Tax Day Prep Kit
As we get ready for tax day, I thought I’d provide a few of our most popular tax guides so you can better prepare for Tax Day. Normally, Tax Day is on my birthday, April 15. This year Tax Day falls on April 18 and so my birthday wishes for you = No surprises!
10 Tax Day Guides for Instant Download
21 Tax Questions
For Your 2021 Tax Return
2021 Tax Guide Highlights
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The Child and Dependent Care Credit is fully refundable for 2021, and the maximum credit percentage has jumped to 50%—good news for working parents.
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If you’ve been receiving advance child tax credit payments since July 2021, be on the lookout for Letter 6419 from the IRS in January 2022. It will detail your payments and how to report them on your return.
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The third stimulus payment sent out in March 2021 won’t be taxable, just like the other two.
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If you didn’t receive stimulus money in 2021 but think you qualify, there is still time with the Recovery Rebate Credit.
General Tax Questions
1. When is the deadline for filing taxes this year?
The deadline for filing taxes is Monday, April 18, 2022.
2. What are the tax rates and brackets for 2021?
| 2021 Marginal Tax Rates | Single Filer | Married Filing Jointly | Head of Household | Married Filing Separately |
|---|---|---|---|---|
| 10% | $0–9,950 | $0–19,900 | $0–14,200 | $0–9,950 |
| 12% | $9,951–40,525 | $19,901–81,050 | $14,201–54,200 | $9,951–40,525 |
| 22% | $40,526–86,375 | $81,051–172,750 | $54,201–86,350 | $40,526–86,375 |
| 24% | $86,376–164,925 | $172,751–329,850 | $86,351–164,900 | $86,376–164,925 |
| 32% | $164,926–209,425 | $329,851–418,850 | $164,901–209,400 | $164,926–209,425 |
| 35% | $209,426–523,600 | $418,851–628,300 | $209,401–523,600 | $209,426–314,150 |
| 37% | Over $523,601 | Over $628,301 | Over $523,601 | Over $314,151 |
3. How do tax brackets work?
Here’s a quick Tax Bracket Review:
The U.S. income tax system is progressive, which imposes a higher percentage rate on taxpayers with higher incomes.
The tax bracket that the highest dollar of your income falls into is called your marginal tax rate. But because of the progressive system, your tax liability isn’t simply your marginal rate multiplied by your taxable income. The rate you pay is known as your effective tax rate.
Here’s a real-life example that shows how it works:
Let’s say Bill is a single filer and has $50,000 in taxable income.
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From $0 to $9,950, Bill is taxed at 10%.
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From $9,951 to $40,525, he is taxed at 12%.
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From $40,526 to $50,000 Bill is taxed at 22%.
Bill’s marginal tax rate is 22%. In reality, once he runs the calculations, Bill will pay around 13.5% of his income. This is his effective tax rate which is equal to about $6,750.
4. What is the standard deduction for 2021?
For 2021, the standard deduction has increased slightly to adjust for inflation.
| Filing Status | 2020 | 2021 |
|---|---|---|
| Single | $12,400 | $12,550 |
| Married Filing Jointly | $24,800 | $25,100 |
| Married Filing Separately | $12,400 | $12,550 |
| Head of Household | $18,650 | $18,800 |
5. Should I itemize or take the standard deduction?
The option you choose depends on the one that will maximize your tax benefits. Taxpayers usually claim the option that lowers their tax bill the most.
The standard deduction allows you to deduct the set amount from your taxes, no questions asked. If you plan to itemize, you’ll need documentation to verify your qualifying expenses from a list approved by the IRS.
6. What is a tax credit, and which ones should I take?
A tax credit is the amount of money you’re permitted to subtract, dollar for dollar, from any income taxes you owe. Here are seven of the most common ones:
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Child Tax Credit: The Child Tax Credit is a refundable credit worth up to $3,000 per qualifying child between ages 6 and 17 and $3,600 per qualifying child under age 6. For more information on the 2021 Advance Child Tax Credit, see the section below titled: Advance Child Tax Credit Questions.
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Earned Income Tax Credit (EITC): For 2021, the credit will allow taxpayers 19 and older to qualify while giving a substantial increase to the credit amount for single taxpayers. The credit ranges from $1,502 to $6,728 depending on tax-filing status, income, and number of children. Find out if you qualify by looking at the .
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*Enhanced Child and Dependent Care Credit:* For 2021, the child and dependent care credit is fully refundable, and the maximum credit percentage jumps to 50%. The credit allows up to $8,000 in expenses for one child or disabled person and $16,000 for more than one. The full credit is for families making less than $125,000 a year. After that, the credit will phase out.
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Adoption Tax Credit: Families that grew through adoption might qualify for the Federal Adoption Tax Credit. Adoptive parents must earn $216,660 or less to be eligible for the full credit which provides up to $14,440 per eligible child — defined as any person under the age of 18 that is mentally or physically unable to take care of themselves.
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American Opportunity Credit: The American Opportunity Credit allows parents to claim up to $2,500 per student for tuition, activity fees, books, supplies, and equipment during the first four years of college. Students must be enrolled at least half-time.
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*Lifetime Learning Credit:* Congress raised the 2021 income limits for the Lifetime Learning Credit, worth as much as $2,000. The phase out now begins at $80,000 for single filers and $160,000 for joint filers for 2021. The credit can be used for tuition and related expenses paid for undergraduate, graduate, and professional degree courses for yourself, your spouse, or dependents.
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Saver’s Credit: This tax credit is worth up to $1,000 ($2,000 if married filing jointly) for mid-and low-income taxpayers who contribute to a retirement account.
7. What are the standard mileage rates for 2021?
The 2021 standard mileage rate for business driving fell from 57.5¢ to 56¢ a mile. The mileage rate for medical travel and military moves also declined from 17¢ to 16¢ a mile in 2021.
Pandemic Tax Questions
8. Can you remind me how much and when stimulus checks were issued?
Yes! The IRS issued three Economic Impact Payments during the coronavirus pandemic for people who were eligible:
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$1,200 in April 2020
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$600 in December 2020/January 2021
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$1,400 in March 2021
These payments were sent by direct deposit to your bank account or by mail as a check or debit card.
9. Will I owe taxes on my March 2021 stimulus payment(s)?
No. Like the other two stimulus payments, the March 2021 payment won’t be taxable.
Here’s what the IRS says: “The payment is not income, and taxpayers will not owe tax on it. The payment will not reduce a taxpayer’s refund or increase the amount they owe when they file their 2021 tax return. A payment also will not affect income for purposes of determining eligibility for federal government assistance or benefit programs.”
10. I didn’t receive my third stimulus payment (or the full amount) in March 2021. Do I have any recourse?
Yes. You may qualify for the so long as your information meets the guidelines set by the government’s COVID-19 relief program. If you’re unsure if you received a March 2021 payment or can’t remember the amount you received, you can access that information .
If you qualify for the rebate credit, you’ll first need to file your 2021 tax return, and then apply for the credit.
11. I had student loans canceled or forgiven in 2021. What do I need to know?
Good news! In the past, if student loans were canceled or forgiven for less than the amount you owe, the amount of canceled debt was considered taxable income.
For 2021, this rule is suspended for most student loan debt incurred for post-secondary education. The change is only temporary, though. In 2026, forgiven student loan debt will once again be taxed.
Advance Child Tax Credit Questions
12. What is the Advance Child Tax Credit, and how will it impact my 2021 taxes?
The American Rescue Plan boosted the child tax credit to $3,000 for families with kids 17 and under for 2021, with an extra $600 for children under age 6.
Half the total credit amount was paid in advance monthly payments beginning in July 2021 unless families opted out of advanced payments. Taxpayers will claim the other half when filing their 2021 income tax return.
13. What else do I need to know about the child tax credit for 2021?
Because the advance amounts were based on 2019 or 2020 tax returns, you may have received more or less than what you were eligible for this year.
Taxpayers who collected too much might need to repay some—or even all—of the credit. On the other hand, people who received less can claim the remaining amount when they file their 2021 taxes.
14. How do I report advance payments on my tax return?
In January 2022, the IRS will send Letter 6419 to taxpayers showing the total amount of advance child tax credit payments they received in 2021. Filers will need to keep this and any other IRS letters they receive about advance payments with their tax records and refer to them when they file.
Retirement Tax Questions
15. What are the retirement plan contribution limits for 2021?
Many contribution limits on retirement plans and IRAs remain the same for 2021:
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401(k), 403(b), and 457 plans: $19,500. (People born before 1972 can once again put in $6,500 more as a catch-up contribution.)
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Simple IRAs: $13,500, plus an extra $3,000 for people age 50 and up.
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*Traditional and Roth IRAs*: $6,000, plus $1,000 as an additional catch-up contribution for those age 50 and up.
16. What about required minimum distributions (RMDs) for 2021?
The CARES Act of 2020 allowed seniors to skip their RMDs without penalty. However, RMDs are back for 2021. Anyone who is at least 72 years old by the end of 2021 must take an RMD.
17. Are there any tax breaks for senior adults and retirees?
Yup. Here are a few tax breaks to look out for:
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Larger standard deduction: The standard deduction for seniors is $1,700 higher than the deduction for those younger than 65 who file as individuals ($14,250 for 2021).
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*Property tax breaks:* Property tax rules differ by state and local jurisdiction. In some areas, people above a certain age who earn below a particular income level qualify for property or school tax exemptions. Be sure to look at specific rules in your area.
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*Credit for the elderly and disabled:* To qualify for this credit, you must have an AGI below $17,500 ($25,000 if both spouses are 65 and older) and Social Security and pension income under $5,000 ($7,500 for couples).
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*Additional IRA deduction:* Employees 50 and older can save an additional $1,000 in an IRA for a total of $7,000 in 2021.
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401(k) catch-up contributions: Older workers with a 401(k) plan can make catch-up contributions. If you were 50 or older in 2021, the catch-up limit is $6,500 for workplace plans.
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No early withdrawal penalty: Once you turn age 59½, you can withdraw money from your IRA for any reason without the 10% penalty. Finally!
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Qualified charitable distributions: Retirees aged 70½ and older who give up to $100,000 directly from their IRA to a qualified charity won’t owe income tax on the gift.
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HSA contribution limit: Individuals aged 55 or older by the end of the 2021 tax year can contribute up to $4,600 to a health savings account (up $50 from 2020).
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Higher long-term care insurance premium limit: The limits on deducting long-term care insurance premiums are higher for 2021. Taxpayers age 71 or older can write off up to $5,640 per person ($5,430 for 2020).
*Miscellaneous Tax Questions*
18. What are the lifetime estate and gift tax exemptions for 2021?
The lifetime estate and gift tax exemption for 2021 jumped from $11.58 million to $11.7 million ($23.4 million for couples).
The gift tax exclusion remains $15,000 per recipient. This means you can give up to $15,000 to each child, grandchild, or any other person in 2021. So long as you stay below the limit, neither you nor your recipient will be required to file a gift tax return or tap the lifetime estate and gift tax exemption.
19. What are the capital gain rates for 2021?
Tax rates on long-term capital gains and dividends did not change for 2021, but the income thresholds to qualify for the various rates did increase. Remember, if you sold stocks, mutual funds, or other capital assets that you held for at least one year, any gain is taxed at a 0%, 15%, or 20% rate.
How the 0% rate applies for those with taxable income:
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Up to $40,400 for individual taxpayers
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Up to $54,100 for head of household filers
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Up to $80,800 for married filing jointly returns
The 15% rate applies for those with taxable income:
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$40,401 to $445,850 for individual taxpayers
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$54,101 to $473,750 for head of household filers
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$80,801 to $501,600 for married filing jointly returns
The 20% rate applies for those with taxable income:
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Over $445,850 for individual taxpayers
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Over $473,750 for head of household filers
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Over $501,600 for married filing jointly returns
20. Are HSA contributions tax-deductible? What else has changed with HSAs?
Yes. The contributions to an HSA are tax-deductible, and the earnings (if invested) are tax-free, as are withdrawals for . You report your contributions on Form 8889 with the total contributions transferred to and reported on your Form 1040.
HSA funds, flexible spending arrangements (FSAs), and health reimbursement arrangements (HRAs) can also be used to buy over-the-counter medicines without a doctor’s prescription.
21. Any changes in charitable contributions?
Slightly. When you filed in 2020, the $300 charitable deduction was for each taxable “unit”—meaning you got a $300 deduction whether you filed as a single filer or a married couple filing jointly. This year, however, married people filing jointly can each take a $300 charitable deduction for cash donations, for a total of $600.
I hope you found this information helpful and applicable to your situation. If nothing else, you will likely be better prepared to talk with your tax professional during your next financial plan review.
Contributing To My Roth IRA
Can I Contribute To My Roth IRA?
A Roth IRA is a great option for you who is looking to save after-tax dollars, offering the opportunity for tax-free growth and relaxed distribution rules. Unfortunately, eligibility to contribute to a Roth IRA is subject to restrictions, which can cause confusion.
To help make the analysis easier, we have created the “Can I Contribute To My Roth IRA” flowchart. It addresses the key eligibility considerations, including:
Earned income
Other (traditional) IRA contributions
Filing status-based MAGI thresholds
Contributing To My Roth 401(k)
Should I Contribute To My Roth 401(k)?
Roth 401(k)s have become an increasingly popular alternative to traditional 401(k)s, allowing participants to make after-tax salary deferrals to your employer plans. You may have the opportunity to contribute to a designated Roth account in your 401(k), but are uncertain about the best savings strategy for your personal circumstances.
This flowchart helps you be guided through a series of considerations that will inform your decision whether to contribute to a Roth 401(k), and covers:
Future tax rate expectations
Roth IRA eligibility
Employer matching considerations
RMDs and future rollover options
Additional savings opportunities through backdoor Roth contributions
Making A Backdoor Roth IRA Contribution
Can I Make A Backdoor Roth IRA Contribution?
If you earns too much, you are unable to make a regular contribution to a Roth IRA. But, there is a workaround called the Backdoor Roth Contribution. There are many factors and rules that must be considered, and complicated steps to take in order to properly implement this strategy, without penalty.
To help make the analysis easier, we have created the “Can I Make a Backdoor Roth IRA Contribution” flowchart. It addresses key considerations, including:
Multiple retirement accounts
Pro-rata and aggregation rules
Step-transaction doctrine
Step-by-step process for making a Backdoor Roth Contribution
Making A Deductible IRA Contribution
Can I Make A Deductible IRA Contribution?
A traditional IRA is a great option for you who is looking to save for retirement in a tax-deferred account. However, there are many factors to consider when determining whether you are eligible to make contributions, and whether such contributions will be deductible or not.
To help make the analysis easier, we have created the ”Can I Make A Deductible IRA Contribution” flowchart. It addresses common factors affecting eligibility rules for traditional IRAs, including:
Earned income
Coverage under an employer plan
Other (Roth) IRA contributions
Filing status-based MAGI thresholds
Mega Backdoor Roth IRA
Can I Make A Mega Backdoor Roth IRA Contribution?
In certain cases, you may be eligible to make a Mega Backdoor Roth IRA contribution. At a high level, this involves you making a non-Roth, after-tax contribution to your 401(k), then rolling it out of your 401(k) into a Roth IRA. Under the right circumstances, this can allow you to contribute tens of thousands of dollars into a Roth IRA. However, the rules are very restrictive and prohibitive, and can be difficult to navigate.
To help make the analysis easier, we have created the “Can I Make A Mega Backdoor Roth IRA Contribution?” flowchart. It addresses some of the most common issues that arise for you who is trying to make a Mega Backdoor Roth IRA contribution. This flowchart considers:
The maximum amount that can be contributed
The impact of the ACP test
401(k) plan-specific features providing in-service distributions and/or separate accounts
The tax impact upon rollover
The step-by-step process to complete this kind of contribution
Tax Day Prep Kit Downloads
