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Checking withholding can help taxpayers decide if they need to give their employer a new W-4

5/26/2021

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All taxpayers should review their federal withholding each year to make sure they're not having too little or too much tax withheld.

Employees, retirees and self-employed individuals can use the IRS Tax Withholding Estimator to help decide if they should make a change to their withholding. This online tool guides users, step-by-step through the process of checking their withholding, and provides withholding recommendations to help aim for their desired refund amount when they file next year. Taxpayers can check with their employer to update their withholding or submit a new Form W-4, Employee's Withholding Certificate.

Adjustments to withholding
Individuals should generally increase withholding if they hold more than one job at a time or have income from sources not subject to withholding. If they don’t make any changes, they will likely owe additional tax and possibly penalties when filing their tax return.

Individuals should generally decrease their withholding if they qualify for income tax credits or deductions other than the basic standard deduction.

Either way, those who need to adjust their withholding must prepare a new Form W-4, Employee's Withholding Certificate. They need to submit the new Form W-4 to their employer as soon as possible since withholding occurs throughout the year.

Individuals who should check their withholding include those:
  • whose spouse is an employee
  • who are working two or more jobs at the same time or who only work for part of the year
  • who claim credits such as the child tax credit
  • with dependents age 17 or older
  • who itemized deductions on prior year returns
  • with high incomes and more complex tax returns
  • with large tax refunds or large tax bills for last year
 
Tax Withholding Estimator benefits
The IRS Tax Withholding Estimator can help taxpayers:
  • determine if they should complete a new Form W-4.
  • know what information to put on a new Form W-4.
  • save time because the tool completes the form worksheets.

Taxpayers should prepare before using the Tax Withholding Estimator by having their most recent pay statements, information for other income sources and their most recent income tax return. The tool does not ask for sensitive information such as name, Social Security number, address, or bank account numbers.

State or local withholding
Some individuals might also need to adjust their state or local withholding. They can contact their state's department of revenue to learn more.


"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at info@monarchaccountinggroup.com. 
 
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720

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Who Pays What?

5/18/2021

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There will be a lot of political rhetoric about increasing the national debt with trillions more in spending, adding billions to allow the IRS to audit high income taxpayers, and creating more changes in the tax code in the next few months.

To help you break through the media clutter, here is the latest information on who pays individual income taxes. The information comes directly from the IRS. It includes the latest published tax data for the 2018 tax year collected in 2019. It represents the first read on the impact of tax collections after implementation of the Tax Cuts and Jobs Act. While this time period is pre-COVID, it should give you an objective view of the current nature of the tax system without the impact of additional federal spending and the impact of unemployment due to the pandemic.
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​How to read: 
The top 10% of Adjusted Gross Income (AGI) taxpayers reported approximately 47.7% of the income and paid 71.4% of the total individual income tax collected in 2019 for 2018 tax returns.

Note: The above figures net out "negative" income tax returns for those who filed a tax return, but due to adjustments and credits have negative adjusted gross income.

Source: Internal Revenue Service, SOI Bulletin - Selected Income and Tax Items, Shares of Adjusted Gross Income and Total Income Tax and Average Tax Rates. All figures are based on estimates from sampling conducted by the Internal Revenue Service using 2019 tax filing data that encompass 2018 tax returns. Income means Adjusted Gross Income (AGI) as reported on individual income tax returns.

Observations
  • The individual tax system is progressive. 97% of the taxes paid comes from 50% of the people filing tax returns.
  • In 2001, per the IRS, the top 1% paid 33.2% of all income taxes. That number is now 40.1% in 2018. Over that same time period, the lowest 50% saw their tax burden decrease from 4.9% to 2.9%.
  • Since over 70% of the income tax comes from 10% of taxpayers, you can understand how hiring more auditors to audit high income taxpayers may seem to make sense. It is the only place to get more revenue, since high income taxpayers are the ones paying most of the tax and the trend in rule changes is benefiting other taxpayer groups.
  • The information above only include those required to file a tax return. If the data included all households, the percentage of income tax paid by households would weight payment of tax more highly toward the upper AGI households.

How to read the rhetoric

Everyone should pay their fair share. It is an interesting phrase, but what does it mean? How much, exactly, is a fair share for upper income groups? The top 25% currently pay 87% of the tax. Should it be 90%? 95%? All of it? Conversely, are they talking about the 50% of taxpayers that are paying 3% of total income taxes? You will need to decide, but when applying the IRS statistics, it seems like word speak without substance.

We have a progressive tax system. The IRS statistics noted above show this to be true. And even with the impact of the 2018 Tax Cuts and Jobs Act, the progressive nature of the system still holds true.

Tax cuts favor the wealthy. Yes, tax cuts favor the wealthy because that's who currently pays the majority of income taxes. Tax increases also always hit higher income taxpayers...for the same reason. Part of the philosophical discussion surrounds the purpose of the income tax: is it to pay for spending or is it to redistribute wealth and convert income of some taxpayers into free and low cost benefits for others?

Higher income taxes hurt small business. This is true, but perhaps in more ways than you think. Most small business tax payments are rolled into these individual income tax numbers. This is because most small businesses have their business profits taxed on their personal tax return as flow through entities. So changes in individual tax rates impact most small businesses which in turn impacts their ability to invest in their businesses and employees. To help solve this problem, the tax code contains a tax break called the qualified business income deduction.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at info@monarchaccountinggroup.com. 
 
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720
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What's New in 2021

5/11/2021

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​With the end of the 2020 filing season upon us, now is the time to become aware of major changes for 2021. But be prepared, politicians are making noise in preparation for another fun-filled year of late breaking changes. Here is what we know know.

​
For individuals


  • Tuition and Fees Deduction eliminated. This oft-expired tax break is now permanently closed.

  • Lifetime Learning Credit phaseouts increase dramatically. To help reduce the impact of the elimination of the Tuition and Fees Deduction, the income phaseout of this education expense tax break is dramatically increasing to $80,000 unmarried ($160,000 married filing joint). This is an increase of $20,000 to $40,000!

  • Medical and other health care related expense threshold to remain at 7.5% of income. To begin deducting health expenses as an itemized deduction, the expense threshold no longer moves to the planned 10% level.

  • Dramatically enhanced Child Tax Credit. The old Child Tax Credit remains $2,000 per child with income phaseouts of $200,000 single and $400,000 married. But you can now receive $3,000 per child under the age of 17 (up from 16) AND $3,600 for each child under the age of 6 in 2021. The enhanced credit phases out at much lower levels. Even better, more of the credit is refundable (you do not necessarily need income) and you can receive half of the credit with monthly payments beginning in July...assuming the IRS can implement the program.

  • Enhancements in Dependent Care Credit and the Earned Income Tax Credit. Without getting into details here, know that the amount of money that can be applied to help pay for daycare is increasing. And for those with low income and no children can now receive much more using the earned income tax credit.

  • Mortgage insurance premium deductibility. You may still deduct mortgage insurance premiums as an itemized deduction. This was set to expire last year.

  • Exclude discharge of mortgage indebtedness. With the extension of this law, qualified debt forgiveness on qualified mortgages is still not considered income.

  • Above the line charitable deductions. If you do not itemize, you can deduct up to $300 in qualified charitable deductions ($600 for married couples).

For Small Businesses

  • PPP loans for small businesses. PPP loan forgiveness is no longer a taxable event for your small business. The same goes for any second round loans your business receives this year if they qualify.

  • 100% meal deductibility. Business meals are typically only deductible at 50%. To help aid restaurants during the pandemic, a new law allows for 100% meal expense deductions for both 2021 and 2022.

  • Numerous general business credits extended. New laws extend expiring tax credits for many small businesses. There are too many to mention here, but common extended credits include; work opportunity credit, credit for paid family and medical leave, and employer paying employee student loan payments.

Remember, these are still early days in changing the tax code for 2021. It seems like cementing tax changes for the current year BEFORE it starts is a bit too rational, so be prepared and look for future announcements of rule changes.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at info@monarchaccountinggroup.com. 
 
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720

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Adjust to Pandemic Rule Rollbacks

5/5/2021

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It’s hard to believe a little over a year ago the COVID 19 pandemic hit everyone. As things slowly turn back to normal, you need to be ready for the normalizing of the tax rules and adjusting to new ones. Here is how you can be prepared.

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Required minimum distributions. If you are age 72 or older, you must once again plan to take the minimum required distribution from your retirement account in 2021. The one-year waiver of this required distribution is now over.

Penalty-free distributions from retirement accounts. While penalty-free distributions from retirement accounts is still available for those in presidentially declared disaster areas, the distribution benefit for pandemic related reasons is expiring. Remember, if you had to make withdrawals you will need to pay income tax on the distributions unless you repay the funds in a timely manner.

Unemployment taxation. Federal unemployment benefits continue to be extended through various federal spending programs. Late breaking rules make $10,200 of last year’s unemployment benefits tax-free on most federal tax returns. But that doesn’t mean you won’t be taxed on these benefits this year. If there are not withholdings from these payments, you may be required to send in estimated tax payments.

Businesses need to stay alert. While the original PPP loan program is now in forgiveness mode, there are new loans and active programs to help cover the cost of employees affected by the pandemic. The best course of action is to stay aware of ever-changing federal and state landscape.
Rules and benefit programs relating to the pandemic are not over. But as social distancing rules adjust, so too must you to the changing tax law landscape.


"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at info@monarchaccountinggroup.com. 
 
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720

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Monarch Accounting Group Inc
145 Tower Drive, Suite 10
Burr Ridge, IL 60527-7836
Email: Info@MonarchAccountingGroup.com


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  • Home
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