Know Before You Go – Prepare For Tax Season 2022

The IRS has been busy this year to say the least. They have stepped up their game and are taking advantage of technology like never before.  The use of  social media sites like Facebook, LinkedIn, Instagram and Twitter are now utilized to get their messaging across to keep taxpayers up to date..  

What is most important is that you entrust your tax return preparation to a qualified professional.  Beware of temporary offices that will not be around beyond April 15.  The IRS tends to send out tax letters and notices throughout the year, particularly after tax day.  Those letters oftentime send taxpayers into a state of panic; therefore, they really need to seek the assistance of their tax professional who can interpret the letter or guide them to resolution.

Spending a little time reading up on some of the tax updates gives you a heads up, which will aid in the review of your return before it is submitted for processing by the IRS and state.  It can be a costly mistake to accept whatever is presented to you by the tax preparer without taking the time to review.  While you may not understand everything about taxes, you can be proactive by asking questions and requesting explanations from your tax preparer.

The following are key areas to scrutinize before you submit your tax return:

• Income – Make sure that all sources of income are included in the return.  W2, self employment, interest, dividends or any other investment income should be reported.
• Deductions – Did you itemize or take the standard deduction? This is a very important line to know.   If you have substantial expenses that allow you to itemize, it may give you a higher refund or reduce the amount of your liability.
• Credits – Ask about the credits claimed or better yet, if you think you are eligible for something that you do not see on the return, seek an explanation for it.

Refund or Liability – Did you overpay taxes and is due a refund or did you not have sufficient withholdings by your employer, resulting in a tax liability?  You want to have a clear understanding of the bottom line.

Safeguarding Your Tax Data

The IRS is also warning taxpayers to be diligent on taking the necessary steps to protect their sensitive data from scammers and cybercriminals.  They are urging taxpayers to request a Identity Protection Personal Identification Number (IP PIN). This unique number, which is included on your tax return, is the best safeguard against identity theft.  According to the IRS, over 5.1 million taxpayers are already participating in this program. You can use their Get an IP PIN tool

Taxpayers are also strongly encouraged to create an individual account.  This will allow for access to your tax information as well as to make payments directly online (IRS.gov Online Account)

Some Updates and New Items for Tax Year 2021

1. Child Tax Credit Payments – In January the IRS will be sending out Letter 6419 to taxpayers who received these payments.  Those who received less than their eligible amount can claim a credit; however, those who received more may need to repay.
2. Letter 6475 – The IRS will be sending out this letter in early 2022, which will state the total amount of the third Economic Impact Payment and any Plus-Up payments that taxpayers received. (Plus-Up Payments)
3. Earned Income Tax Credit – For 2021 taxpayers with a maximum Adjusted Gross Income (AGI) of up to $57,414 may qualify.  This of course is based on your filing status and number of qualifying children.  Those Married Filing Separately, may be able to claim also if they meet certain criterias.
4. Standard Deductions – These amounts have increased for tax year 2021.  

• Married Filing Jointly – $25,900
• Married Filing Separately & Single Filers – $12,950
• Head of Household – $19,400
• For those 65 plus and/or blind, additional deduction is $1,400 (each category)

5. Gift Tax Exclusion – The amount a taxpayer can exclude increased to $16,000, up by $1,000 from last year.

The basic top tax rate for 2021 tax year will remain at 37% but the income level brackets have changed. With the passage of the American Rescue Plan Act and others passed as a result of the pandemic, some of the prior tax rules have changed or relaxed a bit.

Additional updates and tips will be shared in future articles. You may also access the IRS’s FAQ pages for more information at https://irs.gov  To read other recent blogs, head over to our website @https://slsaccountingsvcs.com/blog/  

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