Tax Preparation Guide
At the Koler Law Office, we offer top-rated legal services for Medicaid, Estate Planning, and Estate & Trust Administration. However, apart from our main thrust, we aim to provide so much more value through equipping people with essential information, and helpful hints that can greatly impact their lives. We strive to be the best problem solvers and advocates for our clients.
This tax season, we’d like to provide guidance on tax preparation. Whether you work with a professional, or use a tax software in filing, preparation will save you from stress. It pays to know all the right forms you need; tax deductions that you are eligible for will save you a significant sum of money. Don’t wait for the deadline (April 18, 2022) to come knocking at your door. Now’s the time to act!
If you are feeling a little clueless or just want to double check everything you need to get ready and be mindful of, a checklist never gets old in helping with organization.
✔ Personal Information
To properly notify the IRS who’s filing a return, where to deposit your tax refund, and where to contact you, make sure you are submitting accurate personal information.
Your name should exactly be as it appears on your Social Security card. Check the data you provide on your birth date, Social Security number, home address, and bank account number.
For reference, also bring a copy of the previous year’s federal and state tax returns.
If there’s someone you claim as a dependent, make sure his/her name is as it appears on the Social Security card, and make sure the date of birth, and Social Security number are correct.
✔ Forms Documenting Income Sources
Did you receive several forms detailing the income you received in 2021? Get them ready.
The most common ones are: W-2s from your employer, 1099-S for income gained from the sale of a property, 1099-MISC for income gained from a rental property, 1099-G forms for unemployment benefits and local/state tax refunds, 1099-R for retirement plan distribution, SSA-1099 for Social Security benefits, and other information on income derived from gambling winnings, cancellation of debt, and jury duty pay, among others.
For Social Security benefits, although they are generally non-taxable, if you have a substantial income on top of Social Security, your benefits may be subject to income tax. If an individual’s combined gross income ranges from $25,000 to $34,000, 50% of your Social Security benefits may be considered taxable. More than $34,000 of combined income will result in 85% of your benefits being taxable.
✔ Business/Self-Employment Records
Self-employed individuals need to report their income through form 1099-NEC or 1099-K. Records of all your business income and expenses are imperative. Your expenses such as home office expenses, and miles traveled for business purposes may be able to lower your taxable income.
✔ Gift Tax Return
You need to file a Form 709 if you donated more than $15,000 in 2021. But this does not necessarily mean that you owe taxes on the money you gave away.
✔ Tax Deductions
Tax deductions reduce your taxable income, and thus cut your tax bill. You can choose to take the standard or itemized deduction.
The standard deduction is a flat amount that can be deducted from your adjusted gross income, depending on your filing status. For the 2021 tax year, the standard deduction for singles and married individuals filing separately is $12,550, married couples filing jointly qualify for $25,100, and heads of household are entitled to $18,800. Taxpayers who are blind or age 65 and above can claim a bigger standard deduction.
Claiming the standard deduction is easier, but if your itemized deductions or your actual spend on deductible expenses such as state and local taxes, medical expenses, mortgage interest, and charitable deductions—go for itemizing.
Take note that your medical expenses have to be more than 7.5% of your adjusted gross income. However, if they are reimbursable by insurance, they are non-deductible. Long-Term Care Insurance Premiums are considered unreimbursed medical expenses, and are therefore deductible for taxpayers.
Some types of financial losses can also be deducted. Be sure to prepare records of stocks/investments that have become worthless, or non-business bad debts that are no longer collectible.
✔ Parental Deduction
Are you caring for your mother or father? You may claim your parent as a dependent, and receive the $500 tax credit for non-child dependents to further reduce your income taxes.
✔ Tax Credits
Credits can also reduce the amount of tax you owe, or give you a refund if you do not owe taxes.
Eligible low-income elderly age 65 or older, and disabled individuals may claim a special tax credit. Seniors who are working, but without dependents may also qualify for the Earned Income Tax Credit.
✔ IRS Notices/Letters
Notices or letters from the IRS or state tax authorities that might impact your tax return this year should also be at hand when you prepare your 2021 tax return.
Gathering these documents and information might seem like a handful but once it is completed, you can be ensured to claim every tax deduction and credit that you are entitled to—not to mention, make the process smoother.
Elderly taxpayers who are 60 and above can avail of free tax help from the IRS’s Tax Counseling for the Elderly Program.
Koler Law Office does not provide tax advice. Check with your tax advisor today!