With the advent of online tax software like TaxAct, filing taxes has become significantly easier. Yet, despite the convenience of free e-filing, it’s still essential to stay informed about the latest tax changes. Understanding these changes can help you make the most of your deductions and avoid potential pitfalls. Here are the five biggest tax changes that every American should know about.

1. Standard deduction increases

One of the most significant tax changes is the increase in the standard deduction. This deduction is a specific amount of money that you’re allowed to deduct from your income before calculating your tax liability. For the 2021 tax year, the standard deduction for single filers has increased to $12,550, up from $12,400 in 2020. For married couples filing jointly, the standard deduction has risen to $25,100, up from $24,800.

2. Tax bracket adjustments

The federal income tax system is progressive, meaning the rate of tax increases as the taxable amount increases. For 2021, the tax brackets have been adjusted for inflation. While the number of tax brackets remains the same, the income ranges for each bracket have slightly increased. This means you could potentially fall into a lower tax bracket, reducing your overall tax liability.

3. Child tax credit expansion

The American Rescue Plan Act of 2021 significantly expanded the child tax credit. For the tax year 2021, the credit amount has increased to $3,600 for children under 6 and $3,000 for children between 6 and 17. Moreover, the credit is fully refundable, meaning you could receive a refund even if you owe no tax.

4. Earned income tax credit changes

The earned income tax credit (EITC) is a benefit for working people with low to moderate income. For the tax year 2021, the maximum EITC amount is $6,728 for taxpayers filing jointly who have three or more qualifying children, up from $6,660 in 2020. Also, more people without children are eligible for the EITC.

5. Charitable deductions

In response to the pandemic, the CARES Act allowed taxpayers to deduct up to $300 in cash donations to qualifying organizations on their 2020 tax returns, even if they took the standard deduction. This provision has been extended into 2021, and the limit for joint filers has been increased to $600.

Understanding these tax changes can help you navigate the complexities of your tax return and potentially save money. Remember, tax laws can be complicated, and while online tax software like TaxAct makes the process easier, it’s always a good idea to consult with a tax professional if you’re unsure about anything. Happy tax filing!