Month: December 2021

IRS Announces 2022 Standard Mileage Rates

Do you use your personal vehicle for business, charitable, or medical purposes? If the answer is “yes,” you could qualify for an income tax deduction. How much you can deduct and how you report the deductible expense depends on your situation. Generally, you can deduct qualified vehicle expenses that total the greater of actual expenses or a standard rate. Whether you deduct the standard rate or actual expenses, you must track your miles driven during the year.

Most people deduct their mileage deduction based on the standard rate because it’s easier and often results in a larger deduction amount. The standard deduction rate per mile is determined each year by the Internal Revenue Service based on data about the cost of operating and maintaining a vehicle, including passenger cars, vans, pickups, and panel trucks. 

In recent years, the rate per mile has risen and fallen based on the price of gasoline. With gas prices up significantly since 2020, the mileage rates are up for next year, too. The IRS recently issued the new standard mileage rates for 2022 that reflect those higher gas pump prices. 

Beginning on January 1, 2022, the standard mileage rates are:
 

  • 58.5 cents per mile driven for business use, up 2.5 cents from the rate for 2021
  • 18 cents per mile driven for medical or moving purposes, up 2 cents from the 2021 rate
  • 14 cents per mile driven for charitable purposes to serve a qualified tax-exempt organization. The charitable rate is set by statute, so it doesn’t change.

Using the standard mileage rate can really add up to a substantial tax deduction. Remember that you always have the option of calculating the actual costs of using your vehicle and deducting the higher of the two options. Also, you can choose the standard mileage rate one year and actual expenses the next year, whichever is more beneficial for you. 

No matter which of the two expense methods you choose, you must track your overall mileage driven during the year, and track the miles by category (e.g., business and personal). And if you use more than one vehicle, mileage must be tracked for each vehicle you use for business, charitable, or medical.

Taking vehicle deductions for business, charitable, or medical purposes involves a lot of tracking, but the effort can be worth it. You can use mileage tracking apps to help. Once you get your tracking system down, you’ll see that those mileage deductions can add up and reduce the bottom line on your taxes.

DIY Access to Your Tax Information

With tax-filing season coming up soon, you might have started to get your 2021 tax information together. Or you could have been looking for last year’s tax return to update your Advance Child Tax Credit information on the IRS portal. You might have been looking for older tax return copies to submit with a mortgage application. Regardless of your tax information need, you can’t always find what you need when you need it.

The IRS has you covered with new DIY tools to access your tax information. Their old online sign-in process to verify your identity and access your information is clunky and difficult to navigate. The new process recently launched by the IRS allows more people to securely access and use online tax information tools. Plus, it’s mobile-friendly.

Using the new verification process allow you to access several IRS online services including:

Access to more DIY tax services is scheduled to transition from the existing process to the new identity verification process in 2022. The new process is designed to be even more secure than the old one to make sure that tax information is only provided to the authorized taxpayer.

The new process uses a secure verification service called ID.me. Taxpayers create an ID.me account and use it to upload identity documents. The new process also has increased the amount of help desk assistance for taxpayers who run into a snag when verifying her or his identity online. Most people shouldn’t have a problem, though. 

You only need two things to verify your identity with ID.me:

  • A photo of your driver’s license, state-issued identification, or passport.
  • A selfie using a smartphone or a computer with a webcam.

Once you verify your identity, you can securely access IRS online services listed above. If you need help verifying your identity or experience another issue, you can visit the ID.me IRS Help Site.

This is all great news. Getting DIY access to your tax information is a huge step forward to preparing for tax filing season, updating your Advance Child Tax Credit information, or applying for a mortgage. Create and access Your Online Account at https://www.irs.gov/payments/your-online-account. Quick, easy, and mobile-friendly. Can’t get better than that.

Last-Minute Tax Tips for 2021

Less than two weeks left to go before the year ends. Wow! You’ve been meaning to do some 2021 tax planning for months now. Is it too late? Believe it or not, there’s still time to implement some planning moves that can improve your tax situation for 2021. 

Here are four last-minute tax tips you can jump on and still enjoy the holidays:

  • Make HSA contributions If you are an eligible individual under the health savings account (HSA) rules for December 2021, you are treated as having been eligible for the entire year and can make a full year’s deductible contribution for 2021. The maximum contribution provides a deduction of $3,600 for individual coverage and $7,200 for family coverage. Taxpayers aged 55 or older also get an additional $1,000 catch-up amount.
  • Nail down stock losses Consider realizing losses for stock you planned to divest anyway. Those losses can offset gains from other stock or investment asset sales. Losses that exceed gains may be deducted up to $3,000 for individuals and married couples filing jointly, or up to $1,500 for married taxpayers filing separately. Any losses above the deduction limit can be carried forward to the next year to offset gains or other income.
  • “Bunch” deductible contributions and/or payments of medical expenses Many taxpayers who itemized deductions before the 2017 Jobs and Tax Cut Act no longer benefit from doing so because the standard deduction has been increased and many itemized deductions have been cut back or abolished. A bunching strategy can help you get around these new limits — by accelerating or deferring discretionary medical expenses and/or charitable contributions into the year where they will exceed the standard deduction and do some tax good.
  • Use IRAs to make charitable gifts If you are age 70½ or older, own IRAs, and are thinking of making a charitable gift, consider arranging for the gift to be made with a qualified charitable contribution, a direct transfer from the IRA trustee to the charitable organization. The transferred amount, up to $100,000, isn’t included in gross income or allowed as a deduction on your tax return. A qualified charitable contribution is a particularly good idea for retired taxpayers who don’t need all their required minimum distribution (RMD) for living expenses.

Yes, it’s late in the year for tax planning, but not entirely too late. Implementing one or more of these four last-minute tax tips will improve your tax situation for 2021. Makes the holidays even merrier, doesn’t it?

Be Prepared for Next Tax Season

The holiday season is upon us, and tax season will be here before you know it. Filing your tax returns is not exactly a festive time, but, just like the holidays, the season will be less stressful if you are prepared. Even though the year isn’t over yet, starting early reduces stress and confusion caused by rushing to meet a deadline. Plus, you have time to review your situation for tax savings or other strategies that may still be available before year-end, such as contributing to a retirement plan.

Whether you file your own tax returns or engage a tax professional, these three tips will help you be prepared for next tax season:

  • Pandemic-Related Items 

Various pandemic-relief and other tax changes could impact the information that you need to gather when filing your 2021 income taxes. The expanded Advance Child Tax Credit was authorized by the American Rescue Plan Act in March. Monthly advance tax credit payments started in July, based on the parent’s 2020 reported income, or the 2019 income if a 2020 return was not filed. The March tax act also included a third round of Economic Impact Payments, depending on a taxpayer’s income level and family size. 

  • Tax Estimates and Withholdings

Did you owe a lot when filing your 2020 returns, or did you get a big refund? An IRS Paycheck Checkup is an online tool to make sure that your withholdings will cover your anticipated tax liability https://www.irs.gov/paycheck-checkup.Taxpayers with investment, self-employment or other non-wage income can check if they need to make a larger or smaller quarterly estimated tax payments at https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes.

  • Organize Tax Documents

Use your 2020 tax return to identify documents that you’ll need to accumulate in preparation for next tax season. Start printing the charitable donation letters and real estate tax bills to cut the delay when the 1099s and W-2s are released or mailed to you. If a life event in 2021, such as buying a home, starting a business, or changing your marital status, you need to check out how it impacts your taxes. You might need a tax professional to help you plan for and understand the tax impacts of life changes.

Follow these three tips to be prepared for next tax season. And one last thing. Supply chain issues hit the tax profession just like it’s hit the store shelves. If you plan to engage a tax professional for your 2021 preparation, start looking now. There’s a shortage.