Deciphering the 2021 Tax Changes: Maximizing Savings and Understanding New Deductions
The 2021 financial year brought a slew of unprecedented tax changes that continue to shape the personal finance landscape. As a taxpayer, it’s crucial to understand these modifications, ensuring you’re not only compliant with the law but also leveraging opportunities to maximize your tax savings.
One of the most notable changes is the revision of the standard deduction. The IRS increased the standard deduction to $12,550 for single filers and $25,100 for married couples filing jointly, marking a slight increase from the previous year. This adjustment is a significant relief, especially for taxpayers who don’t itemize deductions.
Another critical change is the expansion of the Child Tax Credit under the American Rescue Plan. Families can now claim up to $3,600 for children under six and $3,000 for children aged between six and 17, offering a substantial increase from the previous $2,000 per child.
Furthermore, the tax credit is fully refundable, meaning families can receive the credit as a refund, even if they owe no tax.
For the self-employed and small businesses, the IRS has also provided tax relief measures to ease the financial burden resulting from the pandemic. These provisions include payroll tax credits for sick leave and family leave for companies with fewer than 500 employees and deferring social security tax payments.
Moreover, tax laws surrounding unemployment benefits have also been revised. The American Rescue Plan Act excludes up to $10,200 in unemployment compensation from federal income tax for households with an adjusted gross income under $150,000. This change can bring about considerable savings for those who received unemployment benefits in 2020.
In conclusion, the 2021 tax changes have largely been designed to provide relief in the face of the economic challenges brought on by the COVID-19 pandemic. As taxpayers, being informed about these changes can help us navigate our tax obligations efficiently and benefit from available deductions and credits.
You’re advised to consult with a tax professional to understand fully how these changes apply to your individual or business situation.