2021 tax law update: Getting ready for return season

Chris J. Scoggin, CPA

Even though the Build Back Better Act appears to have died in the U.S. Senate, there were several tax law changes in 2021, which will affect most Americans this coming tax season. Here’s what you need to know and how you can prepare for the changes.

Your Monthly Child Tax Credit Payments May Decrease (or Increase) Your Refund
For the first time in history, the IRS sent the child tax credit as monthly payments to qualifying families. Depending on the amount of your monthly child tax credit payments received in 2021, you may receive a bigger tax refund, get a smaller refund than expected — or even owe additional taxes. If you received monthly child tax credit payments, you must report the amount on your 2021 tax return. You should receive Letter 6419, which will state the total amount of child tax credit payments you received. The IRS recommends that you compare this amount with the total child tax credit to which you’re entitled.

The child tax credit for 2021 is up to $3,600 for children under the age of 6 (up to $3,000 for children ages 6-17). From July to December, qualified families received up to 50% of their child tax credit as monthly payments. Some families can claim the remaining amount on their 2021 tax returns. However, not all families received the payments, some chose to optout.

If the total child tax credit you qualify for exceeds how much you already received through your advance child tax credit payments, you can claim the remaining amount on your 2021 tax return. If you received more than you qualify for, you will need to repay some or all the excess payments back to the IRS when filing your taxes.

2021 Recovery Rebate Tax Credit for Third Stimulus Payments
For 2021, you may qualify for the Recovery Rebate Tax Credit. If you haven’t received your third stimulus payment of $1,400, you will need to file a 2021 tax return to claim this credit, even if you have no tax liability.

You need to know the amount of your third stimulus payment you received in 2021 for yourself, spouse, or dependents to claim your Recovery Rebate Credit. You’ll receive Letter 6475 from the IRS in early 2022, showing the amount of your third stimulus payment. You should keep these letters with your tax records, and you will need the information to claim the credit on your 2021 tax return.

You Don’t Have to Itemize to Claim Charitable Donations
Normally, you must itemize to deduct charitable contributions. But for 2021, you can deduct up to $300 for cash donations to qualifying charities (up to $600 combined for married filers) whether you itemize or take the standard deduction for 2021.

“The increased charitable donation deduction for both individuals who itemized and for those who do not itemize (for) 2021 is a great incentive to support your favorite charity,” James Chaston, CPA said.

“And there’s a bonus for generous charitable givers who itemize. Those who claim charitable contributions as itemized deductions can claim cash contributions made to qualifying organizations up to 100% of their adjusted gross income (AGI) for the 2021 tax year only,” Chaston said. Generally, the deduction is limited to 60% of the taxpayer’s AGI. It is important to remember that the temporary increase of the 100% limit isn’t automatic.

Please consult your CPA or trusted tax advisor to ensure you can utilize these larger charitable deduction limits. At CS CPA Group, we are accepting new clients and would love to meet with you in person or via zoom to discuss your specific situation.


This sponsored content was first published in the February edition of InMaricopa magazine.