Deductions, limits and credits: important tax nuances to consider when filing a return for 2021

Tax rules in the US change every year. Tax rates, deduction amounts, contribution limits—new numbers are set for this every year. When filling out the declaration, it is important to provide the correct information, otherwise the document will be sent for additional verification and your return will be delayed.

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ForumDaily asked experienced accountant Michael Koloden highlight the most important tax nuances that may affect the declarations of individuals for 2021.

General

Standard deduction

For 2021, the standard deduction is $12 for those filing individually and $550 for couples filing jointly.

Alternative Minimum Tax (AMT)

In 2021 year AMT does not apply to individuals earning up to $73 (individual returns) and up to $600 (for couples filing joint returns).

Medicine

Health Savings Accounts (HSA)

Health Savings Account (HSA) contributions can be deducted from taxable income, but there are a number of requirements. HSAs are used to pay for the current or future medical expenses of an account holder, spouse, or dependent. For 2021, the maximum HSA contribution limits were $3600 per person and $7200 for family insurance.

Medical expenses paid with HSA must not be reimbursed from other health insurance or other sources; they also cannot be deducted for medical expenses on federal returns.

The account holder must be in a High Deductible Health Plan (HDHP) and have no other medical coverage other than accident, disability, dental, or vision insurance.

Medical Savings Accounts (MSA)

There are two types of Medical Savings Accounts (MSAs):

• Archer M.S.A. — it is designed to help pay medical bills for self-employed individuals and employees of some small employers;
• MSA Medicare Advantage is an Archer MSA linked to Medicare. It can be used exclusively for qualifying medical expenses. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare.

Both MSA accounts require you to be enrolled in a High Deductible Health Plan (HDHP). The maximum amount that could be put into this account in 2021 was $4. They are deducted from taxable income.

Deduction of medical expenses

For 2021, the deduction threshold for medical expenses is 7,5% of Adjusted Gross Income (AGI). That is, if you spent more than 7,5% of your AGI on medical services, then everything that exceeded this threshold can be deducted from taxes.

Long term care premiums

Long-term care insurance premiums are tax deductible, subject to certain limits. For those under age 40 in 2021, the limit was $450. Those ages 41 to 50 can deduct $850; from 51 to 60 years old - $1690; from 61 to 70 years old - $4. The maximum deduction is $520 and applies to individuals over 5 years of age.

Medicare tax

In 2021, an additional Medicare tax of 0,9% applied to individuals with wages above $200 for individual returns ($000 for families). There is also a 250% Medicare tax on investment (unearned) income for individuals with adjusted gross income (AGI) over $000 ($3,8 for families). Investment income includes dividends, interest, rents, royalties, real estate gains, etc.

The company's specialists will help you prepare your declaration correctly and take into account all the deductions due to you.MICHAEL KOLODEN CPA PC: 7308 18th Avenue, Brooklyn NY 11204; tel. (718) 360-5337; e-mail: [email protected].

Investments, gifts, foreign income

Deduction of earned foreign income

In 2021, the maximum amount of overseas income that can be excluded from your US taxable income is $108. The exception is income received and taxed in another state.

Long-term capital gains and dividends

In 2021, the tax rates on capital gains and dividends are 0%, 15% and 20%. The maximum amount for a zero interest rate is $40 for individual taxpayers. If the taxpayer's income reaches $400, the rate on both capital gains and dividends will be 445%. All others are subject to the 850 percent rate.

Wealth and gift taxes

For the estate of any person who dies during calendar year 2021, the base tax exemption is $11,70 million. That is, if the value of the inheritance you received does not exceed this amount, then you do not need to pay federal property or gift tax (Estate and Gift Taxes). Tax-free gifts up to $2021 could be given in 15.

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tax credits

Family

Adoption loan

In 2021, the adoption loan is non-refundable, that is, it cannot be received in cash, but can only be used to pay off tax debts. The amount is up to $14 per child and applies to the cost of adoption.

Earned Income Loan

In 2021, the maximum earned income tax credit (EITC) was $6. The amount you can claim depends on income and family size, filing status, and some other factors. The maximum credit is given to couples filing a joint return with three or more children.

Tax credit for children

A portion of US residents received half of this loan upfront in 2021. If you opted out of advance payments, you will receive a full child tax credit when you file your 2021 tax return. It is $3600 or $3000 per child depending on age. If you received CTC upfront in 2021, it was only half the amount, up to $1800. You can claim the remaining half when you file your 2021 tax return.

Be sure to look for letter 6419 from the IRS that lists the payments you received on this loan so that you can report them correctly on your return.

Tax credit for children and dependents

You can get a child and dependent care tax credit if you used the money to pay for the services of a qualified nanny or carer. At the same time, you needed babysitting services in order to be able to go to work or look for it.

In 2021, this loan can list expenses up to $16, but it only pays you back 000%, that is, no more than $50. You can get the maximum if you have two or more children. If you have one child, you can count on a loan of up to $8.

Education

Lifelong learning loan

A student loan is designed to offset your tuition costs. It is paid to students of certain institutions and requires the fulfillment of a number of conditions. This loan can be used to pay for undergraduate, graduate and professional courses.

There is no limit to the number of years you can apply for a loan. You can be reimbursed up to $2 per tax return. To qualify for a full loan, your Adjusted Gross Income (MAGI) must be up to $000 (up to $80 if a couple files jointly).

Credit opportunities (American opportunity tax credit)

This loan pays for education (yours or your children's) during the first four years of college or other higher education. You can receive no more than $2500 per student per year.

If the loan brings your tax debt to zero, you can receive 40% of the remaining loan amount in cash (this payment cannot exceed $1000).

The Opportunity Loan amount is 100% of the first $2000 of eligible education expenses. Then you can get 25% off your next $2000 spending.

Interest on educational loans

For 2021, you can deduct no more than $2500 of student loan interest you paid. The amount of the deduction begins to be phased out for taxpayers with an adjusted gross income of more than $70 ($000 for couples filing jointly) and completely eliminated for taxpayers with a gross income of $140 ($000 for couples).

Pension

Contribution limits

The contribution limit for 401(k), 403(b), 457 and Thrift Savings Plans is $19. The contribution limit for SIMPLE plans is $500. These contributions can be deducted from your 13 taxable income.

Saver's credit

The Contributor Tax Credit is available to taxpayers who contribute money to their retirement account during the tax year. It used to be called a retirement savings contributions credit.

Credit amounts are up to $1000 for individuals filing individually and up to $2000 for couples filing jointly.

Loan amount may vary depends on taxpayer's adjusted gross income and contributions.

The company will help you prepare your declaration taking into account all loans and with the maximum return available to you.MICHAEL KOLODEN CPA PC: 7308 18th Avenue, Brooklyn NY 11204; tel. (718) 360-5337; e-mail: [email protected].

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