Now that we are just days away from the new tax season, the last minute tax changes are one thing to look out for. The Internal Revenue Service had released the last-minute tax changes. Before you file a federal income tax return in 2021, make sure to give a look at the latest tax changes to get ahead of your taxes.
IRA and 401(k) Withdrawals
The latest changes to the tax code help those who withdraw money from their retirement plans penalty-free up to $100,000 if you were the victim of an officially declared disaster. The withdrawals can either be added to the taxable income or you can restore the amount withdrawn over a three year period. If you’re under the age of 59 1/2, you won’t also pay early withdrawal penalties.
Business Meal Deductions
The business meals are deductible but only up to 50%. The last minute tax change increased the deduction to dollar for dollar which means the taxpayers who take this deduction can deduct all the business meal expenses. This new law is effective for the 2021 and 2022 expenses.
Qualifying Medical Expenses Threshold
The qualifying medical expenses threshold was moved to 10% of AGI from 7.5%. With the new December law in order, the threshold is still 7.5% and this is permanent. So you get a 2.5% of AGI in extra if the qualifying medical expenses are more than 10%. To take the qualifying medical expenses, the expenses must be unreimbursed.
Charitable Deductions With Standard Deduction
If you had charitable contributions and take the standard deduction, you can deduct up to $300 if single or $600 if filing a joint return. This is a good small deduction for taxpayers who take the standard deduction while the law also changes the charitable deductions for taxpayers who itemize. With the new tax law, taxpayers can claim up to 100% of their AGI if itemizing deductions on Schedule A.
Flexible Spending Accounts (FSA)
The flexible spending accounts allow workers for pretax dollars to pay for dependent-care expenses and unreimbursed healthcare expenses. For the accounts, the FSA carry over of unused funds are up to 12 months now. The age limit also extended from 12 to 13 for some of the carry-over funds. However, for a worker to take advantage of the new carry over, the company plans must be a part of the new rules.