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If your life changed in 2021, watch for income tax surprises

The events of 2021 did not always turn out as expected. A protracted pandemic, a changing government response, and a wave of career moves meant that many people ended the year in a very different place from where they started. Now, as the income tax filing deadline approaches, these life changes could bring a new wave. surprises for US taxpayers. If your income has changed or you have made money from stock and cryptocurrency bursts, you may find a larger-than-usual tax bill. If you have welcomed a new child or incurred major medical expenses, you may be eligible for new breaks. Whatever your situation, it may take longer than you expect to gather information and understand provisions that may not have worked for you in the past. “Take things in stride and try not focus too much on the problem,” said Akeiva Ellis, a chartered accountant and certified financial planner at Waltham, Massachusetts. 3.9 million people quit their jobs every month in 2021, according to the Human Resources Management Company. This is the highest number since the federal government began publishing the data in 2000. The way a career change affects your taxes depends in part on why you left. IF YOU RECEIVE A NEW JOB: You will receive W-2 forms from each employer and the combined pay mentioned in them will help you calculate your total income for the year. It’s very simple, as long as you keep the right amount. IF YOU START WORKING FOR YOURSELF: People who have become bosses of themselves will have to pay self-employment taxes. the federal interest rate is 15.3%. If you have people working for you, you will be responsible for sending tax returns to contractors or employees. People who work for themselves can also manage their tax liability by carefully accounting for both their income and expenses. “Good records matter,” says Kimberly Key, a professor who specializes in accounting and taxation at Harbert College of Business at Auburn University in Alabama. “2021 is going to help people understand what they did wrong and try to fix things for 2022.” IF YOU ARE INVOLVED IN INVESTMENT GROWTH Individual investor transactions, many of which use online platforms, reached historic highs in early 2021, according to Nasdaq. Meanwhile, investments in cryptocurrencies such as Bitcoin hit an all-time high last year. If you did not sell any assets, says Ellis, you will not have to pay taxes on them, even if your portfolio did well. If you are buying and selling investments for the first time in 2021, you will soon have a rapid pace on capital gains taxes. You need to collect records of your profits and losses. You will also want to distinguish between long-term capital gains (usually for assets held for more than one year) and short-term capital gains (for assets held for a year or less). If you bought or sold shares, your brokerage will send you a tax form detailing your business. However, cryptocurrency exchanges are not yet required to do so. In any case, it is important when filing your taxes to check any files sent by the investment platforms on which you traded. If you do not receive any files, you can sign in to check your history. IF YOU WERE AFFECTED BY COVID-19 Perhaps the most daunting surprise of 2021 was the persistence of COVID-19, which continued to make Americans sick throughout the year. Although vaccinations alleviate some of the worst results, many have suffered from serious illness and significant medical costs. But if you spent more than 7.5% of your income on medical care, it may be possible to write off any expenses beyond that limit. IF YOU HAVE CHILDREN Every person with children — whether or not they became a member of your family in 2021 — will have to navigate the child tax credit, which is a one-off extension of COVID-19 relief measures introduced earlier last year . The federal government distributed child tax credit payments in advance based on income tax data from fiscal year 2020. Taxpayers were able to opt out, choosing to claim the deduction on their tax returns, but many did not. The credit, with a maximum of $ 3,600 per child aged 5 and under at the end of 2021 and $ 3,000 for children aged 6 to 17, is being phased out with higher incomes. This means that if you received a raise last year, you may no longer be able to pay the payment you received. “It was great when the checks came, (but) some families will find that they have to repay part of this credit.” _________________________________ This article was provided to the Associated Press by personal finance website NerdWallet. The content is for educational and informational purposes only and does not constitute investment advice. The author held no position in the aforementioned investments at the time of publication.

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

Now, as the income tax filing deadline approaches, these life changes may bring a new wave of surprises for U.S. taxpayers.

If your income has changed or you have made money from stock and cryptocurrency bursts, you may find a larger-than-usual tax bill. If you have welcomed a new child or incurred major medical expenses, you may be eligible for new breaks.

Whatever your situation, it may take longer than you expect to gather information and understand provisions that may not have worked for you in the past.

“Take things in stride and try not focus too much on the problem,” said Akeiva Ellis, a chartered accountant and certified financial planner at Waltham, Massachusetts.

IF YOU JOINED THE GREAT RESIGNATION

By November, an average of 3.9 million people will be out of work each month in 2021, according to the Human Resources Management Company. This is the highest number since the federal government began publishing the data in 2000.

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

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

IF YOU START WORKING FOR YOURSELF: People who have become bosses of themselves will have to pay self-employment taxes. the federal interest rate is 15.3%.

If you have people working for you, you will be responsible for sending tax returns to contractors or employees. People who work for themselves can also manage their tax liability by carefully accounting for both their income and expenses.

“Good records matter,” says Kimberly Key, a professor who specializes in accounting and taxation at the Harbert College of Business at Auburn University in Alabama. “2021 will help people understand what they did wrong and try to fix things for 2022.”

IF YOU ARE INCLUDED IN THE INVESTMENT DISCOUNT

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

If you did not sell any assets, says Ellis, you will not have to pay taxes on them, even if your portfolio did well.

If you are buying and selling investments for the first time in 2021, you will soon have a rapid pace on capital gains taxes. You need to collect records of your profits and losses. You will also want to distinguish between long-term capital gains (usually for assets held for more than one year) and short-term capital gains (for assets held for a year or less).

If you bought or sold shares, your brokerage will send you a tax form detailing your business. However, cryptocurrency exchanges are not yet required to do so. In any case, it is important when filing your taxes to check any files sent by the investment platforms on which you traded. If you do not receive any registration, you can log in to check your history.

IF YOU WERE AFFECTED BY COVID-19

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

Although vaccinations alleviate some of the worst results, many have suffered from serious illness and significant medical costs. But if you spent more than 7.5% of your income on medical care, it may be possible to write off any expenses beyond that limit.

IF YOU HAVE CHILDREN

Anyone with children – whether or not they became a member of your family in 2021 – will have to navigate the child tax credit, which has seen a one-off extension as part of the COVID-19 relief measures introduced early last year.

The federal government distributed child tax credit payments in advance based on income tax data from fiscal year 2020. Taxpayers were able to opt out, choosing to claim the deduction on their tax returns, but many did not.

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

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

___________________________________

This article was provided to the Associated Press by the personal finance website NerdWallet. The content is for educational and informational purposes only and does not constitute investment advice. The author held no position in the aforementioned investments at the time of publication.

If your life changed in 2021, watch for income tax surprises Source link If your life changed in 2021, watch for income tax surprises

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