Key Reminders for the 2021 Tax Season

As Ben Franklin famously said, nothing is certain in this world, except for death and taxes. If you are reading this, the first does not apply to you, and tax season is quickly approaching. I wanted to provide our readers with some quick tax reminders to help relieve any potential stress during this time of year.

Third Economic Impact Payment (Stimulus Check):

It may seem like a long time ago, but don’t forget that the IRS sent the third round of stimulus checks to eligible Americans in March of 2021. This stimulus payment amount was up to $1,400 for Individuals and an additional $1,400 for dependents. Thankfully, these stimulus checks will not count as taxable income and will not affect your tax situation. Therefore, when you are filing your return, you do not have to think about the third stimulus reducing your refund or increasing the amount you owe.

Itemized Deductions:

In most tax situations, taking the higher standard deduction is more practical and saves the hassle of keeping track of receipts. After the inflation adjustment for 2021, the standard deduction for single filings is $12,550 and married filing jointly is now $25,100. Most individuals will choose the standard deduction, but if you have enough tax-deductible expenses, you might benefit from itemizing.

Here is a list of the larger itemized deductions to keep in mind for 2021:

• State and local taxes: The deduction for the total of state and local income taxes, property taxes, and real estate taxes is capped at $10,000 aggregately.
• Mortgage interest deduction: Mortgage interest tends to be the largest itemized deduction. The deductibility of interest is currently limited to $750,000 of acquisition indebtedness. However, people who had $1,000,000 of home mortgage debt on or before December 15, 2017, will still be able to deduct the interest on that loan.
• Medical expenses: Only qualifying medical expenses that exceed 7.5% of a taxpayer’s adjusted gross income (AGI) can be deducted.
• Charitable donations: The cash donation limit of 100% of AGI remains in place, as long as donations are made to qualifying charitable organizations.

Cash Gifts to Charities:

Most taxpayers will not have enough itemized deductions to exceed the standard deduction. In that case, they can take advantage of the special write-off for cash gifts to charitable organizations. According to the IRS for 2021, single filers may claim a tax break for cash donations up to $300 and married couples may get up to $600. This write-off is an extension of the coronavirus relief measures taken in 2020.

IRA Contributions:

The onset of tax season can be a helpful reminder to review your retirement savings strategies and make your contributions to your traditional IRA or Roth IRA. Taxpayers have until April 15, 2022, to make their contributions for the 2021 tax year. This could potentially be used to your advantage if you are planning on making IRA contributions in the coming months. Make sure to ask your financial advisor what retirement savings strategy will best fit your situation. Here at Stewardship Advisors, LLC, we analyze retirement income sources including social security benefits, IRA strategies, company pension/benefit plans, annuities, and other resources, to achieve the amount you need in retirement.

Qualified Charitable Distributions (QCD’s):

We love to support our clients’ strong desire to give. Once you reach age 70 ½, you can begin giving out of your IRAs without paying tax on the distributions. At Stewardship Advisors, we emphasize that all your charitable giving should be distributed from your IRA when you reach the eligible age. Making charitable distributions from your IRA will save money on taxes to allow more of your hard-earned money to go to charity. As a reminder, make sure to keep track of your Qualified Charitable Distributions so you can correctly report the amount to the IRS on your tax return. The IRS does not keep track of whether the IRA distributions are going to charitable organizations or directly into your pockets.

As always, a good relationship with your tax preparer and financial advisor can help alleviate confusion and reduce your tax liability. I mentioned a few key reminders to a successful 2021 tax season, but if you have any additional questions about your tax return this year, we would be glad to help point you toward the best solution. Please do not hesitate to give Stewardship Advisors, LLC a call at (717) 492-4787.

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