Take Advantage of These Tax Breaks Before They Disappear

By: Stacey Nickens

Year-end tax and financial planning is always important. However, the third stimulus payments and changes to the 2021 child tax credit make year-end tax planning especially important this year. Tax payers should be aware of the income thresholds for certain tax benefits. Those whose income changed in 2021 could take advantage of certain benefits. Additionally, if your income is close to a threshold, you could consider making some tax-deductible contributions in order to lower your adjusted gross income below the threshold.

Consider a married couple who had a new baby in 2021 and who already had two children, ages six and eight. Their 2021 income is less than their 2020 income because one spouse temporarily left the workforce this year. The couple estimates their 2021 income to be $162,000.

The couple’s 2020 income disqualified them from the third stimulus payment. Full payments were available to joint filers who earned less than $150,000, and partial payments were available to joint filers who earned between $150,000 and $160,000.

With a joint 2021 income of $162,000, this couple is close to the top of the threshold. The couple could accordingly work to reduce their adjusted gross income by making pretax contributions to a 401(k), SEP IRA, HSA, and/or FSA. (The couple could not use the following deductions to reduce their adjusted gross income: charitable contributions, mortgage interest, state taxes, and other Schedule A items.) The couple may then be able to qualify for partial or full third stimulus payments, which they could claim on their 2021 tax return. By reducing their adjusted gross income, the couple may also qualify for additional child tax credit funds.

A retired couple might qualify for additional stimulus by deferring income, timing investment gains or losses, or using other strategies to reduce adjusted gross income.

With that in mind, review the following unique tax situations for the 2021 tax year. Consider if your adjusted gross income is close to any thresholds and if you could accordingly reduce your adjusted gross income. Finally, consider taking advantage of the charitable giving tax break.

Stimulus Payments

The third round of stimulus offered $1,400 for each member of a household. The stimulus was phased out for joint filers earning between $150,000-$160,000, for single filers earning between $75,000-$80,000, and for heads of households earning $112,500-$120,000.

Those who have not received stimulus or who only received a partial stimulus payment may be eligible for more funds based on their 2021 income. If this is the case for you, you will claim your additional stimulus payment on your 2021 return.

Child Tax Credit

For 2021, the child tax credit is $2,000 for dependents under the age of 18. This year also features additional child tax credits of $1,600 for each child under 6 and $1,000 for each child under 18.

Filers lose $50 of the new credit (the additional $1,600 or $1,000) per $1,000 of earnings above the following thresholds: $150,000 for joint filers, $75,000 for single filers, and $112,500 for heads of households. The original, $2,000 tax credit is phased out for joint filers earning above $400,000 and for single/head-of-household filers earning above $200,000.


The child tax credit was sent out in monthly payments in 2021, unless the filer chose to opt out of those payments. Filers may accordingly find their 2021 refund to be much smaller or may find themselves responsible for an unexpected tax bill. If you received monthly child tax credit payments, you may want to increase your paycheck withholding to avoid a surprise come tax day.

Charitable Giving

For the 2021 tax year, joint filers can deduct up to $600 in cash donations and single filers can deduct up to $300 in cash donations. These deductions are available to taxpayers who do not itemize on Schedule A. Unlike in 2020, the 2021 charitable giving deduction is a “below the line” deduction. It accordingly reduces your taxable income but not your adjusted gross income.

In past years, taxpayers could only deduct cash donations up to 60% of their income. In 2021, givers can deduct cash donations up to 100% of their income.

Need Help?

Schedule a tax planning appointment with Elm3! We are happy to assist you with your year-end tax planning needs.

Source: Wall Street Journal