Tax season isn’t far off, which means digging out receipts, tax documents, bank records, proof of income and the handy calculator that resides somewhere on your smartphone. But don’t fret: Doing your taxes doesn’t have to be stressful. The biggest step in tackling the task is the preparation. Getting everything in order well before the April 15 filing deadline is crucial, as tax rules can change significantly. And change they did, at least in two significant areas:
Coronavirus tax relief: New or amended laws may benefit you.
Changes to the Child Tax Credit will help many qualifying families get advance payments of the credit when they file taxes in 2022 (for the 2021 tax year). Specifically, half the total credit amount is being paid in advance monthly payments, and you claim the other half when you file your 2021 return. Note: The IRS emphasizes that the new advance payments are sent automatically to eligible taxpayers. You don’t need to take any action if the IRS already has your tax information. (See IRS publication 5534-E for details or visit IRS.gov/childtaxcredit2021.)
The other important change involves a new exclusion of unemployment compensation, which surged due to the devastating economic impact of the pandemic. The law took effect for the 2020 tax year, but still applies if you filed last year before the law was enacted on March 31, 2021. If your modified adjusted gross income (AGI) was less than $150,000 in 2020, the American Rescue Plan Act of 2021 does not tax the first $10,200 of unemployment compensation for each spouse paid in 2020. If what you received in unemployment compensation that year exceeded $10,200, that amount is taxable. In most cases, if the 2020 return you filed included the full amount of your unemployment compensation, the IRS will automatically determine the correct taxable amount of unemployment compensation and the correct tax. If you paid more than the correct tax amount, the IRS will either refund the overpayment or apply it to other outstanding taxes owed.
Print our tax prep checklist to help you get started—and follow the tips below for more insights on the documents you need to file taxes.