If your life has changed in 2021, watch for income tax surprises – Boston News, Weather, Sports

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The events of 2021 have not always gone as planned. A lingering pandemic, shifting government response and a flurry of career changes meant that many people ended the year in a very different place from where they started.

Now, as the tax filing deadline approaches, these life changes could bring a new wave of surprises to American taxpayers.

If your income has changed or you have made money in the stock and cryptocurrency boom, you may find a bigger tax bill than usual. If you have welcomed a new child or had major medical expenses, you may be entitled to further breaks.

Whatever your situation, gathering information and understanding provisions that may not have previously applied to you may take longer than expected.

“Take nothing for granted. Question everything. Don’t make assumptions, even about your own circumstances,” says Akeiva Ellis, a certified public accountant and certified financial planner in Waltham, Massachusetts.

IF YOU HAVE JOINED THE GREAT DEMISSION

Through November, an average of 3.9 million people left their jobs each month of 2021, according to the Society for Human Resource Management. It’s the highest number since the federal government began publishing the data in 2000.

The impact of a career change on your taxes depends in part on your reason for leaving.

IF YOU GOT A NEW JOB: You will receive W-2 forms from each employer, and the combined salary shown on them will help you calculate your total income for the year. It’s pretty simple, as long as you’ve withheld the correct amount.

IF YOU STARTED WORKING FOR YOURSELF: People who have become their own bosses will have to pay self-employment taxes; the federal rate is 15.3%.

If you have people working for you, you will be responsible for sending out tax forms to contractors or employees. Self-employed people can also manage their tax liability by carefully tracking their income and expenses.

“Good records are important,” says Kimberly Key, a professor specializing in accounting and taxation at Harbert College of Business at Auburn University in Alabama. “2021 is going to help people figure out what they did wrong and try to fix things for 2022.”

IF YOU HAVE JOINED THE INVESTMENT BOOM

Trading by individual investors, many of whom use online platforms, hit all-time highs in early 2021, according to Nasdaq. Meanwhile, investments in cryptocurrencies such as Bitcoin hit all-time highs last year.

If you didn’t sell any assets, Ellis says, you won’t have to pay taxes on them, even if your portfolio did well.

If you bought and sold investments for the first time in 2021, you’ll soon be taking a crash course in capital gains taxes. You will need to collect records of your winnings and losses. You will also want to distinguish between long-term capital gains (generally, for assets held for more than a year) and short-term capital gains (for assets held for a year or less).

If you bought or sold stocks, your brokerage will send you a tax form detailing your activity. Cryptocurrency exchanges, however, are not yet required to do so. In any case, it is essential, when filing your taxes, to examine all the records sent by the investment platforms on which you have traded. If you don’t receive any recordings, you can log in to view your history.

IF YOU HAVE BEEN AFFECTED BY COVID-19

Perhaps the most discouraging surprise of 2021 was the persistence of COVID-19, which continued to sicken Americans throughout the year.

Even though vaccinations blunted some of the worst outcomes, many suffered serious illnesses and significant medical costs. But if you’ve spent more than 7.5% of your income on medical care, it may be possible to write off any expenses above that threshold.

IF YOU HAVE CHILDREN

Anyone with children – whether or not they joined your family in 2021 – will have to navigate the child tax credit, which saw a one-time expansion as part of the COVID-19 relief measures passed at the start of Last year.

The federal government pre-distributed Child Tax Credit payments based on income tax data for the 2020 tax year. Taxpayers were able to opt out, choosing instead to claim the deduction on their tax returns, but many did not.

The credit, with a maximum of $3,600 per child 5 or younger at the end of 2021 and $3,000 for children 6 to 17, is phased out at higher incomes. This means that if you got a raise last year, you may no longer be eligible for the payment you received.

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


This article was provided to The Associated Press by personal finance website NerdWallet. The content is for educational and informational purposes and does not constitute investment advice. The author held no position in the aforementioned investments at the time of publication. Andy Rosen is a writer at NerdWallet. Email: [email protected]

(Copyright (c) 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

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