So, I’m not one for constant gloom-and-doom talk, but I do believe in giving it to you straight. And here it is:
Things at the IRS are a maelstrom of hot mess. Some very serious voices are sounding the alarm of impending disaster at the agency … and no one really knows how to stop it at this point.
Alongside almost-insurmountable current staffing shortages, they’re also poised to lose 52,000 employees in the next six years, due to retirement and other factors. GULP.
The call centers are operating well below staff capacity and only 11% of the calls coming in are getting answered. And if you do manage to get through to a real live person (a rarity), they likely don’t have access to the proper systems to help because of work-from-home protocols.
We won’t even start on the millions of unprocessed returns and forms still sitting in the IRS’s to-do pile from the past 2 years.
The IRS itself publicly stated how unprepared they are for this year’s filing season more than any past year which means this is going to be a particularly difficult year – something my team and I have never heard them say in all our years in the tax industry.
That’s enough to bring some widespread public alarm. Especially when the IRS is still cranking out scary notices for a host of filing issues and errors (many that have been resolved but the IRS’s backlog is preventing them from seeing).
But, you know what, my team and I are here, burning bright, ready to be your beacon in the storm this tax season. We are committed to spending those hours reaching out to the IRS to make sure you get your filing squared away.
So let’s get a tax appointment scheduled ASAP – because time is of the essence this year of all years:
Now, let’s talk about how Chicago taxpayers like you can lower their tax bill as much as possible with retirement contribution tax deductions (among other things). Nope, your chance to do this didn’t expire on December 31, 2021.
Believe it or not, the clock is still running in your favor (until April, in fact).
Retirement Contribution Tax Deductions for Chicago Filers
“If you get up early, work late and pay your taxes, you will get ahead – if you strike oil.” – J. Paul Getty
Your taxable income isn’t based on what you make so much as on what’s left of what you make after you take deductions. That’s good news because the chance to fatten some of those deductions is still available.
One example: retirement contribution tax deductions.
Most people have to itemize deductions on their tax returns to see much benefit, and the government recently replaced a lot of items you can itemize on your tax return with one big deduction. But contributions to traditional individual retirement accounts (IRAs) step right by that restriction: You can deduct them from your taxes without having to itemize.
The cash that you put in your traditional IRA is a pre-tax contribution that lowers your total taxable income. (Note: You will have to pay tax on the money when you take it out of the account years from now; this is known as “tax-deferred”). But get ready for the kicker:
You have until this Tax Day to make those contributions for 2021 – and take those deductions off your 2021 taxes.
In other words, any money you contribute until this April can whittle down what you have to send Uncle Sam. Combine that with the money being there for when you retire – money that grows every year with investment returns – and the deal’s pretty sweet.
There are conditions for retirement contribution tax deductions:
– Annual contributions to a traditional IRA are capped at six grand (seven grand if you’re 50 or older).
– If you or your spouse are covered by a retirement plan, you can’t automatically take a full deduction.
– If one of you is covered, your deductions phase-out based on your income and what status you use to file your taxes (check with us on this).
Tax-deductible contributions to a SEP (Simplified Employee Pension) IRA work much the same way. Contributions to a retirement plan may also open your door to the federal Retirement Savings Contribution Credit – again, potentially trimming your tax bill.
Don’t have a retirement plan? Don’t sweat it – you even have until the tax deadline to set up a plan. We’re happy to walk you through all of this.
More possible moves
There are a couple of other ways you can lower your 2021 tax bill.
– If you’ve got a health savings account (HSA) and you make contributions to it yourself (not via an employer), you can claim a tax deduction (with some limitations) on those up until this year’s filing deadline. Contribution limits vary depending on your insurance coverage but are in the mid-four figures. (Not sure if you qualify for these contributions? We can help you sort it out.)
– If you dipped into your 401(k) or IRA for up to a penalty-free withdrawal as part of pandemic relief a couple years back, here’s a tactic that can save you some tax cash for 2021 or 2020.
You could avoid paying taxes on this money if you could put it back within three years. So you took out the money in 2020 and paid taxes on the amount or a portion of it in 2020 and/or 2021 and you can swing it now, you can give the amount back to your retirement coffers, file amended returns, and get back tax money you paid.
We can help you and your Chicago friends work out maximizing your retirement contribution tax deductions. We’re here to make this tax-filing season as easy as it can be – just give us a buzz with any questions.
Keeping you in the know,