This article was written by Edward Jones for us by your local Edward Jones Financial Advisor, Tyler Simonds. Edward Jones, Member SIPC. You can reach Tyler at 410-398-4214
As you prepare your tax returns before the April 18 filing deadline, you’ll want to be up to date on changes that could affect you. Here are some issues to discuss with your tax professional:
COVID-19 Related Distributions and Recontributions
If you took a coronavirus-related distribution (withdrawal) from a retirement account, such as a 401(k) or IRA, in 2020 and chose to spread the amount equally over three years, you need to include the relevant part of the distribution on your 2021 tax return, so you should bring your 2020 Form 1099-R to your tax advisor. You can recontribute your distributions back into any retirement account eligible to receive a rollover for up to three years after you received the initial distribution. So, if you haven’t already done so, you can still recontribute to your 401(k) or IRA up until the April 18 filing deadline – and by doing so, you could reduce your 2021 taxes. (Your tax professional will know what forms and documentation you’ll need for this recontribution).
Return of RMDs
In 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act suspended the required minimum distributions (RMDs) from retirement accounts that people over a certain age typically must take. But RMDs returned for 2021 and had to be taken by Dec. 31, unless your birthdate is between July 1 and Dec. 31, 1949, in which case your starting date was delayed until April 1, 2022. So, if you had an RMD for 2021, bring your 2020 Form 5498 or your 2021 retirement account statements to your tax professional to calculate the required RMD. You’ll also want to provide your 2021 Form 1099-R to report the amount of RMDs taken.
The CARES Act authorized a deduction for cash contributions to qualified charities for those who don’t itemize. For 2020, the maximum deduction was $300; this provision has been extended for the 2021 tax year, with a new provision allowing a $600 deduction for joint filers. If you do itemize deductions, be aware that the CARES Act also suspended the 60% of adjusted gross income limit for cash gifts in 2020, a change that has been carried over to 2021.
Child Tax Credit
For 2021, you can claim up to $3,600 for children younger than 6 and up to $3,000 for children ages 6 to 17. This tax credit is refundable, which means you can receive it even if it’s larger than the amount of taxes you owe. The credit phases out at certain income limits.
Child and Dependent Care Credit
This credit is more substantial in 2021 – up to $4,000 for one qualifying person and up to $8,000 for two or more. This credit is also potentially refundable, but it phases out differently than in previous years, so you’ll want to go over your dependent-care expenses carefully with your tax professional.
And last, but certainly not least, review your IRA contributions. There aren’t any changes for 2022, but you can still fund your traditional or Roth IRA for the 2021 tax year up until the April 18 deadline.
See your tax professional soon to ensure you’ve got everything in order. Staffing shortages at the Internal Revenue Service (IRS), combined with a heavy workload due to pandemic-related programs, may slow down processing of returns, so consider getting your taxes done as soon as possible – especially if you’re anticipating a refund.
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