PREPARING FOR TAX DAY
Use these tips to help you prepare for your appointment
What should you do to prepare for your appointment?
- Required documents to keep on file:
• Copies of Drivers License or State IDs
• Social Security Cards
• Proof of Residence for dependents claiming EIC
Income documents:
- Other tax documents:
• IRA contributions
• Energy credits
• Student loan interest
• Medical Savings Account (MSA) contributions
• Moving expenses (for tax years prior to 2018 only)
• Self-employed health insurance payments
• Keogh, SEP, SIMPLE and other self-employed pension plans
• Alimony paid that is tax dedcutible
• Educator expenses
• State and local income taxes paid
• Real estate taxes paid
• Personal property taxes—vehicle license fee based on value
• Estimated tax payment made during the year, prior year refund applied to current year, and any amount paid with an extension to file.
• Direct deposit information—routing and account numbers
• Foreign bank account information—location, name of bank, account number, peak value of account during the year
Income documents:
CURRENT TAX RATES
Current rates information provided by Tax Foundation
2021 Tax BracketsIncome Tax Brackets and Rates
For 2021, income limits for all tax brackets as well as all filers will be adjusted for inflation and will be as follows.... The top marginal income tax rate of 37 percent will hit taxpayers with taxable income of $523,600 and higher for single filers and $628,300 and higher for married couples filing jointly..(SEE Table 1)
As you review the brackets, the income ranges for each rate have been adjusted for inflation.
Table 1. Tax Brackets and Rates, 2021 (Source: IRS)
Standard Deduction and Personal Exemption
Standard deductions for single filers has increased by $150; $300 for married couples filing jointly (SEE Table 2). The personal exemption for 2021 remains eliminated.
Table 2. 2021 Standard Deduction and Personal Exemption (Source: IRS)
Alternative Minimum Tax
Created in the 1960s, The Alternative Minimum Tax (AMT) was setup to prevent high-income taxpayers from avoiding the individual income tax. This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two. More information can be found at IRS.Gov (SEE Table 3).
Table 3. 2021 Alternative Minimum Tax Exemptions (Source:IRS)
In 2021, the 28 percent AMT rate applies to excess AMTI of $199,900 for all taxpayers ($99,950 for married couples filing separate returns).
AMT exemptions phase out at 25 cents per dollar earned once taxpayer AMTI hits a certain threshold. In 2021, the exemption will start phasing out at $523,600 in AMTI for single filers and $1,047,200 for married taxpayers filing jointly (SEE Table 4).
Table 4. 2021 Alternative Minimum Tax Exemption Phaseout Thresholds
Earned Income Tax Credit
Maximum Earned Income Tax Credit in 2021 for single and joint filers is $543, if the filer has no children (SEE Table 5). The maximum credit is $3,618 for one child, $5,980 for two children, and $6,728 for three or more children. These are small increases compared to 2020.
Table 5. 2021 Earned Income Tax Credit Parameters
Qualified Business Income Deduction
The Tax Cuts and Jobs Act includes a 20 percent deduction for pass-through businesses against up to $163,300 of qualified business income for single taxpayers and $326,600 for married taxpayers filing jointly (SEE Table 6).
Table 6. 2021 Qualified Business Income Deduction Thresholds (Source:IRS)
2021 Tax BracketsIncome Tax Brackets and Rates
For 2021, income limits for all tax brackets as well as all filers will be adjusted for inflation and will be as follows.... The top marginal income tax rate of 37 percent will hit taxpayers with taxable income of $523,600 and higher for single filers and $628,300 and higher for married couples filing jointly..(SEE Table 1)
As you review the brackets, the income ranges for each rate have been adjusted for inflation.
Table 1. Tax Brackets and Rates, 2021 (Source: IRS)
Standard Deduction and Personal Exemption
Standard deductions for single filers has increased by $200; $400 for married couples filing jointly (SEE Table 2). The personal exemption for 2020 remains eliminated.
Table 2. 2020 Standard Deduction and Personal Exemption (Source: IRS)
Alternative Minimum Tax
The Alternative Minimum Tax (AMT) was created in the 1960s to prevent high-income taxpayers from avoiding the individual income tax. This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two. More information can be found at IRS.Gov (SEE Table 3).
Table 3. 2020 Alternative Minimum Tax Exemptions (Source:IRS)
In 2020, the 28 percent AMT rate applies to excess AMTI of $197,900 for all taxpayers ($98,950 for married couples filing separate returns).
AMT exemptions phase out at 25 cents per dollar earned once taxpayer AMTI hits a certain threshold. In 2020, the exemption will start phasing out at $518,400 in AMTI for single filers and $1,036,800 for married taxpayers filing jointly (SEE Table 4).
Table 4. 2020 Alternative Minimum Tax Exemption Phaseout Thresholds
Earned Income Tax Credit
Maximum Earned Income Tax Credit in 2020 for single and joint filers is $538, if the filer has no children (SEE Table 5). The maximum credit is $3,584 for one child, $5,828 for two children, and $6,660 for three or more children. These are small increases compared to 2019.
Qualified Business Income Deduction
The Tax Cuts and Jobs Act includes a 20 percent deduction for pass-through businesses against up to $163,300 of qualified business income for single taxpayers and $326,600 for married taxpayers filing jointly (SEE Table 6).
Table 6. 2020 Qualified Business Income Deduction Thresholds (Source:IRS)
TAX RECORDS RETENTION
Tax record retention times
WHEN IN DOUBT, DON'T THROW IT OUT
Caution: Identity theft is a serious threat in today's world, and it is important to take every precaution to avoid it. After it is no longer necessary to retain your tax records, financial statements, or any other documents with your personal information, you should dispose of these records by shredding them and not disposing of them by merely throwing them away in the trash.
However, if the IRS believes you have significantly underreported your income (by 25 percent or more), or believes there may be indication of fraud, it may go back six years in an audit. To be safe, use the following guidelines.
Business Documents To Keep For One Year
Business Documents To Keep For Three Years
• Employee Personnel Records (after termination)
• Employment Applications
• Expired Insurance Policies
• General Correspondence
• Internal Audit Reports
• Internal Reports
• Petty Cash Vouchers
• Physical Inventory Tags
• Savings Bond Registration Records of Employees
• Time Cards For Hourly Employees
Business Documents To Keep For Six Years
Special Circumstances
Personal Documents To Keep For One Year
• Bank Statements
• Paycheck Stubs (reconcile with W-2)
• Canceled checks
• Monthly and quarterly mutual fund and retirement contribution statements (reconcile with year end statement)
Personal Documents To Keep For Three Years
• Credit Card Statements
• Medical Bills (in case of insurance disputes)
• Utility Records
• Expired Insurance Policies
Personal Documents To Keep For Six Years
• Supporting Documents For Tax Returns
• Accident Reports and Claims
• Medical Bills (if tax-related)
• Property Records / Improvement Receipts
• Sales Receipts
• Wage Garnishments
• Other Tax-Related Bills
Personal Records To Keep Forever
• CPA Audit Reports
• Legal Records
• Important Correspondence
• Income Tax Returns
• Income Tax Payment Checks
• Investment Trade Confirmations
• Retirement and Pension Records
Business Records To Keep Forever While federal guidelines do not require you to keep tax records “forever,” in many cases there will be other reasons you'll want to retain these documents indefinitely.
• Audit Reports from CPAs/Accountants
• Cancelled Checks for Important Payments (especially tax payments)
• Cash Books, Charts of Accounts
• Contracts, Leases Currently in Effect
• Corporate Documents (incorporation, charter, by-laws, etc.)
• Documents substantiating fixed asset additions
• Deeds
• Depreciation Schedules
• Financial Statements (Year End)
• General and Private Ledgers, Year End Trial Balances
• Insurance Records, Current Accident Reports, Claims, Policies
• Investment Trade Confirmations
• IRS Revenue Agents' Reports
• Journals
• Legal Records, Correspondence and Other Important Matters
• Minute Books of Directors and Stockholders
• Mortgages, Bills of Sale
• Property Appraisals by Outside Appraisers
• Property Records
• Retirement and Pension Records
• Tax Returns and Worksheets
• Trademark and Patent Registrations
