Tracking with New Tax Developments
If you haven’t already noticed, there are several new developments in tax laws for 2021 (despite all the new ones we already faced in 2020!). Here’s just a few that may impact your situation:
- Expanded Child Tax Credit:
For 2021 alone (unless Congress acts to extend this), the American Rescue Plan expanded the Child Tax Credit from $2,000 per qualifying child to $3,000 per qualifying child (ages 6-17) and to $3,600 per qualifying child (ages 0-5). Up to 50% of the total credit per child is available through advanced payments paid by the IRS during 2021. Just be sure to remember that these advanced payments reduce the credit available to you to claim against your tax due on the final tax return.
- Expanded Child and Dependent Care Credit:
Also, for 2021 alone (unless Congress acts to extend this), the American Rescue Plan expanded the child and dependent care credit from up to $3,000 in eligible expenses per child (up to $6,000 for more than one child) to up to $8,000 in eligible expenses per child (up to $16,000 for more than one child). The allowable income threshold before phase-out was pushed up from $15,000 to $125,000. This makes the credit available to more filers and in greater amounts.
- Recovery Rebate Credit
For 2021, the first two economic stimulus measures from 2020 were carried over to a third wave early in the year. The amount of this credit is worth $1,400 per filer, including $1,400 per dependent claimed on the return. The credit begins to phase out for individuals with adjusted gross income of $75,000 or more ($150,000 or more for married filing joint filers). Some received all or a portion of this as an advanced payment during the year. The amount received will be reconciled with the 2021 filed return. If you are due more, you may receive an additional credit on the return. If you were overpaid, you do not have to repay any of this.
- Other Tax Provisions
A few other noteworthy tax provisions to remember include the 0% capital gains rate up to certain income thresholds, as well as the expanded federal standard deduction. These provisions have been available in recent years, and it is important to remember them with year end tax planning. California (and many other states) do not conform to the federal standard deduction amounts, so be sure to factor this into your decision to itemize.
Tax Planning is such an important tool to minimize your overall tax burden and take advantage of strategies available. We encourage this at MPK Advisors & CPAs and look forward to meeting to discuss your unique tax situation and goals!