Category: Tax Preparation

2021 Tax Changes For Personal Filing

Before you know it, tax season will be here, and unless you’re an accountant or working for the IRS, you’re probably not too excited to look at W2s. As it goes, personal taxes will be a little bit different than it has been in previous years. 2022 brings with it new rules and changes that may take you by surprise if you’re not prepared early in the season. What specific new tax changes should you watch out for before you send in your return?

The Expanded Child Tax Credit

Was your family eligible for the expanded child tax credit? The American Rescue Plan boosted the credit to $3,000 for families with children 17 years of age or younger. In addition, an extra $600 was made available for children under 6 years of age to help families struggling during the pandemic.

While millions of Americans received advanced credits, some filers ended up earning more than expected in 2021 and may need to pay some of the credit back. How do you know if you may need to pay back some (if not all) of the credit?

Recipients can also easily check their advanced payments on the IRS website and determine whether they qualified for the payments received.

Health Insurance Premiums

In March 2021, Congress increased health insurance premium subsidies, capping premiums at 8.5 percent of household income, helping millions of Americans save money on their monthly premiums.

Did you get a raise or a new job in 2021, meaning an increase in wages? If so, your subsidies may not have been appropriately reflected throughout the year. What does this mean?

Similar to the child tax credit, 2022 filers may owe money back. Take time now to get an estimate of how much money you may need to set aside come tax season to offset these subsidies.

Required Minimum Distributions

In 2020, the CARES Act waived required minimum distributions, meaning that retirement plan participants, IRA owners (including beneficiaries) did not have to take RMDS from their IRAs.

The waiver has since ended, as did the RMD age, which changed to 72 from 70.5 years of age. If you’re unsure of the rules, deadlines, and requirements, visit the IRS’s site, check by plan, and learn about potential penalties.

Donohoo Can Handle Your Taxes

We realize these changing tax rules are hard to follow and stay on top of year after year. Donohoo Accounting Services is here to help make tax season easy for you while also helping you find every tax deduction you are entitled to.

When it comes time to file your 2021 taxes, you don’t have to do it on your own. We have been filing tax returns for individuals in the Greater Cincinnati area and beyond for more than 20 years, and our team is well versed in tax laws and rules, saving you time and money. Contact us today to schedule your free consultation! For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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How Tax Filing Will Be Different In 2021

The coronavirus pandemic brought unforeseen challenges to all aspects of business around the world, so it should be no surprise that it will impact this year’s taxes as well. Coronavirus legislation and inflation adjustments changed some of the most influential tax rules. Here is what you can expect to be different when you file your taxes this year.

February 12 is the opening date, and April 15 is the deadline

The first day to file in 2021 is February 12. We were all given a tax filing extension last year, but we’re back to April 15 for 2021. That doesn’t mean you can’t get an extension; but remember that being granted an extension only gives you more time to file your taxes, not more time to pay what you owe.

Charitable Deduction

The CARES Act allowed taxpayers to deduct up to $300 in monetary deductions in 2020 even if they chose to take the standard deduction. This was the IRS’s way to encourage Americans to contribute more money to charity during the pandemic.

Higher HSA Limits

Contributions limits for HSA-eligible workers who elected to participate in high deductible health insurance policies increased by $50 for self-only coverage (from $3,500 to $3,550) and by $100 for family coverage (from $7,000 to $7,100).

Higher Retirement Account Contribution Limits

Some workplace retirement accounts have higher contribution limits in 2020, so be sure to check yours. To illustrate, 401(k) plans had a base contribution limit of $19,000 in 2019, but that increased by $500 to $19,500 in 2020. For those who are age 50 and older, the catch-up contribution limit increased by $500 also, from $6,000 in 2019 to $6,500 in 2020. This means that if you are age 50 or older, you could potentially contribute a total of $26,000 ($19,500 + $6,500) to a 401(k) plan in 2020.

Higher Standard Deductions

Each year the IRS adjusts the standard deductions for inflation. This reduces the amount of income that is subject to federal taxes. In 2020, the IRS raised the standard deduction by anywhere between $200 and $400. The breakdown is as follows:

  • Married filing jointly: (+400 from 2019) – $24,800
  • Married individuals filing separately: (+$200) – $12,400
  • Head of household: (+$300) – $18,650
  • Single: (+$200) $12,400

Donohoo Accounting Services realizes these changing tax rules are hard to understand and stay on top of. When it comes time to file your 2020 taxes, you don’t have to do it alone. We are here to help you realize and take advantage of every tax deduction you are entitled to. We have been filing tax returns for individuals and small businesses for more than 20 years, so we are well versed in tax laws and rules and can help save you money, time and headaches.

If the thought of filing taxes fills you with dread or stress, please call Donohoo Accounting Services at 513-528-3982. We can handle the details and ensure you are receiving the tax credits, deductions and refunds you deserve. For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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6 Tips For Homeowners To Maximize Their Tax Deductions

Owning a home is one of the biggest investments most people make in their lifetime. Being aware of tax deductions and other credits available will give this big purchase every opportunity to pay you back a little come tax time. Here are six tips for homeowners to maximize your tax deduction:

Tip #1: Be Organized

Keep detailed records of your home-related expenses, financial documents and receipts. Most federal income tax deductions and credits require a paper trail, so the more organized your records are, the easier the process will be and the more likely it is that nothing will be missed or forgotten.

Tip #2: Deduct Your Mortgage Interest

If your mortgage is less than $750,000, you can deduct the interest you pay on the loan for no more than two residences. This could be your primary residence, summer home, or even a boat if it has plumbing or a bathroom. You can also include interest you may have paid when you closed on your home.

If you own more than two properties, be sure to use the deductions from the property that will give you the largest tax deduction — it may not necessarily be the property with the biggest mortgage payment.

Tip #3: Deduct Your Home Office Space

If you work from home in a dedicated space, you can deduct that space on your taxes. The current tax law allows you to deduct $5 for each square foot of office space, up to 300 square feet. This law has been taken advantage of by some, which is why it has earned a reputation of being an audit trigger. Make sure the space you deduct is exclusively used for your business or side hustle.

Tip #4: Deduct Your Property Taxes

With the Tax Cuts and Jobs Act of 2017, deducting your property taxes is still possible but not as flexible as it once was. You can now deduct up to $10,000, and that includes a combination of state and local tax deductions and state and local property tax deductions.

Tip #5: Consider Energy Efficient Upgrades

Tax incentives have changed for these types of upgrades, but some are worth looking into. Purchases for electric and water heating equipment, solar panels, rain barrels and drought tolerant landscaping may apply. Make sure to do your due diligence and triple check the specific requirements and deadlines for these green projects.

Tip #6: Age-In-Place Deductions

If you plan to live in your residence as you get older, you may be able to deduct expenditures for home improvement projects that will assist you as you age. Upgrades such as wheelchair ramps, lowering cabinets and electrical fixtures, and installing bathtub grab bars may qualify.

Donohoo Accounting Services is here to help you understand the IRS rules and determine the types of tax deductions you may be eligible for. With more than 20 years of experience in the business, we can help you reduce your tax burden by finding every deduction possible. If you would like to set up a free consultation, contact us at 513-528-3982. For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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Year-End Tax Moves To Make Now

Most people don’t think about taxes when it’s not tax season, but you absolutely should. 2020 has been unusual in every way, and the upcoming tax season will likely follow suit because there are tax moves you can make before the end of this year that will benefit you once you file. Here are a few that we suggest:

Track receipts

If you are self-employed and working from home, you can deduct your office space (it has to be used just for work) and any expenses you incur. If your income was lower than usual but your medical expenses were higher, you might qualify for deduction. Best practice for 2020? Save your receipts.

Don’t forget about other taxable income

Many people were furloughed or lost their jobs this year because of the stay-at-home order. If you picked up a side hustle to make ends meet, your earnings are considered taxable income, even if you don’t have official paperwork that details the money. Unemployment benefits are taxable, too. If you received any of those, you’ll have to fill out a 1099-G form and enter those amounts on your tax return. If withholdings weren’t taken out of those payments, you’ll have to make up for it when calculating your 2020 estimated tax payments.

Max out for retirement

If your income went up this year, it’s the perfect opportunity to reduce your tax liability by increasing your contribution to your retirement account.

Conversely, if your income went down and you had to borrow from your retirement account, you won’t pay penalties but you will have to account for that on your taxes for the next three years.

Make the most of your savings

If the stay-at-home order resulted in prepaid vacation refunds, fewer travel expenses or less spending in general, you may find yourself with a slightly larger wallet. If that’s the case, make the most of that money by investing it now in a long-term savings account, such as a 529 or Roth IRA.

Check your withholdings

If your income has changed, check your paycheck to make sure you are withholding enough for federal taxes to avoid penalties and interest to the IRS. The IRS has a tool to help you do this, but you will have to manually calculate it for your state withholdings.

Revisit your stimulus eligibility

If your income decreased in 2020, you might qualify for the stimulus payment made available from the CARES act, even if you didn’t qualify in 2019 or 2018. There will likely be extra documentation to fill out with the IRS Form 1040. The credit will automatically be applied if you are eligible.

We understand that tax filing can be overwhelming in the most normal of situations, so it will be especially challenging when filing for this year. We also know you have a life to lead and business to run, so let us handle your accounting issues and headaches. If you have any questions about what you should be doing now for the upcoming tax season, please reach out to Donohoo Accounting Services today at 513-528-3982 for a free consultation.

For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

contact Donohoo Accounting