Why The Name Kingdom?January 29, 2020
CPA Tax ServicesFebruary 17, 2021
Is there anything I can do this year to change the tax consequences of last year?
The only thing that is commonly done is related to retirement accounts (Roth excluded). If you worked last year, you can contribute to an IRA $6,000 ($7,000 if you’re over 50) for both you and your spouse. Your spouse doesn’t have to be working if you are, or vice-versa. If you are covered by a plan at work and/or you make too much income, you may be limited on how much you can contribute. We check this out as we prepare your return.
While this doesn’t change the results of the current year, contributing to a company 401K plan can greatly help your results for next year. The amount you elect to contribute reduces your taxable wages for next year (as long as it’s not a Roth 401K), thus contributing $10,000 to a plan means you are paying tax on $10,000 less wages at the highest bracket you are currently in, which should save you a significant amount of tax. The beauty part is that the $10,000 is still your money which you can reclaim without penalty when you get over 59 1/2.
My retirement account has taken a beating this year. Is there anything I can do in that situation?
If your investments in your retirement account have lost a lot of value, you might consider converting all or part of the account to a Roth, especially if the rest of your income is lower this year. The Roth conversion is a taxable event, but it’s based on the value of the assets, so if the assets are worth less, the tax you would pay is less and if the value of those assets gets restored or increases you don’t have to pay tax on that increase. Any asset in a Roth account is tax-free if it increases in value, thus, with proper planning, you benefit even though your account has initially gone down in value.
What are the new energy credits that I hear are available?
There are many new energy credits available if you made improvements to your home or you purchased an electric vehicle this year. Since there are a number of qualifications that need to be met in order to qualify, it is best to bring in the receipts for your expenditures and allow us to determine if anything qualifies for a credit. The electric vehicle credit can be up to $7,500 and installation of solar panels on your home can be as much as 30% of the cost. Also, new this year is the ability to claim energy credits on a second home, if you made expenditures there.
I heard the itemized deduction for taxes is limited to $10,000; is that true?
Unfortunately, this is true and it not only applies to your real estate taxes but to your state income taxes paid-in too. It is the main reason fewer people are able to itemize now. In the past, if a person paid their state $7,500 in income tax and $11,000 in real estate taxes they would have received an itemized tax deduction of $18,500. Under the 2017 tax changes, only $10,000 can be claimed and none of the recent tax law changes have increased this limit.
I had a lot of medical bills this year. Can I use them to itemize my medical?
You may be able to, but it depends (this seems to be true of nearly any tax question that is asked as there are all types of qualifiers to deductions). Generally, medical expenses have to exceed 7.5% of your Adjusted Gross Income (everything you make). So, if your AGI is $100,000, your medical expenses have to be $7,501 before you get even $1 of deduction. Then the medical and your other available deductions, like taxes and mortgage interest, have to exceed your standard deduction, which varies depending upon your filing status and age. Like we said, it depends.
NOTE: If you do think you have a medical deduction (i.e., you spent $35,000 on teeth implants or had major surgery only partially covered by insurance) don’t bring in stacks of bills. Since only what you pay is includable, copy your checkbook or make a listing of all the payments you actually made. Since interpreting your bills takes awhile, your tax preparation cost will increase considerably if we have to determine how much you actually paid.
Since I now take the standard deduction, I don’t need to give you any itemized deductions, do I?
Generally no, but you should still give us how much you paid in real estate taxes since most people get an Illinois credit for 5% of what they paid.The deduction the Federal government used to allow for cash donations, $300 if single and $600 if married, is no longer available on the 2022 tax returns.
I never got my refund from the previous years. Is there anything I can do?
Your refund was probably delayed for some exception and, because of Covid, there are still only a few agents that are working those exceptions. Many people working for the IRS were close to retirement and Covid caused many to retire prematurely. This has drained their talent pool and the agents that are left are overworked or they’re new and aren’t up to speed. The result is slow performance and problem resolution. You may be able to find out from their website, irs.gov, if they got your return and processed your refund but where it is, is an unknown. You will need to wait.
Learn more about Kingdom and our tax offers this year. Contact us to set up appointment.