This year, taxpayers will face a number of major tax law changes when preparing their 2021 federal tax returns. Over the past two years, Congress has passed tax legislation to address the impact of the coronavirus pandemic on household finances and the economy in general, and the measures adopted could significantly affect the refunds taxpayers receive or the amount they owe.
In an interview, Kathy Ploch, CPA and tax expert with Durio & Korpal of Houston, explained some of these changes and outlined what taxpayers should consider when preparing their 2021 returns. Ploch, who is in her 38th tax season as a tax preparer, became a certified public accountant in 1999. She has prepared all types of tax returns, including returns for individuals, businesses, not-for-profit organizations, estates and trusts.
She is a past president of the Texas Society of Certified Public Accountants Houston Chapter (TX CPA Houston) and remains an active member of the society, serving on numerous boards and committees locally and nationally. For more than 20 years, Ploch has donated his time to the Volunteer Tax Assistance Program, an IRS-supported program dedicated to helping low-income people file their federal taxes.
Q. What changes to tax laws will have the most effect on 2021 filings?
A. The biggest changes are some of the credits. The first is the child tax credit. For 2021, it goes from $2,000 to $3,600 for children under 6 and $3,000 for children under 18. Those up to 17 are now covered. The new law provided an advanced tax credit for half of the credit amount in the second half of 2021. Then, when you file your 2021 return, you will receive the rest of the child tax credit amount.
Q. How will pandemic-related tax legislation impact 2021 filings?
A: The most important is probably the child tax credit. Increasing the amount of credit is certainly putting a lot more money in the pockets of an individual.
In other changes, the American Rescue Plan Act (ARPA) increased, for 2021 only, the employer-provided dependent care exclusion amount from $5,000 to $10,500. ARPA also expanded, only for 2021, the minimum age to receive the Earned Income Credit (EIC) without an eligible child, reducing it from 25 to 19, except for specified students who must be at least 24 years old. at the end of the year.
Economic stimulus payments, those were really helpful for 2020 and 2021 for people who were able to get them. The 2021 one was $1,400 per person. It could be the individual, and if he has children, it’s $1,400 more for each child, plus $1,400 for the spouse. It’s putting a lot of money in the pockets of people who really need it.
Unfortunately, in 2021, anyone who was receiving unemployment benefits, that unemployment is fully taxable. In 2020, the rules said that for the first $10,200 you didn’t have to pay tax. Unfortunately, that was only for 2020.
Q. How should taxpayers account for the stimulus funds they received in 2021?
A: The third round of the Economic Impact Payment was in March/April 2021. The amount could be up to $1,400 for a single person, $2,800 for a married joint filing, plus $1,400 for each eligible dependent. The dependent’s age did not matter.
It is not taxable income. But, if you received it, you should have received a letter from the IRS stating that this is the amount you received. On your tax return, there will be a section that asks, “Did you receive it?” »
If you didn’t receive it, they’ll give you that $1,400 as part of your refund.
Q. What else will change for taxpayers filing their 2021 return?
A. Charitable donations. You can deduct up to $300 for single filers and $600 for married filers filing jointly this year. In 2020, it was only $300 for all filing statuses. This is available for those who don’t have enough to itemize their deductions.
The standard deduction for single filers is $12,550, for joint filers $25,100, and for head of household $18,800. These must be cash contributions only. You must have written acknowledgment from the charity if you have a contribution of $250 or more.
Q. What are the different options for filing a 2021 tax return?
A: Many taxpayers can file their taxes for free. The IRS has what they call Free File, and you can go to the IRS website to find more information. This is done through partnerships with various software companies. It is generally intended for people whose adjusted gross income is $73,000 or less. Other people will buy TurboTax or other reasonably priced software and prepare their tax return that way.
Taxpayers with an income of $58,000 or less can also get their return for free from the Neighborhood Tax Center program through BakerRipley. (For more information, contact the Baker Ripley Tax Center, 6500 Rookin Street, Suite C-101 Houston, TX 77074, (713) 273-3755. Or go online to bakerripley.org/services/baker-ripley-tax-center.)
There are IRS-trained volunteers and centers are open multiple days and times throughout the Houston area.
Q. What are the advantages/disadvantages of filing online versus hiring an expert to prepare a statement?
A: As a paid preparer for 38 years now, I would say that if taxpayers just have a very simple return, like a W-2 or maybe just interest and dividends, they can do their taxes just fine. themselves. But if you have a business or more complicated issues, it’s best to hire an expert to prepare your return.
Although I’ve never used TurboTax, most people enter their information by being asked various questions by the software. If you don’t understand the question, you may answer incorrectly.
Good preparers will be up to date on all the latest tax laws, and they can also help with tax and retirement planning for the future. On the IRS website, they have a page called “Choosing a Paid Tax Preparer”. It’s very useful.
You can also contact TX CPA Houston and they have a referral service that might help you find a CPA.
Q. What are the most common mistakes taxpayers make when filing their returns?
A: The ones I’ve seen most often are:
Incorrect social security number and misspelled name. Most software does not allow electronic filing without a social security number, but the name and social security number must match or the return will be rejected.
Incorrect filing status and dependents. These two questions can sometimes be very difficult, depending on family situations. If this is wrong, many credits or deductions may be inaccurate.
Incorrect bank account number. Make sure you typed it correctly. If it’s wrong, the IRS will send a paper check, further delaying your refund, or it may be deposited in the wrong bank account. I saw this happen.
Last year, many refunds to taxpayers were delayed due to the incorrect amount being reported for the two economic impact payments. If you don’t have the letter I mentioned earlier, look at your bank account and see if you received the payments. This will delay the processing of your return.
The last one I might mention is math errors. Of course, this only happens if you prepare a paper return. I hope no one does, because this statement could sit in a truck or on someone’s desk for another year before being processed.
