10 Must-Know Tax Information for Individuals in 2021
Tax season is upon us once again, and as individuals, it is important to stay informed about the latest changes in tax policies that may affect us. With the global pandemic forcing many changes in the economy, there are new changes in the tax code as well. So, what are the 10 must-know tax information for individuals in 2021?
1. Tax Deadline Extensions
Due to the ongoing pandemic, the Internal Revenue Service (IRS) has extended the tax filing deadline to May 17, 2021. This applies to all individuals, including self-employed individuals. It is essential to note that state tax deadlines may vary, so it is important to check with your state.
2. Economic Impact Payment (EIP)
The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided eligible Americans with a stimulus check or an economic impact payment (EIP). The Consolidated Appropriations Act of 2021 also provides for an additional EIP. These payments are generally not taxable, and if you did not receive the full amount, you may still be eligible for a Recovery Rebate Credit when filing your taxes.
3. Unemployment Benefits
If you were unemployed in 2020 due to the pandemic, you may have received unemployment benefits that are taxable. It is important to receive a Form 1099-G from the state agency that paid the benefits so that you can accurately report the benefits on your tax return.
4. Charitable Contributions
The CARES Act has increased the limit for charitable contributions in 2021. Taxpayers who do not itemize deductions on Schedule A may now deduct up to $300 for cash donations made to qualifying organizations. For taxpayers who do itemize, the limit has increased from 60% to 100% of their adjusted gross income (AGI) for cash donations made in 2021.
5. Retirement Contributions
The maximum contribution limit for traditional and Roth IRA accounts in 2021 is $6,000, with an additional $1,000 catch-up contribution for those over 50 years old. For 401(k) plans, the maximum contribution limit is $19,500, with an additional $6,500 catch-up contribution for those over 50 years old.
6. Health Savings Accounts (HSAs)
Individuals with high-deductible health plans may contribute to an HSA to save money on their health care costs. The maximum contribution limit in 2021 for individuals is $3,600 and $7,200 for families. If you are over 55 years old, you may contribute an additional catch-up contribution of $1,000.
7. Capital Gains Tax
The capital gains tax rates for 2021 have remained the same as 2020. For individuals in the highest tax bracket, the rate is 20%, while the lowest tax bracket rate is 0%. For long-term capital gains, taxpayers are taxed at a lower rate than short-term capital gains.
8. Child Tax Credit
The Consolidated Appropriations Act of 2021 increased the child tax credit to $3,000 for children aged 6 to 17 and $3,600 for children under 6. The credit is also fully refundable in 2021, meaning that even if you owe no taxes, you may still receive the full credit.
9. State and Local Taxes (SALT)
The SALT deduction was capped at $10,000 in 2018, meaning that individuals could not deduct more than $10,000 in state and local taxes on their federal tax return. However, the Consolidated Appropriations Act of 2021 temporarily removes the cap in 2021 and 2022 for individuals who itemize their deductions.
10. Virtual Currency
Virtual currency, such as Bitcoin, has become increasingly popular in recent years. However, it is important to note that virtual currency transactions may have tax implications. The IRS treats virtual currency as property, which means that capital gains taxes may apply to any gains from buying and selling virtual currency.
In conclusion, staying informed about the latest tax information is essential for individuals. The above tax information provides a comprehensive guide on what to expect in 2021. It is important to consult with a tax professional to understand how these tax changes may affect your individual situation and to ensure that you accurately file your taxes.
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