FAQ

You must determine your filing status before you can determine whether you must file a tax return, your standard deduction and your tax. You also use your filing status to determine whether you are eligible to claim certain other deductions and credits.

•  Single
•  Married Filing Jointly,
•  Married Filing Separately,
•  Head of Household, and
•  Qualifying Widow(er) With Dependent Child.

If more than one filing status applies to you, choose the one that will give you the lowest tax.

The personal exemption amount was set to zero (0) from 2018 through 2025, under the Tax Cuts and Jobs Act. There is no personal and dependent exemptions in 2021.

Persons not eligible for the standard deduction:

•  A married individual filing as married filing separately, whose spouse itemizes deductions ;
•  An individual who was a nonresident alien or dual status alien during any part of the year (note that residents of India may be able to claim the standard deduction if they meet certain criteria);
•  An individual who files a return for a period of less than 12 months due to a change in his or her annual accounting period; or
•  An estate or trust, common trust fund, or partnership.

Standard Deduction is slightly increased in 2021 from 2020 levels. Standard Deduction Amount for people other than blind/aged above 65 is:

•  $18,800 for head of household
•  $25,100 for Married taxpayers filing jointly and qualifying widows or widowers
•  $12,550 for married taxpayers filing separately
•  $12,550 for single individuals

Taxpayers who are at least 65 years old or blind can claim an additional 2021 standard deduction of $1,350 ($1,700 if using the single or head of household filing status). For anyone who is both 65 and blind, the additional deduction amount is doubled.

•  $6,728 with three or more qualifying children
•  $5,980 with two qualifying children
•  $3,618 with one qualifying child
•  $1502 with no qualifying children

To be eligible for Earned Income Credit during 2021, your Adjusted Gross Income must be less than:

•  $51,464 ($57,414 married filing jointly) with three or more qualifying children
•  $47,91 ($53,865 married filing jointly) with two qualifying children
•  $42,158 ($48,108 married filing jointly) with one qualifying child
•  $21,430 ($27,830 married filing jointly) with no qualifying children

Investment income amount: The maximum amount of investment income you can have and still get the credit is $10,000 for 2021.

• The Alternative Minimum Tax exemption amount for tax year 2021 is $73,600 and begins to phase out at $523,600 ($114,600, for married couples filing jointly for whom the exemption begins to phase out at $1,047,200).

Mileage Rates: The rate for business use of your vehicle is 56 cents per mile. The rate for use of your vehicle to get medical care or move is decreased to 18 cents per mile. The rate of 14 cents per mile for charitable use is unchanged.

For tax year 2021, the foreign earned income exclusion is $108,700 up from $107,600 for tax year 2020. If you and your spouse both work in a foreign country and meet the qualifications, you may each be able to exclude up to $108,700.

Following are the Education Expenses Credit available for the year 2021:

•  Employer Provided Educational Assistance: In 2021, as an employee, you can exclude up to $5,250 of qualifying post-secondary and graduate education expenses that are reimbursed by your employer. If your employer pays more than $5,250 for educational benefits for you during the year, you must generally pay tax on the amount over $5,250. Your employer should include in your wages (Form W-2, box 1) the amount that you must include in income.
•  American Opportunity Tax Credit: For 2021, You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you. The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student. But, if the credit pays your tax down to zero, you can have 40 percent of the remaining amount of the credit (up to $1,000) refunded to you
• To claim the full credit, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly).
• You receive a reduced amount of the credit if your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing jointly).
• You cannot claim the credit if your MAGI is over $90,000 ($180,000 for joint filers).

•  Lifetime Learning Credit (LLC): The amount of the credit is 20 percent of the first $10,000 of qualified education expenses or a maximum of $2,000 per return. The LLC is not refundable. So, you can use the credit to pay any tax you owe but you won’t receive any of the credit back as a refund.
• The amount of your LLC is gradually reduced (phased out) if your MAGI is between $59,000 and $69,000 ($118,000 and $138,000 if you file a joint return).
• You can’t claim the credit if your MAGI is $69,000 or more ($138,000 or more if you file a joint return).

In 2021 you can deduct up to $2,500 in interest paid on a student loan (also known as an education loan) used for higher education, as long as your modified adjusted gross income (MAGI) is less than $80,000 (single) or $160,000 (married filing jointly). The deduction is phased out at higher income levels. No deduction if MAGI is more than $85,000 ($170,000 if filing a joint return).

By April 15, 2022 you have to file Federal Tax Returns. If you cannot file on or before due date, you can request IRS for an automatic extension ( to October 15, 2022). Extension request (Form 4868) must be filed no later than the original due date (April 15, 2022).

No, you have to pay your tax liabilities by the original due date or your return. If not, you will owe the interest on the unpaid tax and may owe penalties.

Not filing a federal tax return can be costly - whether you end up owing more or missing out on a refund. The IRS may also impose a wide range of civil and criminal sanctions on persons who fail to file returns.

Here are some things to consider:

•  Failure to file penalty: If you owe taxes, a delay in filing may result in a "failure to file" penalty, also known as the "late filing" penalty, and interest charges. The longer you delay, the larger these charges grow. It may result in penalty and interest charges that could increase your tax bill by 25 percent or more.
•  Losing your refund: There is no penalty for failure to file if you are due a refund. However, you cannot obtain a refund without filing a tax return. If you wait too long to file, you may risk losing the refund altogether. In cases where a return is not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund.
•  EITC: Individuals who are entitled to the Earned Income Tax Credit must file their return to claim the credit even if they are not otherwise required to file. The return must be filed within three years of the due date in order to receive the credit.
•  Statutes of limitation: After the expiration of the refund statute, not only does the law prevent the issuance of a refund check, it also prevents the application of any credits, including overpayments of estimated or withholding taxes, to other tax years that are underpaid. On the other hand, the statute of limitations for IRS to assess and collect any outstanding balances does not start until a return has been filed. In other words, there is no statute of limitations for assessing and collecting the tax if no return has been filed.

If you have a financial interest in or signature authority over foreign financial accounts, then you must file an FBAR, if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.

FBAR in Form TD F 90-22.1 must be filed on or before April 15, 2022.

If you have specified foreign financial assets and total value is exceeding $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year ( if you are filing status is single) or if the total value is exceeding $ 100,000 on the last day of the tax year or more than $150,000 at any time during the tax year ( if you are filing married filing joint), then you have to file form 8938. Form should be filed by due date of tax return.