Tips for Tax Filing
Tax time will be here again before you know it: Tax Day 2022 is Friday, April 15. one of the most stressful days for most Americans. Luckily, tax reform legislation in 2017 has simplified the tax code and changes for the taxes you file in 2022 may further increase your tax savings.
If you haven’t filed your taxes yet, review our tax tips for the 2022 tax year.
1. Check Your Information
The first thing to do is check that your employers have the right address. If you’ve moved without putting in a change of address, you may miss important tax document delivery. The IRS requires that W2s and other tax documents be postmarked by January 31, so you should have received all of your tax documents by now. If you didn’t receive something, start following up with them right away.
2. Get Ready
Gather and organize all your tax documents early. And by early we mean now. You’ll need your personal information for you and your dependents, income and investment documents, business and self-employment records, receipts for medical bills and charitable donations, and homeownership records. Make a checklist to be sure you cover everything.
3. Understand Your 2021 Tax Bracket for Filing in 2022
Tax brackets change regularly to keep up with inflation. A tax bracket is the range of taxable income you fall into. Your taxable income is your adjusted gross income (AGI) minus applicable tax deductions. In order to understand your tax bracket, you really need to understand what deductions are available to you.
4. Consider the Standard Deduction
Deductions work to decrease your taxable income. By bringing this number down, you may be able to fit into a lower tax bracket. That means you qualify for lower tax rates so you owe less in taxes.
The standard deduction is a preset dollar amount that’s subtracted from your AGI to help determine your taxable income. Your filing status—single, married filing together, married filing separately, head of household or widow(er) with a child—determines the amount you may deduct. With the higher standard deduction amounts established by the Tax Cuts and Jobs Act (TCJA) of 2017, this route may make more sense than itemizing.
Standard Deductions for Tax Year 2021
|Filing Status||Standard Deduction Amount|
|Married Filing Jointly||$24,400.00|
|Married Filing Separately||$12,200.00|
|Head of Household||$18,350.00|
|Qualifying Widow(er) with a Dependent Child||$24,400.00|
Like anything that has to do with taxes, though, there are some restrictions regarding who is eligible for the standard deduction. If you’re married filing separately and your spouse itemizes, for example, you are not eligible for the standard deduction.
5. Review Eligible Itemized Deductions
The TCJA changed and eliminated a lot of eligible deductions, including the personal deduction—which used to be $4,050! These changes may make it harder to itemize your deductions for bigger savings. To benefit from itemizing, your personalized deductions should be more than your standard deduction. For example, if you’re married and filing jointly, you must have more than $24,400 in itemized deductions.
But if you pay a mortgage, have high medical bills, and make charitable donations, itemizing may work for you. Here are some common eligible deductions that you can write off on your 2021 taxes.
- Medical expenses
- Charitable donations
- Mortgage interest
- Mortgage insurance premiums
- State and local taxes
- Personal property taxes
Most of these deductions are limited and must meet specific qualifications, so double-check those qualifications before filing.
6. Take Advantage of Available Credits
Tax credits are different from deductions. Deductions lower your taxable income. Tax credits directly impact the tax amount you owe. They reduce the amount dollar for dollar.
For non-refundable tax credits, you can only reduce your tax liability to zero. With refundable tax credits, you can receive a refund of the excess amount.
Tax Credit Example
You file Head of Household with an adjusted gross income of $55,000. You take the standard deduction of $18,350, which makes your taxable income $36,650. That puts you in the 10% and 12% brackets.
- The first $13,850 is taxed at 10%—$1,385
- The remaining $22,800 is taxed at 12%—$2,736
- Before applying any credits, you owe $4,121 in federal income tax.
- You take a child tax credit of $500.
- This credit lowers the tax amount you owe to $3,621.
Popular Tax Credits
Tax credits can lower the amount of tax you owe. But you must meet specific qualifications, including established AGI limits.
For example, if you’re a single filer, your AGI must be below $32,501 to qualify for the Saver’s Credit. Your AGI also determines whether you can claim 10%, 20%, or 50% of your contribution. Other limits apply for Married Filing Jointly filers and Head of Household filers.
Be sure to review the criteria for eligibility to learn whether you qualify for any of these popular tax credits:
- Adoption Credit
- American Opportunity Credit and Lifetime Learning Credit
- Child Tax Credit
- Child and Dependent Care Credit
- Earned Income Tax credit
- Residential Energy Efficient Property Credit
- Saver’s Credit
7. Remember Key Tax Cuts and Jobs Act Changes
The 2017 TCJA has only impacted two tax filing years so far. So, you may not remember all the TCJA changes that could affect you when you file taxes in 2020. This recap can help.
- The standard deductions have nearly doubled.
- There is no longer any personal exemption.
- For itemizers, the 5% of your AGI spent on medical expenses has expired. The floor is back to 10% for 2021.
- If you itemize, the maximum deduction for charitable cash donations to qualified organizations is 60% of your AGI. Some other eligible groups qualify, but you may only claim up to 30% of your AGI.
- There’s no penalty for lack of health insurance coverage.
- The child tax credit maximum is $2,000 per qualifying child.
- When you itemize, your deductible mortgage interest is capped for loans up to $750,000.
- You may no longer deduct moving expenses for job relocation, unreimbursed employee expenses or employer-subsidized parking and transportation reimbursement.
- Deductions for casualty and theft loss, tax preparation costs, and other miscellaneous deductions subject to the 2% AGI ceiling are no longer available.
- You can no longer deduct alimony payments.
- If you receive alimony, you don’t have to claim it as income anymore.
- Capital gains taxes are lower for all but those in the highest income brackets.
8. Watch Out for Scams
As tax time approaches, be on the lookout for tax scams. A popular scam this year is robocalls from scammers claiming to be able to suspend or cancel your social security number. Ignore them and report the call! If you are concerned that you may actually owe taxes and be at risk, view your tax account information online or call the IRS at 800-829-1040.
Be wary of anyone who calls or emails you claiming to be from the IRS and demanding money. That’s not how the government operates.
9. Hire a Tax Professional
Taxes are complicated. If you want to get the most out of your tax return, consider hiring a tax preparation service that understands 2021 tax rules and regulations and can help you maximize your 2021 tax return.
10. File for Free
Some individuals may be able to file taxes for free through the IRS, including those whose adjusted gross income was $69,000 or less last year and active-duty military personnel and their spouses.
Even if you don’t fall into one of those categories, there are many other ways to file your taxes for free as well, so do your research!
11. Don’t Delay
Don’t be a victim of tax identity theft. This kind of fraud is often only detected after you try to file your tax return but can’t—because someone else has already done it for you and claimed your tax return! To limit your susceptibility to this, file your taxes early.
If you owe taxes, don’t put off paying your tax debt. It’s not going away, and the IRS will come after you—one way or another. Unpaid tax bills can even hurt your credit eventually. If you need help paying your taxes, you have options. Request an extension, apply for an installment agreement, or use an alternate payment method.