Tax planning with receiptsWe’re encouraging our clients to plan for Tax Year 2021 (January 1, 2021 – December 31, 2021). April 15, 2022 will be the tax deadline for 2021 tax returns. Tax planning throughout the year is critical, and we expect this year to be no different. Since waiting until the last minute to get started can cause major headaches, this article provides tips to ensure a smooth filing process at the end of the year. Below are our recommendations:

First Things First

The IRS recommends that you keep all tax-related documents/information for three years in case of an audit. In addition, previous years’ tax documents may help when completing information for the current year’s return. Below is a list of documents that may be useful for year-end 2021 (and also should be retained in case of audit):

    • W-2 forms
    • Pay stubs
    • 1099 forms (Including unemployment and investment income)
  • Documentation of other income (e.g., retirement income, rental property income, social security benefits, etc.)
  • Previous year’s tax return
  • Receipts for items claimed as an itemized deduction
  • Receipts for donations to charities (e.g., for church tithes, disaster relief donations, etc.)
  • Mortgage payment stubs
  • Business travel expenses receipts
  • Log of car mileage used for business purposes
  • Bank and credit card statements
  • Medical bills (especially if they exceed 7.5% of your income)

Current Tax Year Planning

Using the above documents, complete following actions:

  • Retain the applicable receipts throughout 2021.
  • Compare your pay stubs to your W-2(s) to ensure accuracy of both. (It’s rare, but employers occasionally make mistakes.)
  • Review your previous year’s return to determine whether the credits and deductions you reported are still eligible this year. Check with your tax professional to determine whether there are any others that you qualify for this year.
  • Ensure you have records of any charitable contributions, and make sure to donate any additional giving by December 31. The IRS typically only requires receipts for contributions of $250 or greater, but we recommend you keep records of all donations.
  • Review existing or start new retirement plans or contributions.
  • Use a Form W-4 to update your paycheck withholding (if you haven’t already done so). This essentially allows you to receive some of your refund now as part of your paycheck. According to the IRS, approximately 75% of taxpayers receive a tax refund, which means they are paying more income tax than necessary each month.
  • Plan for life-changing events that may occur during the year (marriage, home purchase, career change, state of business updates, etc.). Our tax professionals can help you with this.

Understandably, December 31 is an important deadline, as certain contributions must be completed by the end of each year. In addition, tax deductions and tax credits for a given tax year must be expensed by this date. (A notable exception is retirement plan contributions; IRA contributions can typically be made up to April 15.) December 31 is also the date that will determine filing status (in cases of marriage or divorce).

By planning throughout the year, gathering tax records as they are received, and bringing your tax documentation with you to your appointments with your tax professional, you’ll be well-prepared to file your 2021 tax returns and reduce any unnecessary stress during tax time.

© 2021

Dave Shealy

Dave Shealy, CPA, CGMA