With the 2020 registration season coming to an end, now is the time to become aware of the big changes for 2021. But be prepared, the politicians are making a noise in preparation for another year of fun change. Here’s what we know now.
- There are no tuition fees or fee deductions. This tax break, which has often expired, is now permanently closed.
- Lifetime learning credit exit rates are increasing dramatically. To mitigate the impact of the abolition of tuition and fee deductions, the income exit from this education expense tax break increases dramatically to $ 80,000 for unmarried individuals ($ 160,000 for married enrollments). That’s an increase from $ 20,000 to $ 40,000!
- The cost threshold for medical and other health services is to remain at 7.5% of income. In order to start deducting health expenses as an individual deduction, the cost threshold is no longer shifted to the planned level of 10%.
- Dramatically improved child tax credit. The old child tax credit remains at $ 2,000 per child with a loss of earnings of $ 200,000 for a single person and $ 400,000 for a married couple. However, you can now get $ 3,000 per child under 17 years old (from 16 years old) AND $ 3,600 per child under 6 years old in 2021. Even better, more of the loan is repaid (you don’t necessarily need an income) and you can get half of the loan with monthly payments starting in July … provided the IRS can implement the program.
- Improvements to the Resident Credit and Earned Income Tax Credit. Without going into details here, you should know that the amount of money that can be used to pay for daycare is increasing. And for those on low incomes and without children, the Earned Income Tax Credit can now get a lot more.
- Deductibility of the mortgage insurance premium. You can still deduct mortgage insurance premiums as an individual deduction. This should expire last year.
- Exclude relief from mortgage debt. With the expansion of this law, qualified debt relief for qualified mortgages is still not considered income.
- Above the line charitable prints. If you don’t list, you can get up to $ 300 in eligible charitable deductions ($ 600 for married couples).
For small businesses
- Small Business PPP Lending. PPP loan issuance is no longer a taxable event for your small business. The same goes for the second round loans your company will receive this year if they qualify.
- 100% food deductibility. Business meals are usually only 50% deductible. To support restaurants during the pandemic, a new law provides for a 100% deduction of food costs in both 2021 and 2022.
- Numerous general business loans have been renewed. New laws are extending the expiry of tax credits for many small businesses. There are too many to mention here but common extended credits include; Credit for job opportunities, credit for paid family and sick leave, and employer paying student loan payments for employees.
Remember, these are still early days in the 2021 tax law change. It seems like it would be a little too rational to cement the tax changes for the current year before they begin. So be prepared and look for future rule change announcements.
– By Nancy J. Ekrem, CPA
DME CPA Group PC
Auditor & Management Consultant
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