It’s Time To Consider Your Tax Situation
how federal and state taxes will impact you this year
Admit it – when you think of a certified public accountant, your mind goes straight to the image of someone punching numbers into an adding machine in a dimly lit office with stacks of paper everywhere. But today’s environment of virtual meetings, electronic information exchange, and collaboration provides a much more accurate picture of the current accounting industry.
CPAs use these technological innovations to cultivate a much deeper understanding of tax rules and legislation than the average taxpayer. A professional advisor can analyze how the following items may be applicable to your specific tax situation and help you find potential opportunities for saving time and money.
- Did you know there may still be time to reduce your 2021 tax liability? Individual retirement account and health savings account contributions can be made up until the filing deadline (April 15) for the prior year – and may provide a deduction.
- In March 2021, the IRS issued the third round of stimulus checks based on information from the most recently filed tax returns. You may be eligible for additional stimulus payments with your 2021 tax return if your income declined or you can claim additional dependents.
- If you received advanced child tax credit payments from the IRS between July and December 2021, that information needs to be reported on your 2021 return and directly impacts the child tax credit you are eligible for in 2021. This was considered an advanced payment of the child tax credit reported on your 2021 income tax return, not an additional stimulus payment.
- You can deduct up to $300 of certain cash charitable contributions, even if you don’t itemize your deductions in 2021. The amount is double for married taxpayers. A lesser amount was also allowed in 2020 as an above-the-line deduction without having to itemize.Depending on the type of business and level of involvement, business and rental income may be eligible for a 20% deduction for qualifying business income. Consult a tax professional for advice on the many different considerations for this deduction.
- When the federal standard deduction increased in 2018, the number of taxpayers who itemize deductions dropped from more than 30% to around 10%. However, Wisconsin allows for an itemized deduction credit for medical expenses, mortgage interest, and gifts to charity – depending on your situation.
- The property taxes you pay on your home may qualify you for a school property tax credit of up to $300 annually. If you don’t own a home and instead rent, the rent you pay may also qualify you for this credit.
- Contributions to a qualifying 529 plan up to $3,380 if married filing joint and $1,690 if married filing separate could net you a Wisconsin deduction. Contributions above the annual limit carry forward to future years until the amount has been utilized.
- Private school tuition paid for K-12 education may qualify for a Wisconsin deduction. Private schools are not required to provide specific tax documentation for this deduction, so it is easy to miss. Primary school deduction is limited to $4,000; secondary school is limited $10,000.
- Since the onset of the coronavirus pandemic, many Wisconsin grants have been administered. A large number of these grants are federally taxable but are tax-exempt for Wisconsin purposes.
- Many Wisconsin taxpayers will be impacted by the tax rate decreasing from 6.27% to 5.3% for income between $32,330 and $355,910 for married taxpayers. Depending on your Wisconsin withholding and exemptions, you may see a higher Wisconsin refund than you are used to. The tax withholding tables have been updated effective Jan. 1, 2022, so you may see a slight increase in your paycheck, but the lower withholding will also impact your 2022 income tax return.
You may have questions regarding inheritance, gifting/receiving, or the impact of trusts and estates on your individual income taxes. As the level of complexity to your situation increases, a professional accountant with their ear to the ground in an ever-changing tax landscape can be a wise investment.
For more information, contact Pat Erickson, a licensed CPA at CliftonLarsonAllen in Eau Claire, at Pat.Erickson@claconnect.com or (715) 852-1131.
The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, investment, or tax advice or opinion provided by CliftonLarsonAllen LLP (CliftonLarsonAllen) to the reader. For more information, visit CLAconnect.com. CLA exists to create opportunities for our clients, our people, and our communities through our industry-focused wealth advisory, outsourcing, audit, tax, and consulting services. Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor.