Tax season is here and it\u2019s time to start thinking about your 2021 tax return. Working on your taxes might seem intimidating, but it doesn\u2019t have to be. Here are eight ways you can get ready for Tax Day, whether you\u2019re working with an accountant or tax preparation software like TurboTax.<\/p>\n\n\n\n
Highlight April 18, 2022 on your calendar before you do anything else. This is the date by which you must either file your taxes or Form 4686<\/a> to get a tax extension. It\u2019s also the deadline to contribute to an Individual Retirement Account (IRA) for 2021 if you haven\u2019t already maxed yours out. Tax Day is often April 15, but these deadlines are slightly later this year because of the Emancipation Day holiday in Washington, D.C. Taxpayers in Maine and Massachusetts have until April 19, 2022 because of the Patriots\u2019 Day holiday in those states. You don\u2019t need to wait until the deadline to submit your tax return \u2014 you can do so as soon as you have all the necessary documents. <\/p>\n\n\n\n Starting in January, you should receive tax paperwork from your employer and your banks. The documents you\u2019ll need to file your taxes will vary depending on your situation. <\/p>\n\n\n\n Here are some of the forms you might need:<\/p>\n\n\n\n You may also need various kinds of 1099s, including:<\/p>\n\n\n\n Other employer provided forms might include:<\/p>\n\n\n\n Wealthfront clients can download their tax documents (1099-R for IRA withdrawals and consolidated 1099s for taxable accounts) directly from their dashboard<\/a> by clicking on the menu item labeled \u201cDocuments<\/a>.\u201d These forms will become available starting in late January, but you may receive additional correction documents<\/a> going into March.<\/p>\n\n\n\n Was 2021 a big year for you? If so, those life events may come with some tax breaks.<\/p>\n\n\n\n It\u2019s time to decide if you\u2019ll file your taxes separately or jointly<\/a>. For most people, it makes sense to file your taxes jointly. This article<\/a> can show you exactly how to decide. For example, if you or your spouse has an income-based student loan, filing separately could keep your payments from dramatically increasing. <\/p>\n\n\n\n You may be able to deduct your mortgage interest (on mortgages up to $750,000) and property taxes (part of your SALT burden<\/a>; limited to $10,000 a year).<\/p>\n\n\n\n For any child in your family younger than 6, you\u2019ll likely get a $3,600 refundable tax credit<\/a> and a $3,000 refundable tax credit for children between 6 and 17. This credit starts phasing out if you are married, file jointly, and your income is above $150,000. You may also be eligible for tax credits for child care. Remember to fill out a new W-4 with your employer, as you\u2019ll now have an additional withholding allowance.<\/p>\n\n\n\n Lots of people bought cars in 2021 \u2014 if you were among them, the purchase could impact your taxes. If you itemize your deductions (more on that below), you can deduct the sales tax you paid on the purchase regardless of whether you bought it new or used. You may also qualify for a nonrefundable<\/a> tax credit of $2,500 to $7,500 if you bought a plug-in hybrid or electric vehicle<\/a>. To claim this credit, fill out Form 8936<\/a> and file it with your tax return. Keep in mind that this benefit phases out after a manufacturer sells more than 200,000 qualified vehicles.<\/p>\n\n\n\n When it comes to tax deductions, you have two options: <\/p>\n\n\n\n To decide if you want to itemize, add up your various deductible expenses such as:<\/p>\n\n\n\n If the total reaches more than $12,550 (for single filers) or $25,100 (for joint filers), you\u2019ll want to itemize and need to file a Schedule A (Form 1040)<\/a>. If you choose not to itemize, you\u2019ll file a return claiming the standard deduction and Schedule A won\u2019t be included. If your spouse itemizes, then you\u2019ll need to do so as well.<\/p>\n\n\n\n Regardless of whether you take the standard deduction or itemize, you can take what are called \u201cabove-the-line<\/a>\u201d deductions which will further reduce your taxable income. <\/p>\n\n\n\n Above-the-line deductions include:<\/p>\n\n\n\n Temporary measures<\/a> enacted as a result of the pandemic also allow you to deduct cash donations to qualifying charities<\/a> in 2021 even if you take the standard deduction. Donations made using checks and credit card payments qualify for this deduction, but those made in securities and household items do not. Single filers can deduct up to $300 in donations, and married joint filers can deduct up to $600. And if you itemize your deductions this year, you can claim a deduction for charitable contributions up to 100% of your adjusted gross income on your Schedule A (Form 1040). <\/p>\n\n\n\n Individual Retirement Accounts (or IRAs) are a great type of account to consider<\/a> as you save for retirement. IRAs offer a tax-advantaged way to save for retirement and, in many ways, offer additional flexibility compared to a 401(k). If you\u2019re planning to contribute to an IRA for the 2021 tax year, April 18 is the deadline to do so. The annual combined contribution limit for traditional and Roth IRAs is $6,000 ($7,000 if you are 50 or older). <\/p>\n\n\n\n If you\u2019re interested in funding an IRA but you\u2019re not sure which kind to use, check out Wealthfront\u2019s IRA Account Selection Tool<\/a> to learn more about your IRA eligibility. Wealthfront offers traditional IRAs, Roth IRAs, and SEP IRAs, as well as easy Roth conversions<\/a>. You can transfer funds directly from your Cash Account<\/a> to your Wealthfront IRA.<\/p>\n\n\n\n Financial markets were volatile for parts of 2021. If you were a Wealthfront client using our Classic portfolio, you likely received enough benefit from our Tax-Loss Harvesting service to cover our annual 0.25% advisory fee several times over<\/a>.\u00a0<\/p>\n\n\n\n Tax-loss harvesting<\/a> involves selling investments that have declined in value, generating a loss you can use to lower your taxes. If you have a Wealthfront Investment Account<\/a>, we automatically harvest your losses for you. If you use TurboTax<\/a>, you can automatically import your tax-loss harvesting information.<\/p>\n\n\n\n If this sounds complicated, especially if you sold employee stock options this past year, it\u2019s a good time to ask yourself if you should hire an accountant. Typically, this is a good move if your taxes are complex \u2013 say, you own a business, you\u2019re subject to the Alternative Minimum Tax<\/a> (AMT), or you receive K-1s<\/a>. For more information, check out our blog post about who should consider hiring an accountant<\/a>.<\/p>\n\n\n\n Depending on your tax withholdings and the estimated taxes you\u2019ve paid on any income not subject to withholding, you could either receive a refund from the IRS or owe money on your 2021 taxes. <\/p>\n\n\n\n <\/p>\n\n\n\n2. Gather your tax documents<\/h2>\n\n\n\n
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3. Review your year<\/h2>\n\n\n\n
If you got married<\/strong><\/h3>\n\n\n\n
If you purchased a home<\/h3>\n\n\n\n
If you had a baby<\/h3>\n\n\n\n
If you bought a car<\/h3>\n\n\n\n
4. Decide if you\u2019ll itemize your deductions<\/h2>\n\n\n\n
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5. Contribute to your IRA<\/h2>\n\n\n\n
6. Use your harvested losses<\/h2>\n\n\n\n
7. Consider working with a tax professional<\/h2>\n\n\n\n
If you plan to file your own tax return, there are a number of tax preparation programs to choose from including TurboTax, Credit Karma Tax, TaxAct, and TaxSlayer. If you\u2019re a Wealthfront client who uses TurboTax, you\u2019ll get $20 off the cost of filing<\/a>, and can use TurboTax Live to either consult with a CPA or hire one to file your taxes for you. <\/p>\n\n\n\n8. Determine how you\u2019ll pay<\/h2>\n\n\n\n