02/12/2022
🟢Tax Deductions and Credits to Consider for Tax Season 2022 🟢
✅1. Charitable Deductions
A $300 charitable deduction for filers who don’t itemize deductions on their tax returns. The measure also increased the maximum amount that married couples can deduct to $600. (The limit for 2020 was $300 per return, not per person.)
✅2. Medical Deductions
You can deduct any medical expenses above 7.5% of your adjusted gross income (AGI), which is your total income minus other deductions you have already taken. For example, if your AGI was $100,000, you can deduct out-of-pocket medical expenses beyond $7,500 in 2021. But you have to itemize your deductions in order to write off those expenses on your tax return.
✅3. Business Deductions
If you’re self-employed, there are a bunch of deductions you can claim on your tax return—including travel expenses and the home office deduction if you use a part of your home to conduct business.
✅4. Earned Income Tax Credit
Depending on your income, your filing status and number of children, the credit could save you anywhere from a few hundred to a few thousand dollars on your taxes.
✅5. Child Tax Credit
The American Rescue Plan bumped the Child Tax Credit from $2,000 to $3,600 for each child under age 6 and to $3,000 for each child 6–17. Rather than waiting until tax time for families to claim this credit, the IRS began sending out a portion of the credit through advance monthly payments ($300 per month for each child under 6 and $250 for each child 6 to 17). The Child Tax Credit is gradually phased out for people with incomes over $150,000 if married filing jointly or $112,500 if filing as head of household.
👉🏾 You can claim the rest of the amount or whatever amount you haven't received on your tax return. Expect Letter 6419 around January 2022.
✅6. Education Credits
The American Opportunity Tax Credit (AOTC) is a partially refundable credit for educational expenses for a student for the first four years of college. You can claim up to $2,500 per student, and if the credit brings your tax liability to zero, 40% (up to $1,000) will be refunded to you.
👉🏾 The Lifetime Learning Credit (LLC) is not refundable and covers up to $2,000 in qualified educational expenses per return. While you can only take advantage of the AOTC for undergrad expenses, you can reap the benefits of the LLC for expenses related to all kinds of educational opportunities—from degree programs to technical classes to improving job skills.
👉🏾 But beware: You can claim both the AOTC and the LLC on your tax return but not for the same student or the same expenses.
👉🏾 You'll need Form 1098-T from your school.
⚠️The Coronavirus and Your Taxes ⚠️
✅Stimulus Checks
As part of the American Rescue Plan Act of 2021, the IRS sent a third round of stimulus checks to millions of Americans—up to $1,400 for individuals and an additional $1,400 for dependents.
✅Paycheck Protection Program (PPP) Loans
As long as these loans were used on certain business expenses—payroll, rent or interest on mortgage payments, and utilities, to name a few—these loans were designed to be “forgiven.”
✅The IRS announced that any eligible expenses you paid with money from those PPP loans can be deducted from your taxable income. So that’s a little bit of good news! PPP ended in 2021, but remember, you’ll have to get your loan forgiveness application approved by the Small Business Administration before you’re off the hook for the amount you borrowed.
✅Unemployment Benefits
After the pandemic stalled a large part of the economy, many Americans found themselves out of work (at least temporarily) and turned to unemployment insurance for help. Though the first $10,200 of unemployment benefits were made tax-free in 2020, that is not the case in 2021. So if you were unemployed in 2021 and did not have taxes withheld from your benefits, plan now to pay taxes on those benefits.
👉🏾 You'll need Form 1099-G.
✅Retirement Plans: 401(k)s, IRAs and More
There were several changes to retirement plans in 2021—and some of those changes could impact your tax bill this year. Let’s tackle each of those changes:
👉🏾 If you own a traditional IRA, you have to take money out of your account once you reach a certain age. Those withdrawals are called required minimum distributions (RMDs). The good news is the SECURE Act changed the age for RMDs from 70 1/2 to 72. This extra time could lead to significant tax savings for retirees with those accounts since the money that’s taken out of a traditional IRA counts as taxable income.
✅The SECURE Act also allows owners of traditional IRAs to keep putting money in their accounts past age 70 1/2 as of 2020. Since the money you put into a traditional IRA is tax deductible, you could lower how much of your income is taxed this year. Just remember: You will have to pay taxes on that money whenever you take it out. Total contributions to all of your traditional or Roth IRAs can’t exceed $6,000 ($7,000 if you’re 50 or older) per year.
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