Tax season was a bit, well, complicated last year. The pandemic spurred shutdowns and backlogs, and together with changes to unemployment benefits, stimulus money and the child tax credit, it was “an unprecedented period,” according to IRS Commissioner Chuck Rettig.
And while 2020 tax returns were challenging for the IRS, your 2021 return might have a similar fate. The tax agency recommends filing early and submitting your taxes online to increase your chances of receiving your return faster. (Check out our picks for the best online tax software for 2022.)
Before you get started, keep in mind that some tax provisions from 2020 were extended or even expanded, but others were not. Plus, some new rules for the 2021 tax year were passed, along with customary increases to tax brackets and the standard deduction. Here’s a quick rundown of the most important tax changes to keep in mind when filing this year.
1. The standard deduction increased
The standard deduction — which is the amount you can decrease from your income before tax is applied — increased. For your 2021 tax return, the standard deduction is now $12,550 for single filers (an increase of $150) and $25,100 for married couples filing jointly (an increase of $300). For heads of households, the standard deduction is now $18,800 (an increase of $150). These increases are inflation adjustments.
2. Income tax brackets were raised
Income tax brackets were also raised to account for inflation. Your income bracket refers to how much tax you owe based on your adjusted gross income, which is the money you make before taxes are taken out, excluding itemized exemptions and tax deductions.
While the changes were slight, if you were at the bottom of a higher tax bracket in 2020, you may have bumped down to a lower rate for your 2021 tax return…Read more>>