Throughout 2021, we continued to battle the pandemic and economic uncertainty. If that wasn’t enough, add in the latest tax laws and regulations taking effect that may impact many. As you prepare for Tax Day—Monday, April 18, 2022—take note of the latest changes to make sure you file your return successfully.

The IRS already has a backlog of unfinished returns from last year, and is urging taxpayers to be extra cautious about filing accurate returns this year to avoid delays. By understanding the changes on the horizon, you can be better prepared to file quickly and accurately. Here are the tax adjustments that may apply to you.

Did you know the standard deduction increased for this year?

In 2021, the standard deduction rose to $12,550 for individual filers and $25,100 for married couples filing jointly. If you are 65 or older, you can add an extra $1,350 per person for married filers or $1,700 for single filers.

With the increased standard deduction and changes to some traditional deductions (such as a limit on the amount you can deduct for state and local taxes), it may not make sense for some taxpayers to itemize. Check with your tax advisor to determine whether your itemized deductions would allow you to deduct more, or if it makes more sense to simply take the standard deduction.

Did you make donations to charity during 2021?

In the past, you had to itemize deductions in order to deduct charitable donations. However, in 2020, the IRS allowed you to take a $300 charitable contribution deduction per tax return on top of the standard deduction. For 2021, some taxpayers can deduct even more for charitable contributions: You’re allowed to take a $300 per person charitable deduction, so if you’re married and file jointly with the standard deduction, you can deduct up to $600 for charitable contributions.

You can take even more if you choose to itemize deductions. Before the pandemic, you could deduct charitable contributions in an amount equal to 60 percent of your income. In 2020, the IRS raised the limit to 100 percent, and this change was extended through 2021. So this year, you can deduct an amount equal to up to 100 percent of your income for charitable deductions, if you choose to itemize.

Have you made improvements to your business in the past three years?

Pandemic response legislation corrected an error in the 2017 Tax Cuts and Jobs Act, which was intended to provide bonus depreciation for qualified business improvements. That means if you have made qualified improvements to your business since 2018 (and moving forward), you can depreciate 100 percent of the cost in the first year. Previously, you would have had to gradually depreciate the cost over a number of years. Beginning in 2023, bonus depreciation is scheduled to be gradually reduced.

Did you receive advance Child Tax Credit payments?

In 2021, the Child Tax Credit increased to a maximum of $3,000 for each child 17 and under, and $3,600 for each child five and under. Many families received Child Tax Credit payments in advance during 2021, as the government paid out half the tax credit over the final six months of the year. If you received advance payments, you may be able to take the remaining half of the Child Tax Credit when you file your 2021 taxes.

Everyone who received advance Child Tax Credit payments should receive a letter in the mail from the IRS, Letter 6419.  This letter should include the full amount of advance payments received and the number of children used to calculate those advance payments. If you qualify for the Child Tax Credit, you’ll need this letter to file your taxes this spring and to make sure you receive the appropriate remaining amount of your credit.

Are you making payments on a student loan?

If you’re paying off student loans, you may be able to deduct up to $2,500 in interest, per tax return. You’re eligible for the full student loan interest deduction if your taxable income is less than $70,000 as an individual or $140,000 as a married couple filing jointly. If your income is between $70,000 and $85,000 (or between $140,000 and $170,000 for joint filers), you are eligible for a smaller deduction for student loan interest.

Also, pandemic response legislation offered new student loan deductions, which have been extended through 2025. If your employer pays some of your student loan debt, you may be eligible to exclude up to $5,250 from income. However, you can’t deduct student loan interest payments for which the exclusion is allowable.

In addition, although forgiven debt is usually treated as taxable income, new rules state that any student loan debt that was or will be forgiven between Dec. 31, 2020, and Jan. 1, 2026, will be tax-free.

Simplify the Process Every Year

The above list offers specific items to consider for this year, but there are steps you can take every year to make sure your taxes are prepared efficiently and filed on time:

• Start early. Some tax preparation delays are not in your control, but the most common reasons for last-minute preparation and filing are simply procrastination and disorganized or incomplete business records. If you haven’t started already, it’s time. Gather your documents now, and commit to more systematic record-keeping going forward.
• Give yourself a deadline. Commit to submitting your tax information to your Davie Kaplan tax advisor by March 15 every year, even if you have a few documents still outstanding. We can start your return, build a list of outstanding items, and avoid any last-minute filing frenzy.
• Get organized. Take advantage of our electronic tax organizerand client portal to upload documents.
• Summarize expenses. Rather than scanning or mailing actual receipts, provide summaries for your expenses. It’s easy to organize them by category, such as business expenses, medical expenses and charitable deductions.
• Use the organizer. Davie Kaplan’s tax organizer is intended to help you remember and account for all required documents. Missing documents will be identified as “open.”
• Avoid piecemeal submissions. When possible, upload your documents all at once, rather than submitting lots of separate documents over an extended period.

 If you can’t upload your documents, send them via FedEx or UPS; regular USPS mail service continues to experience delays. We recommend you authorize electronic delivery of final returns and authorization forms via our client portal; it’s quick, secure and dependable.

• Use an online bookkeeping program. If you don’t already use Quickbooks or another reliable, user-friendly bookkeeping application, commit to implementing one. If you need assistance, Davie Kaplan has several excellent Quickbooks Pro advisors who can guide your initial setup and training, or even provide ongoing bookkeeping support if needed.

Prepare for the Future

Despite the uncertainty and upheaval of the past couple of years, tax season still always arrives at the same time each year. It’s almost comforting to know that if you can’t depend on anything else, you can count on the fact that tax season will arrive. And that Davie Kaplan tax advisors will be available to help you be prepared, with forward-looking tax advice to keep you and your business thriving.

How can we help you?

Please let us know if you have a question, or would like further information about Davie Kaplan.

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