California.