Laurence Hale, AAMS®, CRPS®
Principal/Managing Partner, Investment Advisor & Chief Investment Officer
As 2021 comes to a close, you’re likely thinking about all that happened this year in your life. Was it a momentous year for you? Did you get married, have a baby or buy a home – maybe even all three? As you reflect back on these happy accomplishments, don’t forget to also consider how they’ll impact your finances going forward.
In particular, right now you’ll want to be aware of how they may affect your 2021 taxes so you can make any necessary adjustments before year’s end and make sure to take advantage of any new tax benefits you may be entitled to claim...
If you got married:
If you got married this year (or will be married by the end of the year), you should compare the tax liability for yourself and your spouse based on all filing statuses that you might select. Compare the results when you file jointly and when you file separately to determine which results in lower overall taxation.
It’s also important to be aware that generally speaking, if you sign a joint return, you take full responsibility for the accuracy of the information contained in your return. If your spouse intentionally underreports his or her income, you, too, could be held liable if the IRS sends a deficiency notice with accompanying interest and penalties. In some cases, however, you can be relieved of responsibility for your spouse's errors. This relief is known as innocent spouse relief.
If you file a joint tax return, it's also possible that the entire tax refund due on your return will be used to offset certain debts of your spouse, including student loans, taxes, and child support arrearages. Because it may be inequitable for you to lose your portion of the tax refund simply because your spouse owes money, the IRS allows you to file an injured spouse claim (in some cases) to claim your money.
If you had a baby or adopted a child:
If you had a baby or adopted a child in 2021, congratulations! In addition to that precious new member of the family, you may also qualify for one or more child related tax credits, including the child tax credit, the child and dependent care credit, and the adoption tax credit.
The child tax credit is a per-child tax credit against your personal income tax liability. For 2021 the credit is $3,600 per child for kids 5 and under, and $3,000 per child for kids 6 to 17. (But note that this is a temporary increase from the previous credit of $2,000 per child; the credit is set to go back to $2,000 per child in 2022.) The child tax credit begins to phase out if your modified adjusted gross income (MAGI) exceeds a certain level. In 2021, the credit begins to phase out for MAGI in excess of $75,000 for single filers and $150,000 for married couples filing jointly.
The child and dependent care credit provides a tax credit for working individuals to help offset the costs of paying for care for a child or dependent with disabilities. The amount of the credit depends on your income and how much you paid for qualifying care. For tax year 2021, you can claim up to $8,000 in care costs for one qualifying child or dependent and up to $16,000 for two or more qualifying individuals, with 50% of that amount being eligible for the credit.
If you adopted a child in 2021, you may be able to take advantage of the adoption tax credit for any qualified adoption expenses you paid, up to $14,440 per eligible child. The credit begins to phase out once your MAGI exceeds $216,660, and it's completely eliminated when your MAGI reaches $256,660.
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If you bought a house:
When you take out a loan to buy a home, or when you refinance an existing loan on your home, you'll probably be charged closing costs. These may include points, as well as attorney's fees, recording fees, title search fees, appraisal fees, and loan or document preparation and processing fees.
Points (sometimes called loan origination fees) are certain charges paid when you obtain a home mortgage. When you buy your main home, you may be able to deduct points in full in the year that you pay them if you itemize deductions and meet certain requirements. You may even be able to deduct points that the seller pays for you. More information about these requirements is available in IRS Publication 936.
Generally, other settlement fees and closing costs are not deductible. Instead, you must adjust your tax basis (the cost, plus or minus certain factors) in your home. For example, you'd increase your basis to reflect certain closing costs such as legal, recording and abstract fees, surveys, transfer or stamp taxes, owner’s title insurance, and charges for installing utility services. For more information, see IRS Publication 530.
The next step: build a strategy for 2022 and beyond.
If you’ve had any of these major life changes happen to you this year, you already know how quickly life can change, and how those changes can affect other areas of your life in unexpected ways – including your finances.
That’s why it’s so important to have a financial strategy in place and a financial professional to guide that strategy as your life continues to change and evolve. At Weiss, Hale and Zahansky Strategic Wealth Advisors we use our proprietary Plan Well, Invest Well, Live Well™ strategic process to help our clients pursue their financial and life goals along every stage of life’s journey. See how we can help you to create a Plan Well, Invest Well, Live Well™ strategy for you and your loved ones now.
Authored by Principal/Managing Partner Laurence Hale, AAMS, CRPS®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259, 860-928-2341. http://www.whzwealth.com.