Inflation adjustments will mean higher deductions for 2021 tax year: What to know

Washington-DC

FORT WAYNE, Ind. (WANE) — Changes in tax deductions due to inflation adjustments are coming to 2021 taxpayers, according to the Internal Revenue Service.

“They are not major changes, but taxpayers will notice them,” said Linda Troyer, Tax Pro from Jackson Hewitt. “Mostly it’s just updated limitations.”

The standard deduction for married couples filing jointly for the tax year 2021 rises to $25,100, up $300 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,550 for 2021, up $150. For heads of households, the standard deduction will be $18,800 for the tax year 2021, up $150.

Other changes include an increase in limitations and in the contribution you can make to your retirement accounts.

Even though the filing season for your 2021 taxes is still months away, Troyer said it is smart to start tracking down your documents now. She recommends you start collecting your documents throughout the year, and begin placing items like check stubs and receipts in a folder.

“Don’t wait until next year when you go to file and you’re asked where is this,” Troyer said. “That’s why some people had to have extensions filed because they waited for the very end of the tax season and then realized they didn’t have the documents.”

While people should be preparing for the upcoming 2021 tax season, there are still some people who have yet to file their taxes for 2020.

The IRS is reminding taxpayers that the deadline for 2020 tax returns is less than a month away on Oct. 15. This particular deadline is for those who asked for an extension to file, and it is not an extension to pay your 2020 taxes.

While the IRS has not yet released the number of taxpayers who took advantage of the extension, Troyer said she and other tax professionals have seen an increase.

If you still have not received your refund for 2020 or 2019, you are not alone. Troyer said she had a client who filed their 2020 taxes in March and has yet to receive a refund because of processing delays caused by the pandemic. For example, when an IRS office has an outbreak of COVID-19, employees can’t work from home due to the sensitivity of the documents.

If you have any questions about your 2019 or 2020 tax return, click here.

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