Tax Changes and Tips for This Tax Season

Because of the Emancipation Day holiday in Washington, D.C., the tax filing deadline has been extended to April 18 for most taxpayers. Some new tax breaks are available for only 2021 returns, while last year's advance credits may make filing a bit more complicated.

If you're counting on a refund, file as early as possible, file electronically, and have your refund directly deposited into your bank account to speed the process. And double-check your figures. If your numbers differ from what the IRS has on record, your return will be flagged and reviewed — delaying your refund.

Here some tax changes and tips for this season:

Charitable Tax Deduction

Most taxpayers claim the standard deduction, which means they don't file an itemized return that allows them to deduct charitable donations. But Congress extended and expanded a tax break created early in the pandemic to encourage non-itemizers to help charities. Non-itemizers can deduct up to $300 per person ($600 for joint filers) in cash donations made to a charity in 2021.

Expanded Earned Income Tax Credit

For 2021 tax returns only, the EITC for low- to modest-income workers has been increased and expanded for workers without children. The maximum credit for childless workers has nearly tripled to $1,502. The credit is now available to childless workers who are at least 19 years old or 65 and over. (Previously, workers under 25 or over 64 were ineligible.)

To qualify, these workers' adjusted gross income must be less than $21,430 if single or widowed, and $27,380 for joint filers. Credits reduce your tax bill dollar for dollar. The EITC is refundable, meaning if you owe little or no taxes, you'll receive the excess credit as a refund.

Expanded Child Tax Credit

For 2021 only, Congress increased this credit from $2,000 per child to $3,000 for children ages 6 to 17, and to $3,600 for children ages 5 and younger. The credit is reduced as income rises and eventually phases out. Half the credit was paid in advance to families last year based on their 2020 returns; the other half can be claimed on 2021 returns.

Some families received a larger advance than they were entitled to, say, if their income went up in 2021 or their filing status changed. They may have to repay all or some of the credit. Those who don't have to return an overpayment: Single filers with modified adjusted gross income (MAGI) of up to $40,000 and joint filers with income of up to $60,000.

Consider an IRA

Even at this late stage, you can lower your tax bill and boost retirement savings. Workers have until the tax deadline to contribute up to $6,000 ($7,000 if you're age 50 or over) to an IRA for 2021. Singles can deduct some or all of their contributions to a traditional IRA if their MAGI is less than $76,000 ($125,000 for joint filers).

You won't get a deduction if you contribute to a Roth IRA, but your withdrawals in retirement will be tax-free. Also, there is no longer an age cap on contributing to a traditional IRA, so workers ages 70½ and over can now contribute to one. (Roths didn't previously have an age cap.)

Boost Your Spouse's Retirement

If your spouse doesn't have an income from work, you can contribute to a traditional or Roth IRA on their behalf. You can deduct some or all contributions to a traditional IRA for a spouse if your MAGI on a joint return is less than $208,000.

Review Your Filing Status

Married couples may find advantages to filing separately. See our article, The Pros and Cons of Married Couples Filing Separate Tax Returns. Or if you are recently divorced or widowed, see our advice on filing taxes.