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Americans: Plan Ahead this Tax Season With These New Changes

By March 10, 2022April 11th, 2022No Comments

Reducing your yearly tax obligations should not be a year-end task. It should be an all-year commitment — a commitment that well prepares you for all the obstacles that come with the joys of tax season.

This year, tax payers globally are faced with the third year of the pandemic and the second year of navigating tax season during this time of new government relief programs and regulations. While tax season generally remains similar to the previous year, there are a few changes and things to consider that can affect your business tax filing this year.

plan ahead this tax season

To best prep for tax season, consider these 4 year-end tax planning tips to reduce your business tax obligations in the new year:

1. A Friendly Reminder to Plan Ahead

Tax-Deductible Accounts

It goes without saying that every individual — whether or not they are a business owner — should take advantage of this important tool at their disposal. It’s important not only to reduce this year’s tax bill, but also for saving for the future.

Check to make sure you contribute as much of the current $19,500 limit as possible now into your 401(k) for this tax year. Ideally, you’re well aware of your limit and you’re contributing throughout the year — not just immediately before the tax filing deadline.

💡 Things to Note: Contributions to traditional IRAs can be made until April 15, 2022.

Charitable Donations

Is charity a big part of your business? If so, consider the 2020 CARES Act provision. Charity donations is a business expense that every business owner should itemize and track. As of December 2020, the Internal Revenue Service (IRS) allows $300 in charitable donations to be deducted without itemizing in 2021.

The deduction limit is per person, so couples filing jointly can deduct up to $600 total! If you already itemize, you can deduct up to 100% of your adjusted gross income for charitable contributions in 2021. These are just some of the tax breaks that you and your business may be eligible for this year if you pay attention and monitor them throughout the year. If you didn’t do it this past year, then you know now to start for 2022!

2. Stay on Top of Expenses All Year Long

Every small business owner should have a system in place to track, monitor, and categorize business expenses as part of expense management. There are an incredible amount of reasons why you should do this, but it’s particularly important for tax season preparation.

That’s because majority of the successful elements of tax preparation (like reducing tax obligations with the IRS) occurs well in advance of December 31st.

And expenses are one of them.

With today’s smart technology, double-entry accounting software like TrulySmall Accounting, you can leverage automation to reduce or fully eliminate redundant administrative tasks.

These include:

  • Automate Streaming of Bank Transactions. If your business and personal bank accounts are divided, you can easily connect your bank account to TrulySmall Accounting and let the software pull in every business transaction on your account in real-time. You connect it once and let
  • Automate Bank Reconciliation. You now have the ability to make the review, categorization, and approval process for expenses much more automatic. Once turned on under “Settings,” TrulySmall Accounting’s new Auto-Posting feature uses machine learning to auto-categorize and auto-match transactions so that you can get even more time back to running your business throughout the year. Rather than spending a few hours a week reconciling your business bank accounts, you no longer need to “review and post”. Sit back, and let the software do it for you.

💡 Small Business Tip: The only caveat is you should always review the posted information under “Transactions” once in awhile to correct any auto-categorization that’s inaccurate. From there, TrulySmall’s algorithm keeps tab of your transactions and updates the rule moving forward. It’s that simple! We recommend checking once per week until all transactions are perfectly categorized for your small business.

3. Get Intimate Biden’s Build Back Better Plan—and How it Affects You

While there’s a multitude of new changes that affect Americans such as surtax on the wealthy and tax breaks on education, there are only a few that may be relevant to you.

In particular, keep an eye out for:

Child Tax Credit Payments

Just like last year, the expanded Child Tax Credit will continue into 2022. So, according to the IRS, those who received advanced payments should keep an eye on your advance Child Tax Credit payments. The amount received in 2021 should jive with the amount that you are eligible to claim on your 2021 tax return.

For example, if you received less than the amount, then you can claim a credit for the remaining amount on your 2021 tax return this year. On the flip side, if you received more than the eligible amount, you may need to repay some or all of the excess payment at the time of filing.

Do your due diligence and track these payments throughout the year — not just at year end.

💡 Things to Note: In January 2022, the IRS will send Letter 6419 with the total amount of advance Child Tax Credit payments taxpayers received in 2021. People should keep this and any other IRS letters about advance Child Tax Credit payments with their tax records.

Income Tax Credit

as will expanded eligibility for the Earned Income Tax Credit. The limit for the state and local tax deduction will increase substantially from $10,000 to $80,000, and this increase will apply to the 2021 tax year as well. Those with high incomes should be aware of the proposed 5% surcharge on income greater than $10 million. The plan also includes decreased contributions and increased minimum distributions for IRAs with balances greater than $10 million.

4. Go digital with your taxes, if you haven’t already

According to the IRS, 90 percent of tax benefit returns were filed online for the 2020 tax year. As the entire world moves from paper to digital, it’s clear that filing is easy and secure and the fastest way to get your Notice of Assessment (NOA) and refund! If you haven’t already, seriously consider going digital to make filing more streamlined, receive your refund sooner, and to avoid overall delays. Because truth be told, tax season is an extremely busy time for the IRS and delays are unavoidable!

Just like business accounting and invoicing, a guiding principle for approaching tax season is to make it as easy as possible for others to pay you back.

Going digital shouldn’t start just at tax filing. Throughout the year, you’re given 365 days to keep your books in good order. Come tax season, all business income and expenses (categorized, sorted and filtered to the expense category they need to be in) are ready to go for tax filing. In a perfect world, that’s exactly how it would play out.

And it is possible! With accounting and bookkeeping software, it doesn’t matter how busy your day-to-day is. TrulySmall Accounting’s double entry accounting software automates your accounting workflow so that come tax season, your books are accurate and up-to-date.

Conclusion

Navigating tax season can seem like a headache year after year, but it doesn’t have to be. Just like cramming last minute for an exam that you could have prepped sooner for, tax season operates generally in the same way. It’s not about getting things done last minute. It’s all about the long game: the ability to plan ahead and build in weekly and monthly financial habits that positions your business for tax preparation. By focusing on doing all the leg work now, you will most definitely do it right, and not miss your tax filing deadline with the IRS.

TrulySmall Accounting helps small business owners save time