Tax time is here!
The IRS begins this tax season in the hole, facing one of the most grueling years yet. You may have heard that the IRS has a backlog of cases, citing 6 million unprocessed tax returns as of December 23 and 2 million unprocessed amended tax returns as of January 1st. Continuing staffing shortages do not improve the picture. Besides the rocky road before us, what else should you know about filing your 2021 tax returns?
Starting early and ending later
The 2022 tax season begins on January 24th and ends on April 18th. Due to the Emancipation Day holiday in Washington DC, you get three extra days to file your taxes. If you request an extension, you will have until October 17th to file.
Tax Reduction Strategies to Ponder
Reducing your taxes comes down to three things: reduce income, increase deductions, and take advantage of tax credits. Here’s are some actions you can take:
Max out your retirement contribution: Cut your tax bill significantly by contributing to your IRA or a 401(k). The maximum amount you can contribute to your 401(k) is $19,500, and the maximum 403(b) contribution is the same, while the maximum contribution for SIMPLE IRAs is $13,500. If you are over the age of 50, you may take advantage of additional catch-up contributions of up to $6,500, depending on the account type.
Deduct your expenses: For the 2021 tax year, the standard deduction is $12,550 for single filers and married filing separately, $25,100 for joint filers, and $18,800 for head of household.
If you don’t have any qualifying deductions, you can take the standard deduction, no questions asked. However, if your standard deduction is less than the sum of your itemized deductions, you probably should itemize and save money. Itemized deductions to keep in mind are:
- Child tax credit: Receive $3,600 per child for the 2021 tax year.
- Property taxes: Investors can currently deduct up to $10,000 for property taxes paid at the state and local level on their federal income tax.
- Mortgage interest deduction: The interest you’re paying on your home loan can help reduce your tax bill. If you purchased the house after December 15, 2017, you can deduct the interest you paid during the year on the first $750,000 of the mortgage.
- Medical expenses: Deduct unreimbursed medical expenses that are more than 7.5% of your adjusted gross income for the tax year.
- Out-of-pocket charitable contributions: A new provision allows you to deduct up to $300 on cash donations.
- Home office: To qualify, a home office must be used regularly and exclusively for your business. Instead of keeping records, you can use the simplified calculation and deduct $5 per square foot, for up to $1,500.
- Lifetime learning credit: Helps you or your spouse pay for undergraduate, graduate, and professional degree courses, including courses to help job skills. The first $10,000 of qualified education expenses or a maximum of $2,000 per return, which can then be applied to pay for any owed taxes.
Happy Filing! Remember to file early, accurately, and electronically. Request a direct deposit, and you can expect a refund within 21 days of filing!
If you have any questions, feel free to give us a call! (916) 292-9722