The winter holidays are a joyous time of year brimming with holiday spirit. Holiday revelers attend festive events, deck the halls, purchase gifts for family/friends, and stream popular holiday classics. However, with the fast approaching New Year, the winter holidays also provide an excellent opportunity to look ahead to next year’s tax season and consult a CPA firm about tax preparation services.
The deadline to file your 2021 income tax return is April 15, 2022
While the following only scratches the surface of changes taxpayers will contend with when filing their 2021 income tax returns next year – highlighting the importance of working with an experienced tax preparation services advisor like Hollis Lewis & Company – credits and deductions can ultimately help you reduce any money you may owe. Therefore, we make the distinction between these two terms below.
Tax Credits: The IRS says that credits can reduce your tax bill or increase your tax refund. They add that some credits may make you eligible for a refund even if you don’t own any taxes.
Tax Deductions: According to the IRS, deductions can reduce your income before a tax preparation services professional calculates your tax obligation. For example, the standard deduction can reduce your taxable income.
Tax Season 2022 Adjustments
The standard deduction increased to $12,550 for single filers and $25,100 for married couples filing jointly, up by $150 and $300 from 2020, respectively. In addition, it increased by $150 to $18,800 for those filing as the head of household. You may also qualify for a charitable giving deduction if you choose the standard deduction, assuming you make a cash donation to a qualifying charitable organization.
That is because the Taxpayer Certainty and Disaster Tax Relief Act of 2020 extended a special provision that allowed people choosing to donate to a tax-exempt charitable organization identified by the IRS to deduct up to $300 for single filers and $600 for married couples filing jointly for cash contributions without itemizing.
The IRS announced additional adjustments for 2021 to account for inflation. That includes changes to seven federal tax brackets, with marginal tax rates ranging from 10% to 37%. The marginal tax rate determines how much you must pay depending on your and your spouse’s annual income if married and filing jointly.
Another area of interest, especially for parents, is the Child Tax Credit. Included in the American Rescue Plan, this credit increased from $2000 to $3600 for qualifying children under six and $3000 for under 18. In addition, the credit was made fully refundable, allowing eligible families to claim the full benefit when they file their 2021 income tax return or half if they opted in for advance payments (Department of Treasury, Kagan, & IRS).
Tax Preparation Services You Can Rely On
Hollis Lewis & Company, PLLC is a Houston CPA firm committed to providing our clients with professional and personalized tax preparation, accounting solutions, and business services. If you’re looking for respected financial advisors in Harris or Montogomery County, our certified public accountants (CPAs) have more than 90 years of combined accounting, business, and tax planning and preparation experience. Consult Hollis Lewis & Company today!
“Child Tax Credit.” U.S. Department of the Treasury.
“Credits and Deductions for Individuals.” Internal Revenue Service (IRS).
IR-2020-245. “IRS provides tax inflation adjustments for tax year 2021.” Internal Revenue Service (IRS), October 26, 2020.
IR-2021-214. “Year-end giving reminder: Special tax deduction helps most people give up to $600 to charity, even if they don’t itemize.” Internal Revenue Service (IRS), November 3, 2021.
IR-2021-243. “Get ready for taxes: What’s new and what to consider when filing in 2022.” Internal Revenue Service (IRS), December 7, 2021.
Kagan, Julia. “Tax Bracket.” Investopedia, May 31, 2021.