TAXES. That dreaded word we must start thinking about every winter. Some people prefer to do their taxes early while others procrastinate by waiting until the last minute. Yet others spend too much time on their taxes trying to come up with creative deductions to save money. For example, one taxpayer tried deducting bath oil as a medical expense because of their dry skin! Another taxpayer, a ballerina, tried to deduct a tummy tuck!
When doing your taxes every year, make sure you have your paperwork organized, you do not wait until the last minute and you deduct legitimate expenses. Everyone’s tax situation is different. You should always consult a qualified professional tax advisor to discuss your specific tax situation if you are unsure of what qualifies and what does not.
Here are Some Important Facts You Need to Know:
Standard deductions have changed a little bit each year since 2019. For example, a married couple filing jointly had a standard deduction of $24,800 in 2020. For 2021, it goes to $25,100.
The Child Tax Credit increased from $2,000 per qualifying child to $3,600 for children aged five and under and $3,000 for children 6-17 for 2021.
If you lost a family member over the past year, you must file taxes for them if they earned any taxable income in 2021. Either the surviving spouse can file a joint return for them, or the executor or another family member must file their final, federal (and if applicable state) income tax return.
Form 1099-R or 1099-DIV issued by the IRS reports distributions from annuities, retirement plans, profit-sharing plans, IRAs, insurance contracts and/or pensions. A 1099-R is also used to report other sources of income besides salaries, including interest and dividends and independent contractor income. Form 1099-DIV is used by banks and other financial institutions to report dividends and other distributions to taxpayers and the IRS. You should have access to both 1099-R and 1099-DIV in February since you will need it for your taxes.
Form 5498 is associated with IRA contributions, rollovers, Roth IRA conversions and required minimum distributions (RMDs). It is for informational purposes only. You do not have to file it with your tax return. Form 5498 will not post until after April 18 because you can contribute to an IRA or Roth IRA for the previous year right up until taxes are due.
To learn more about important tax changes for 2021 and how to manage your tax liability, join us in person or via Zoom on Thursday, January 27th at 5:30 PM for our Tax Planning Seminar. Register today at https://www.sterlingfm.com/events. Let us know if we will see you in person at the Courtyard by Marriott Hagerstown or over Zoom! For more tax resources, visit our website at https://www.sterlingfm.com/tax-resources or go to www.Irs.gov.
***Please note: This information is not intended as authoritative guidance or tax advice. You should consult with your tax advisor for guidance on your specific situation.***