There were a lot of new Tax Codes Need changes in 2020 due to the COVID-19 pandemic. Most of these changes were created to aid people during these tough times. One way to help them is through tax credits.
Since the COVID-19 pandemic is still upon us, expect to see more changes in tax regulations in 2021. These changes are necessary to help people struggling financially in the pandemic. Here are some of the Tax Codes Need that can affect 2021 tax returns.
#1 Earned Income Tax Codes Need Credit
The Earned Income Tax Codes Need Credit shall be used to help low and moderate-income families reduce their tax liability. In 2021, the maximum benefit of a person who has no qualified children will be increased to $1,502 from $543.
65 is no longer the maximum age limit. Instead, they eliminated the age limit and decreased the minimum age to 19. More changes will come in a few months.
#2 Charitable Contributions
If you regularly designate money for charitable contributions, you will love the new rules. The Consolidated Appropriations Act of 2021 has expanded charitable contribution deductions for people who don’t itemize deductions. Prior to that, only the people who itemize their deductions could deduct charitable contributions.
However, the new Tax Codes Need rules state that taxpayers can deduct up to $300 (or $600 if married filing jointly) in cash donations. For taxpayers that already itemize deductions, there are additional tax benefits. The limit for deducting cash donations has also been suspended. Taxpayers can now itemize and deduct up to 100% of their adjusted gross income.
#3 Medical Deductions
Reducing your medical expenses can help you with your tax bill. The threshold for claiming medical expenses as a deduction was set to be 10% in 2021, but that has now been lowered to 7.5% permanently. It will truly help you reduce your expenses.
For example, if your adjusted gross income was $100,000 in a year, a 10% threshold would mean that you could claim any medical expenses that exceed $10,000. As for the 7.5% threshold, you can deduct any medical expenses that exceed $7,500. If you have a total of $12,000 in medical costs during 2021, you are eligible for a $4,500 deduction rather than a $2,000 deduction.
#4 Expanded Lifetime Learning Credit
The Lifetime Learning Credit is a tax credit for tuition and other academic expenses. The maximum tax credit is $2,000, and the phaseout level is increased in 2021. From $59,000 to $80,000 for single filers and from $118,000 to $160,000 for married filers.
#5 Elimination of Tuition Deduction
The temporary deduction for tuition fees is eliminated. This allows taxpayers to deduct up to $4,000 to help them pay for higher education costs for themselves or their dependent children. However, you can’t claim both the tuition deduction and the Lifetime Learning Credit.
Conclusion
These are just some of the tax codes you should look out for. Other tax codes are child tax credit and dependent care. Make sure to stay tuned for these updates in the different regulations and incorporate them into your clients’ returns.
To make it easier for you to track your taxes, you can use a tax solution. Keystone Tax Solutions is the best professional tax software for tax preparers. Contact us for more information about the software.
