Current Tax Credits & Deductions Status
There were several temporary provisions implemented for the 2020 tax year that were carried over into 2021 tax year. One temporary provision that was extended for 2021 tax period is a special $300 income adjustment for cash contributions to qualified tax-exempt organizations. This credit not only help individuals who are not able to itemize but helps charities who are struggling to bring in donations due to coronavirus economic loss.
Typically, only taxpayers who are able to itemize deductions are able to claim the charitable contributions on their tax return. This adjustment is available for taxpayers who take the standard deduction. This adjustment reduces your gross income by the contribution amount, for married filing joint filers they can deduct $600 of cash contributions.
Cash contributions include check, credit/ debit payments and does not include: security donations, household items, or property. A qualified tax-exempt organization are 501(c)(3), if it’s not a registered 501(c)(3) organization any contributions do not qualify for a tax deduction.
The IRS also, changed tax penalties regarding this tax adjustment. The is a 20% penalty for understated contributions on tax return and 50% penalty for overstated contribution amounts.
Itemized Deduction for Qualified Mortgage Insurance PremiumsAs most property owners know you can take mortgage interest and any property taxes paid as an itemized deduction. As of 2020, you can take insurance premiums as an itemized deduction, they have extended this deduction for 2021 tax year. When the insurance is purchased in connection with the acquisition indebtness of taxpayers qualified residence. This deduction has an AGI threshold, the deduction amount decreases by 10% for each $1,000 ($500 Married Filing Single (MFS)) of AGI above $100,000 ($50,000 MFS).
Medical Expense Deduction AGI LimitTaxpayers who itemize can deduct medical expenses paid during the tax year subject to a 7.5% AGI limit, meaning any amounts paid over 7.5% of AGI is deductible, this was a temporary deduction and was set to expire for 2020 tax period. The Consolidation Appropriations Act 2021 amended the temporary limit and established the medical expense deduction floor percentage to 7.5% going forward.
Tuition and Fees DeductionCollege kids, or payees of college tuition can take the American Opportunity credit and Lifetime Learning credit for 4 years each totaling an 8-year credit, if you used all 8 years you were then able to take the total amount paid for tuition and required school supplies as a deduction. The Consolidation Appropriations Act 2021 permanently disallowed this deduction starting in taxable year 2021. If you want to know if you qualify for any updated tax deductions or credits give us a call to schedule a free Tax Consultation.