Did you know that tax return errors can delay refunds and increase audit risk? Before your tax return preparation appointment, make sure you've gathered all 2021 tax documents received, such as W-2s and 1099s.
In addition, you may have received statements or letters in connection with Economic Impact Payments (EIPs) or advance Child Tax Credit (CTC) payments. Letter 6419, "2021 Total Advance Child Tax Credit Payments," tells taxpayers who received CTC payments how much they received. Since the advance payments represented about one-half of the total credit, taxpayers who received CTC payments need to file a return to collect the rest of the credit. Letter 6475, "Your Third Economic Impact Payment," tells taxpayers who received an EIP in 2021 the amount of that payment. Taxpayers need to know the amount to determine if they can claim an additional amount on their tax returns.
Is it better to take the standard deduction or to itemize deductions? It depends on your situation. The standard deduction amount changes yearly and is based on filing status and age. Itemizing is more complicated but if your total deductions exceed the standard deduction, you might save significant taxes. Taxpayers most likely to benefit by itemizing include those who pay state and local income tax, mortgage interest, mortgage insurance, real estate tax and personal property tax. It may also be beneficial for those with a large eligible casualty loss, high medical deductions, and/or significant charitable donations. Your tax advisor will determine the best path preparing your tax return.
If you received unemployment compensation, be aware that it's taxable. And if you're the parent of a child born in 2021, or you added a new qualifying child in 2021, and you didn't receive a third-round EIP for that child, you may be eligible to receive up to $1,400 by claiming the Recovery Rebate Credit on your return. Finally, keep in mind that electronic filing and direct deposit can help speed up any refund.
The IRS is reminding taxpayers to be alert for scam phone calls and text messages. Criminals make aggressive calls posing as IRS agents in an attempt to steal money or personal information. Be aware that IRS agents will never demand a specific payment type (such as prepaid debit card, gift card, or wire transfer). They won't threaten to have you arrested for not paying or refuse to allow you to question the amount due. They also won't call unexpectedly about a refund. If you suspect a call is a scam, write down the phone number, hang up immediately and report the call. Click here to learn more from the IRS.
Scammers are also using text messages to impersonate the IRS. These scams are sent to taxpayers' smartphones and have referenced COVID-19 and "stimulus payments." The messages often contain bogus links claiming to be IRS websites or other online tools. Know that other than "IRS Secure Access," the IRS doesn't use text messages to discuss personal tax issues, such as those involving bills or refunds. The IRS also won't send taxpayers messages via social media platforms. Also watch out for unemployment benefit scams. If you receive notice about a claim you didn't make, contact your state's unemployment insurance agency. Click here for more information.
The IRS recently announced the release of its "2022 Household Employer's Tax Guide," highlighting several changes. You need to withhold and pay Social Security and Medicare taxes if cash wages of $2,400 or more are paid in 2022 to any one household worker (up from $2,300 in 2021). You don't count wages paid to a spouse, child under age 21, parent or anyone who is under age 18 at any time in 2022. Household workers include nannies, house cleaners and health aides.
Also, the COVID-19-related credit for qualified sick and family leave wages has expired. It was limited to leave taken after March 31, 2020, and before October 1, 2021. Click here to read the publication.
If you're new to receiving Social Security (SS) benefits, you may not know that a portion may be taxable. SS benefits include monthly retirement, survivor and disability, but not supplemental security income payments (which aren't taxable). The portion of your benefits that may be taxable depends on your income and filing status.
Basically, calculate half of your SS money and add it to your other income from wages, interest, dividends and capital gains (this includes benefits and income for both spouses). If the total exceeds $25,000 for a single person or $32,000 for a married couple filing jointly, part of your SS may be taxable. Click here to learn more or contact your tax advisor for help.
If you think the topic of taxes can be a bit dry, think again! With the release of the IRS's top 10 tax fraud cases of 2021, IRS Criminal Investigation (IRS-CI) Chief Jim Lee said, "The investigative work of 2021 has all the makings of a made-for-TV movie — embezzlement of funds from a nonprofit, a family fraud ring that stole millions in COVID-relief funds, and a $1 billion Ponzi scheme used to buy sports teams and luxury vehicles."
Lee went on to say, "But this is real life and I'm grateful to our IRS-CI agents for pursuing these leads and ensuring that the perpetrators were prosecuted for their crimes." The IRS-CI team investigates abusive tax schemes, bankruptcy fraud, employment tax enforcement, corporate fraud, gaming, healthcare fraud, identity theft schemes, money laundering and more. Click here to view the top 10 cases of 2021.
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