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What You Need to Know Before Tax Day 2022

Paul Labiner, Esq.

Paul Labiner, Esq.

Managing Partner

Mar 19, 2022

It’s been quite a last couple years. Covid-19 has caused two years of turmoil, and the new conflict in Europe, which has already driven up oil and gas prices and exacerbated existing supply chain issues, threatens to cause further global upheaval.

If you’re like us, you want nothing more than to say sayonara to 2021. But, before you can finally wave goodbye, you need to do one more thing: file taxes.

You may not realize, though, that these issues could have second-order effects on your 2021 taxes. So, as we approach the end of the 2021 tax season, let’s see what’s new, what’s the same, and what you can do to come out on top.

Main Takeaways for 2021 Tax Year

First, here are the topline items that you need to know before tackling your 2021 taxes.

  • Tax Day is Monday, April 18. You must file personal income taxes or corporate income taxes (or request an extension) by April 18. The date has been moved from April 15 because of the Emancipation Day holiday in Washington D.C.
  • Lifetime Gift and Estate Tax Exemption Is $11,700,000. For calendar year 2021 the federal gift and estate tax exemption was $11,700,000 (or $23,400,000 for a married couple). Remember, these amounts are scheduled to decrease to $5M (adjusted for inflation) on January 1, 2026.
  • Standard Deduction for 2021 Is $12,500. When filing in April 2022, the standard deduction will raise to $12,500 for single filers or $25,100 for married couples filing jointly.
  • Annual Gift Tax Exemption Is $15,000. The annual gift tax exemption for tax year 2021 (i.e. the amount one person can gift to another person annually without eating into their lifetime gift tax exemption) is $15,000 (or $30,000 for a married couple).

2021 Tax Season Marginal Tax Rates & Tax Brackets

Just a quick refresher. Your tax rate is based on your tax bracket, meaning that the percentage of your income you pay in taxes is based on where your income falls on the income bracket range.

2021 income tax brackets

For example, if you’re a single filer with a taxable income of $175,000, you would fall in the 32% “bracket.” But, in reality, only a portion of your income will be taxed at 32% (i.e. the amount that falls in income range for the 32% bracket). Let’s see the breakdown:

  • 10% on taxable income up to $9,950,
  • 12% on taxable income between $9,951 and $40,525,
  • 22% on taxable income between $40,526 and $86,375,
  • 24% on the amount over $86,376 up to $164,925,
  • 32% on the amount over $164,926 up to $175,000.

Higher Standard Deduction

Every taxpayer has the option of taking the standard deduction or itemizing. It only makes sense to itemize if your deductions will be more than the amount of the standard deduction. The standard deduction for tax year 2021 is slightly higher than 2020.

standard deduction amount 2021

Tax Deductions and Credits to Consider for Tax Season 2021

One way to minimize your tax burden is to reduce your taxable income; another is to tweak what you actually owe. This is done via deductions and credits. There are a number of potential tax deductions that might be available to you, including:

  • Charitable Deductions: You can itemize donations made to charities. Generally, the amount you can deduct is limited to no more than 60% of your adjusted gross income (AGI). Even if you don’t itemize, you can still claim up to $300 ($600 if married filing jointly) in charitable donations. See: IRS Pub 526.
  • Healthcare Deductions: You can deduct the amount spent on medical and dental expenses that exceeds 7.5% of your adjusted gross income. See: IRS Pub 502.
  • Retirement Contribution Deduction: Contributions made to certain retirement plans including traditional IRAs may be deducted. There are limits on the amount based on a variety of factors. See: IRS Pub 590-A.
  • Work From Home Deductions: Certain individuals who have a dedicated home office may be able to deduct a portion of real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, maintenance, and repairs. See: IRS Pub 587.
  • Home Sale Deduction: Residential real estate transactions skyrocketed in 2021. If you sold your primary home, you may be able to exclude up to $250,000 ($500,000 if married filing jointly) of the gains from the sale. See: IRS Pub. 523.

Pro Tip: Don’t worry! If you received stimulus checks during calendar year 2021, these payments will not count as taxable income. Instead, they will be treated like a refundable tax credit.

Good Luck

Nobody enjoys filing their taxes. When we don’t like doing something, we often don’t devote time or care to it. But a little attention to detail in the tax arena can help you reduce your overall tax bill and have a happier 2022.

If you would like to discuss any of these topics further or learn how they could impact your estate plans and financial legacy, don’t hesitate to call me at 561-998-2362.

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