If your life has changed in 2021, expect income tax surprises

The events of 2021 did not always happen as expected. The protracted pandemic, the changing response of the government and the wave of career moves meant that many people ended the year in a completely different place than they started.

Now that the income tax deadline is approaching, these changes in life may bring a new wave of surprises for U.S. taxpayers.

If your income has changed or you have earned on a boom in stocks and cryptocurrencies, you may find a larger-than-usual tax account. If you have a new baby or have serious medical expenses, you could qualify for new breaks.

Whatever your situation, gathering information and understanding provisions that didn’t previously apply to you may take longer than you expect.

“Don’t take anything for granted. Question everything. Don’t even make assumptions about your own situation, ”says Akeiva Ellis, a certified accountant and certified financial planner from Waltham, Massachusetts.

WHEN YOU JOINED THE GREAT RESIGNATION

According to the Human Resources Management Society, by November 2021, an average of 3.9 million people were quitting their jobs each month. This is the highest figure since the federal government began publishing data in 2000.

How a career change will affect your taxes depends in part on why you left.

IF YOU HAVE RENTED A NEW JOB: You will receive W-2 forms from each employer, and the total payment reported on them will help you calculate your total income for the year. It’s pretty simple as long as you keep the right amount.

WHEN YOU START WORKING ON YOURSELF: people who have become their own bosses will have to pay taxes on self-employment; the federal rate is 15.3%.

If people work for you, you will be responsible for sending tax forms to contractors or employees. Self-employed people can also manage their tax liabilities, carefully considering both their income and their expenses.

“Good paperwork matters,” says Kimberly Key, a professor of accounting and taxation at Harbert College of Business at the University of Auburn in Alabama. “2021 will help people understand what they did wrong and try to fix everything by 20.”

WHEN YOU JOINED THE INVESTMENT BOOM

The trade of individual investors, many of whom use online platforms, reached historic highs in early 2021, according to Nasdaq. Meanwhile, investments in cryptocurrencies, such as bitcoin, hit records last year.

If you haven’t sold any assets, Ellis says, you won’t have to pay taxes on them, even if your portfolio was good.

If you first bought and sold an investment in 2021, you will soon get an accelerated rate on capital gains tax. You will need to collect records of your profits and losses. You also want to distinguish between long-term capital gains (usually for assets that are retained for more than a year) and short-term capital gains (for assets that are retained for a year or less).

If you bought or sold shares, your brokerage company will send you a tax form with details of your business. However, cryptocurrency exchanges are not yet obliged to do so. In any case, when filing taxes it is very important to view any records sent by the investment platforms on which you trade. If you do not receive any records, you can log in to view your history.

WHEN YOU STARTED COVID-19

Perhaps the most reluctant surprise of 2021 was the preservation of COVID-19, which continued to afflict Americans throughout the year.

Even though vaccinations have blunted some of the worst results, many have suffered from serious illnesses and significant medical costs. But if you have spent more than 7.5% of your income on health care, you will be able to write off any expenses that exceed this threshold.

IF YOU HAVE CHILDREN

Anyone who has children, regardless of whether they joined your family in 2021 or not, will be required to benefit from a child tax credit that was once extended as part of the anti-COVID-19 measures taken earlier last year.

The federal government has distributed payments from the child tax credit in advance based on income tax data for the 2020 tax year. Taxpayers were able to refuse by choosing instead to claim a deduction in their tax returns, but many did not.

The loan, a maximum of $ 3,600 for a child aged 5 and under at the end of 2021 and $ 3,000 for children aged 6 to 17, is gradually being phased out at higher incomes. This means that if you received a raise last year, you will no longer be eligible for the payment received.

“I think the child tax credit this year will really tighten a lot of people,” says Ellis, who runs The Bemused’s financial education program. “It was great when the checks came in, (but) some families will find that they need to repay part of that loan.”

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This article was provided by The Associated Press on the NerdWallet personal finance website. The content is for educational and informational purposes only and is not investment advice. At the time of publication, the author did not hold any positions in the above investments. Andy Rosen is a writer at NerdWallet. Email: arosen@nerdwallet.com.

LINK:

NerdWallet: capital gains tax rates for 2021-2022 – and how to calculate the account https://bit.ly/nerdwallet-capital-gains-tax-rates

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