Tax time is fast approaching. Taxes are stressful for everyone, but there are some things to know before you file your taxes this year. Here are the top 10 things to know before filing your taxes for 2021.
If you have any questions regarding your tax filing, talk to your CPA. Your accountant can offer you a free consultation and help you with any problems you may be having with your tax return. If you have any questions regarding 1031 Exchanges or charitable deductions, talk to a financial professional. You don't need to figure it out on your own.
If you paid for health insurance premiums, you can deduct that expense from your taxes starting this year. Health insurance premiums can be deducted this year if you've had to pay for health insurance, or you're paying for someone else's health insurance.
If you contribute to your 401k or IRA, you can deduct the amount of your contribution from your taxes when you file this year. This means that if you contribute $5,000 to your 401k this year, you can deduct that amount from your taxes. While it's a good idea to save for retirement, it's not always a good idea to prepay for your retirement. If you prepay your taxes, you're actually paying for retirement in the form of interest on a loan.
You're already allowed to deduct interest on your car, but there's a new law that allows you to deduct all of the expenses related to buying, maintaining, or leasing a car. This will include the cost of insuring a vehicle, car rental fees, and taxi fares. You may also be able to deduct auto insurance premiums. If you travel for business on a regular basis, this new law could save you big bucks on your taxes.
The mortgage interest deduction has been reduced from $1 million to interest on $750,000 in mortgage debt. This means that those with a mortgage greater than $750,000 will now be paying more for property taxes. You will also now only be able to deduct interest on your mortgage if you use the proceeds for any "owner-occupied, primary residence" and any debt used for non-housing-related activities will not be able to be deducted from your taxes.
If you are required to file a state tax return in your jurisdiction, you may be getting dinged for taxes paid to the state. Many states have moved to electronic filing, so you should expect that even if you pay your taxes electronically, the state will still be receiving them by mail.
If you inherit a large number of assets and pay taxes on your inheritance, you might be exempt. You will only be taxed on assets above $11.2 million if you're married and $5.6 million if you're single. Before the change, that number was $11.18 million for married people and $5.49 million for single people.
If you were taking out student loans in order to complete your education, you can deduct up to $2,500 of the interest that you paid on those loans. This deduction is available for both undergraduate and graduate students. Taxes are 'paid' by both the borrower and the lender. If you have student loans, you may be able to reduce your taxes through this new deduction.
If you donate to a charity and get a statement from the charity, that charity statement is all you need in order to file and deduct your charitable contributions. You will need to file your taxes annually and list your contributions there to receive the deduction. In the past, you had to have receipts for everything. Now, you don't have to worry about keeping a record of your charitable contributions.
If you're having a hard time deciding whether or not to look for a new job, you can now deduct some of the expenses associated with searching for a new job. You can deduct the cost of printing resumes, scheduling interviews, and travel expenses if you are searching for a new job in your current field. The good news is that you don't need to be employed in order to deduct these expenses from your taxes.
In summary, if you do your tax planning and preparation early and carefully, you can reduce your tax liability and come out ahead.