Time to Do Your Taxes!

I started writing this on Groundhog Day, and since COVID is still with us, in many ways it feels as though every day is Groundhog Day. However, as usual, the IRS has made some changes so there will be some differences that we all need to be aware of. So filing our 2021 tax returns won’t be exactly the same as filing our 2020 ones. Some of the changes involve provisions that were put into place for 2020 and were not renewed, but others only came into effect in 2021.

First, a look back. The rules regarding the taxability of Unemployment Compensation were changed so that all unemployment compensation is taxable for 2021. But it is important to note that the rules regarding the taxability of unemployment compensation for 2020 were changed well into tax season last year (after I wrote last year’s article) and if this is something that affects you AND you filed your return early last year, you should check to see whether your unemployment compensation was handled correctly. Worth looking at, because you could be due a refund!

Mandatory Required Minimum Distributions (RMDs) were suspended for 2020 – but only for 2020. Hopefully, you took your RMD in 2021 if you were required to. Anyone turning 72 in 2021 has until April 1, 2022, to take that withdrawal, but anyone older must take their RMD each year by December 31.

Now on to the new things. Did you receive any Expanded Child Tax Credit payments in 2021? If so, you should have received a letter from the IRS (Letter 6419) detailing the amounts received. This information needs to be included on your 2021 Tax Return, but do check it because there have been reports that some letters included incorrect amounts!

For many of us, Itemized Deductions are a thing of the past, but if you are still able to itemize, there are a couple of changes you should be aware of:
–Medical deductions are now deductible in excess of 7.5% of AGI for all ages
–PMI for mortgages is now treated as mortgage interest.

What about Charitable Contributions? Well, for 2020, those who didn’t itemize were allowed to deduct $300 for cash donations. This year that number is $300 for a single taxpayer and $600 for married filing jointly.

If you file a Schedule C for a business you may deduct 100% of the cost of business meals for 2021, but only for restaurant food.

Still working, but 2021 was a really bad year for you? Check out the Earned Income Tax Credit changes as the age limits and prior year income lookbacks have changed.

One more change – age limits for contributions to Retirement Savings Accounts have changed. Check them out if you are still working!

Now on to South Carolina!

Not a lot of significant changes here, so I’m going to focus on things you may not know about South Carolina taxes if you’ve recently moved here. And if you are still using a Tax Preparer from another State, you’ll need to be aware of some of these things that Tax Software won’t automatically pick up!

First, if you moved here in 2021, it is important to know that South Carolina does NOT have a Part-Year Resident Tax Return. You may choose to be taxed either as a resident or as a non-resident, even if you only lived in SC for a couple of days. It is definitely worth working your state returns both ways, because it may be beneficial to opt for South Carolina residency for the whole year, particularly if you previously lived in a high tax state.

Be sure to check out all the Tax Credits that South Carolina offers, particularly the Excess Insurance Premium Credit if you’ve been hit with a big wind and hail insurance bill. Don’t forget to include your homeowners, flood, and earthquake insurance in the calculation.

Other credits include a Nursing Home Credit, a Classroom Teacher Expenses Credit (this is in addition to the federal deduction), a Plug-In Hybrid Vehicle Credit, and a Two-Earner Credit. The Motor Fuel Income Tax Credit is actually going up each year but requires an awful lot of record-keeping for a very small credit. Your call!

The SC College Investment Program (529 Plan) is worth researching if you’re saving money for your grandchildren’s education, or anyone else’s education, including your own! Money invested in a South Carolina Future Scholars Program is deductible from your SC Income and the money doesn’t have to be spent at an SC educational institution. It is worth noting that the amount you are allowed to deduct from your South Carolina taxable income is significantly higher than most other states!

One more thing. Have you lived in SC for more than a year now and are over 65? If so, be sure to check out the Homestead Exemption on the property tax for your primary residence. You have to apply for it – it doesn’t come automatically!

Note that this year’s filing deadline for both Federal and South Carolina 2021 taxes is April 18, 2022. Why not April 15?  It turns out that April 16 is Emancipation Day in Washington, DC.  Since that holiday can’t be celebrated on a Saturday, Emancipation Day 2022 is celebrated on April 15. Tax Day can’t fall on a holiday or on a weekend, so Tax Day for filing 2021 tax returns is April 18!

Here’s hoping this helps in making your 2021 tax filings stress-free!

– Submitted by a Seabrook Island TaxAide Volunteer

(Image credit: Istax.com and myarmybenefits.us.army.mil)