You’ve received a nice (but small) tax refund for the last few years. Imagine your surprise when you actually owe money this year… How could this be? Here are some situations that may increase your tax liability:
New tax laws. The assistance you may have received from government programs must now be accounted for on this year’s tax return. The goal of the legislation is to reduce taxes, but there are several changes that can cause you to pay more taxes including:
- Repayment of excess stimulus checks.
- New taxability of unemployment benefits.
- Accounting for small business loan and grant benefits.
- The return of the need to take required minimum distributions in 2021.
A child is no longer eligible. While this year’s child tax credit is an increase over prior years, receiving money through the advance child tax credit payment system will impact your refund. Also as children age, they are no longer eligible for certain credits including:
- Child and Dependent Care Credit (under age 13)
- Child Tax Credit (over age 17)
- Earned Income Tax Credit (under age 19 or 24 if a qualified student)
Earnings with Social Security benefits. If you’ve recently retired, began collecting Social Security benefits and started a part-time job, you may be in for a bit of a tax surprise… Those extra earnings could not only make your benefits taxable, you could have your benefits reduced.
Other life events. A new birth or becoming the head of household may have positive tax consequences. While others may result in additional taxes.
Capital gains surprises from mutual funds. Many mutual funds sell assets and then you receive a capital gains statement.
Want to avoid these tax surprises? Review your anticipated tax situation now.
Have questions? Contact us today!