As the year progresses, changes have been made and are taking place. Here are some of the 2021 tax changes that we will be facing as we enter the ring for the 2021 tax season…
Advance Child Tax Credits: Monthly advance payments began 7/15/21. Any amount paid will need to be reported on your 2021 return. If the advance exceeds the allowable child tax credit, the excess will increase your tax liability.
100% Deduction for Business Meals: This is a temporary deduction for expenses paid or incurred after 12/31/20 and before 1/1/23 for food and beverages provided by a restaurant. The new IRS guidelines explain when the 100% deduction applies and when the 50% limitation continues to apply.
Dependent Care Benefits: An employee may exclude from gross income dependent care assistance program (DCAP ) benefits by contributing to the DCAP through salary reduction, and the DCAP may reimburse the employee for dependent care expenses incurred during the year with pre-tax earnings.
Flexible Spending Accounts: Your employer may permit a 12 mo. grace period (previously 2 1/2 mos.) for unused balances at year end 2021. This means that you could potentially roll over the entire unused FSA balance from 2021 to 2022.
Charitable Contributions: The maximum non-itemized deduction available for single tax payers is $300 ($600 for joint filers). The limit for itemized cash contributions is 100% of your income and 50% of your income for itemized non-cash contributions.
Lifetime Learning Credit: The tuition and fees deduction has been replaced with an expanded income limit for the Lifetime Learning Credit. The credit is worth up to $2,000 pert tax return and covers many of the same costs as the prior deduction.
Unemployment is fully taxable: While in 2020 you could exclude $10,200 ($20,400 for joint filers) of unemployment compensation benefits, as of the current date, that exclusion will not be available for 2021.
Sources: EA Journal July/August 2021
Tenenz Tax Update 2021