Ask the COMMUNITY expert Taxes NEWS
5 UNEXPECTED INSIGHTS FROM YOUR TAX RETURN Before you box up your tax return for your files, give it one last look for these five missed opportunities. It could save you money next year.
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cross the nation, remote work has boomed during the pandemic. And as the workplace gradually returns to “business as usual,” more employers than ever are opting to make a permanent switch to hybrid or full-remote work. With work-from-home emerging as the new normal, it’s only natural for taxpayers to weigh the tax implications of home offices. With the 2021 tax filing deadline behind us, it may be tempting to put taxes out of sight and out of mind. But taking a deeper dive into your tax return can uncover some important insights and help you identify opportunities for optimal planning in the future. Now is the ideal time to review your current financial situation and consider changes for the year ahead. Here are a few of the most common areas to consider. 1. Review Your Refund (or Tax Bill Owed) People often look forward to getting a refund because it feels like a bonus, but it’s not. It’s an overpayment of your own hard-earned dollars. Getting a large refund isn’t necessarily a good thing — you’re essentially giving an interest-free loan to the government. It may be more beneficial to have that money throughout the year instead.
If you find yourself with a large tax refund or if you significantly underpaid and were charged a penalty, you may want to take another look at your withholdings to see if you should have more or less withheld throughout the year. 2. Understand Your Effective vs. Marginal Tax Rates There’s often a misconception around tax rates and how they work. When we talk about tax rates, we often talk about the marginal tax rate, or the highest bracket into which income falls. However, because the U.S. has a progressive tax system and not all of your income will be taxed at your marginal tax rate, your effective tax rate may be much lower. For example, if you’re a single filer making $100,000 annually, you have reached the 24% marginal tax bracket, but only a small percentage of your income is actually being taxed at that 24% rate. In 2022, the first $10,275 of your income will be taxed at the 10% rate; income above $10,275 up until $41,775 will be taxed at 12%; the next tier is a 22% rate up to $89,075 and so on. Only income above $89,075 will be taxed at your marginal rate of 24%. To calculate your effective rate, take your tax liability and divide by taxable income. Knowing these “break points” can help you make financial decisions. For example:
Ryan Dodson has a Masters in Accounting from North Carolina State University. He worked in public accounting with Deloitte and Arthur Andersen. He and his wife Tiffany own and operate Liberty Tax Service. 405 East Dixie Drive•Asheboro, NC 27203 (336) 629-4700 12 | asheboromagazine.com
