Start 2021 With a Few New Year’s Tax Resolutions

Wolters Kluwer Tax & Accounting looks at how taxpayers can best prepare for 2021

2020 is probably a year that many will gladly put behind them and wish for a better 2021. However, rather than just wishing for a better 2021, there are some steps that you can take that might help you make that wish a reality. One of those important areas is your taxes. Unlike many other countries, the U.S. tax system is technically a voluntary compliance system; it is up to each taxpayer to figure out and pay the proper amount of taxes.

Complexity of tax laws lead to mistakes and missed opportunities

COVID-related legislation drove a lot of tax changes for 2020 and President-elect Joe Biden has proposed many tax changes for 2021. With tax laws already very complicated it can be easy to make mistakes or miss things. Here are some resolutions to get ahead of taxes in 2021:

  • Organize your tax documents. It is very helpful to collect and organize important tax documents throughout the year so that nothing is overlooked. And keep those organized documents in a safe place as part of your disaster preparedness plan. This year there are also some new documents that may be required related to COVID and those economic stimulus payments
  • Maximize your tax-favored retirement plan contributions. Maximizing your contributions helps grow your retirement fund, it can entitle you to employer matching, and it may help reduce your taxes
  • Start or update an estate or incapacity plan. Even if you are under the federal estate tax exemption limit, that limit could drop in the future, there may be state estate taxes to try to avoid, and you can direct your money where you want it to go
  • Update your W-4 Form. The IRS revised the W-4 form in 2019 to make it easier to calculate the correct withholding, but many employees have not yet completed the revised form
  • Pay close attention to foreign accounts and cryptocurrency transactions. The IRS asks questions about these on the tax return and increasingly has access to third party information to determine if you are disclosing your income properly
  • Look at amending prior years’ tax returns. Recent retroactive tax legislation has provided a lot of potential tax benefit to amending prior years’ tax returns, including the Kiddie Tax, disaster losses, mortgage debt forgiveness, mortgage insurance premiums, energy-efficient home repairs, and, for businesses, net operating loss carrybacks
  • Be a better steward of your financial assets. Always look for income-increasing or tax-saving opportunities such as refinancing a mortgage at a lower interest rate, reallocating investments for higher returns with taxes in mind, or considering Roth IRA contributions or conversions
  • Consider hiring a professional tax expert to help with your taxes. Taxes are very complicated, and experts can help you identify ways to reduce taxes that you may have overlooked

Expertise is needed in 2021

Tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, can help explain the merits of these New Year resolutions and other ways to prepare for another year of taxes.

PLEASE NOTE: The content of this alert has been prepared by Wolters Kluwer Tax & Accounting for general informational purposes only. The information is provided with the understanding that Wolters Kluwer Tax & Accounting is not engaged in rendering legal, accounting, or other professional services.

Media Contact

To arrange an interview with Mark Luscombe or other federal and state tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topics, please contact Bart Lipinski.

BART LIPINSKI
847-267-2225
Bart.Lipinski@wolterskluwer.com

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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