Written by Katy Estrada, CPA | Updated January 3, 2022

Getting Your Tax Documents Organized

Below is a list of items I think will pertain to most taxpayers. Download the Tax Organizer Checklist to help you gather your documents when the time comes to prepare your 2021 tax returns. I recommend filling out this checklist and returning it to me with your documents. I do not need original documents. Feel free to scan and email, text or fax if this is more convenient for you. I will provide your tax returns to you via Google Drive or DropBox this year to save time, paper, envelopes and postage. It is a free service for online document retention that is secure. Paper copies need to be done via special request. You are welcome to upload your documents to this system as well. Email me for more information or links.

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    I do not expect there to be an automatic extension like the prior two years.

    Get Organized

    As your tax documents roll in, make a tax pile or start a large envelope labeled 2021 TAXES.

    Update Your W4

    Please update your W4 form for 2022 with your employer now! If you need help, I can easily
    email you one already filled out to give to your employer.

    Drivers Licenses Required to File in Most States

    Please provide your Driver’s license number, issue date and expiration date. You will not receive a refund without “Proof of Identity”. The state says they are reducing identity theft.

    To Itemize or Not, That is the Question: Difference in the Standard Deduction

    The standard deduction is an automatic reduction in what you owe in taxes. When you pay taxes, you have the option of taking the standard deduction or itemizing your deductions. If you itemize, you calculate your deductions one by one. Itemizing is more of a tedious, but it’s worth it if your itemized deductions exceed the amount of the standard deduction. Itemizing will not be worthwhile for millions of households. Itemized deductions include medical expenses, SALT (state and local taxes), mortgage interest and charitable donations.

    Filing Status 2019 Standard Deduction 2020 Standard Deduction 2021 Standard Deduction 2022 Standard Deduction
    Single $12,200 $12,400 $12,550 $12,950
    Married Filing Jointly $24,400 $24,800 $25,100 $25,900
    Married Filing Separately $12,200 $12,400 $12,550 $12,950
    Head of Household $18,350 $18,650 $18,800 $19,400

    Itemized Deductions That Are Disappearing

    Still no longer deductible on personal returns: Unreimbursed employee expenses, Tax preparation expenses, Alimony payments, Moving expenses, Employer-subsidized parking and transportation reimbursement.

    2021 Mileage Rates

    56¢ per mile for business miles driven, 16¢ per mile driven for medical or moving purposes
    and 14¢ per mile driven in service of charitable organizations.

    Note: you can deduct your mileage calculation OR your actual expenses, not both. Once you choose a deduction method, you must use that method for the life of that vehicle. Also, if you itemize personal deductions, please provide me with the miles you drove to donate to charity, volunteer, go to doctor visits or pick up prescriptions. This could add up to a great deduction.

    Retirement Contributions

    Traditional and ROTH IRA contributions are the lesser of $6,000 or 100% of earned income. The annual ‘catch-up ́ contributions if you are age 50 and over remain at an additional $1,000. IRA’s
    must be funded before April 15.

    Business owners can contribute to a SEP (Self-employed Plan) which is an IRA with contribution limits of 25% of the owner’s salary or up to $61,000, whichever is smaller. You may set up and fund a SEP as late as your tax-return filing date, including extensions.

    Energy Tax Credit

    Most ended in 2016. The only credit available to non-business taxpayers is the 26% solar
    energy system which is becoming more and more common.

    American Opportunity Credit

    This tax credit of up to $2,500 of the cost of tuition, fees and course materials paid during the taxable year for you or your dependent. Also, 40% of the credit (up to $1,000) is refundable. This
    means you can get it even if you owe no tax. If you have higher than $80,000 of Adjusted Gross Income ($160,000 for joint filers), the credit is reduced. If your AGI is greater than $90,000 ($180,000 for joint filers) you cannot claim the credit.

    Child Tax Credit Changes With Tax Reform

    Half the total credit amount was paid in advance monthly payments in 2021. The other half is to be claimed on your return.  Keep an eye out for a letter from the IRS regarding a summary of pre-payments.  The Child Tax Credit is worth up to $3,600 for children ages 5 and under at the end of 2021.  $3,000 for children ages 6 through 17 at the end of 2021.  The beginning credit phase-out for the child tax credit is $75,000 ($150,000 for joint filers). If your children are 17 or older or you take care of elderly relatives, you can claim a nonrefundable $500 credit, subject to income thresholds. The phase-out also applies to the new $500 credit for other dependents.

    Health Insurance

    Beginning in 2014 and forward, you have to reconcile your health care coverage and credits on your tax return. For most taxpayers, I will simply check a box to indicate that each member of your family had qualifying health coverage for the whole year through your employer.

    If you obtained a coverage exemption from the Marketplace or you qualify for an exemption that you can claim on your return, please provide me with the tax form 1095A provided to you at year end.

    There is no penalty for not having health insurance in 2021.

    Employer Providing Health Insurance

    A small business does not have to provide health insurance for its employees if you have fewer than 50 employees. This is a common question for small business. If you are an S-corporation, and paying your health insurance premiums and adding them to your W2, there are special rules under the Affordable Health Care act if you are using the Health care exchange and any subsidies.

    Note: Have you considered creating an HSA for you or your employees? A Health Savings Account allows a business to reimburse the owner and/or employees for medical expenses. This creates a 100% business deduction instead of the personal itemized deduction which is often not met.

    Qualified Business Income Deduction (QBI)

    Under this relatively new law, taxpayers with pass-through businesses will be able to deduct 20% of their qualified pass-through income. In other words, if you own a small business and it generates $100,000 in profit, you’ll be able to deduct $20,000 of it before the ordinary income tax
    rates are applied.

    There are phaseout income limits that apply to “professional services” business owners such as lawyers, doctors, and consultants, which are set at $163,300 to $213,300 for single filers and $326,000 to $426,600 for pass-through business owners who file a joint return.

    IRS Correspondence

    The IRS “does not initiate contact with taxpayers by e-mail to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.” I have seen an increase in Spam in recent years. Do not open such emails and block the sender for safety. Also keep in mind they will not call. You will only receive letters via United States Postal services to the address last filed on your return.

    Note: Congress has enacted new legislation that more than doubles most penalties for late or incorrect information returns. This includes the Form W-2s and Form 1099s that a business must provide to any contractor it pays at least $600 for services. These returns are due to recipients by January 31, 2022 and the IRS soon after.

    Visit Tax Scams – How to Report Them (https://www.irs.gov/businesses/small-businesses-self-employed/tax-scams-how-to-report-them) for more information.

    In order to guarantee your return is filed on time, PLEASE HAVE YOUR TAX DOCUMENTS TO ME BY MARCH 31, 2022. If your documents are received after this date, I can file an extension on your behalf. I will also help estimate if you owe and we can file an estimated tax due to avoid late payment penalties as taxes are due on April 15, whether you file your return or not.

    Thank you again for selecting me as your Certified Public Accountant. It is my privilege to provide you with professional services. I wish each of you a healthy and prosperous new year.

    Yours Truly,

    Katy Estrada, CPA Signature

    Katy Estrada, CPA

    I want each client to feel like they are my only client.

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