Hi, I have a little tidbit of information to help you better understand your tax returns. People often have questions about why their tax return is different from what it was in the past. One of the best ways to find out the answer is to dig a little deeper and look at the two-year comparison with your return.
Within that two-year comparison, it will tell you the story of what was the last year and what was the current year. Now I’m always a year off when we talk about years. So if we’re looking at it right now, we would be looking at the 2020 tax return versus 2021. I’ve got a little comparison here for you to show, and we will kind of walk through this to give you a sampling of what you might see when you look.
So in many cases, people say, why do I owe so much money? Or why is my refund not the same as in the prior year? Let us take a look at an example here. And this may give you a better picture. So, we are looking at wages on the top line in this case. Wages are up a little bit, so that would generate more income tax usually depends on what the withholdings are.
Also, when we look down the increased decrease column, the differences between the two years, this is one of the most critical columns in telling you what this story is. So if you had to guess here, you would say the most significant change. Wow. It looks like they had a $57,000 increase in their income. So it almost doubled what is that from, ah, the result of the business, they had a significant loss in 2020, and not much this year.
So there is a significant change in the bottom line of their income. Also another factor looks like unemployment that was not taxable. So that was added in on the one line and taken off on the second based on the law that passed last year that said that unemployment was not taxable. So overall, a $57,000 swing in income. So income almost doubled based on that that comparison. When we looked down at standard deduction versus their prior year, they had itemized, not a big difference.
Still again, taxable income went from 16,000 to 75,000. So therefore, the tax went from 1,600 to 8,500. So $6,800 increase in taxes. Okay. When we look at the withholdings, those are $3,200. So they paid only $3,300. So this is a difference. The balance due is $5,100.
Moreover, the previous year they were getting back $3,900. So when somebody says, Hey, I, I expect a refund. And then they find out there is a balance due to the two-year comparison is the trick to seeing that story laid out pretty well. We also have the state tax indicator down here. Again, they were due back a refund of $3,600 in the prior year. This year, not so much. They get $4.
So take a look at your two-year comparison. This is going to tell you the big picture story. If you still have questions about that, then narrow down what your questions are or where those differences lie. Furthermore, that will help you have a better experience asking questions of me or your C.P.A. to make sure that you understand what is going on in your tax return. I hope this helps you make sense of your tax returns. Have a good day.
I’m Donna Bordeaux from Calculated Moves. Please follow us on Facebook, Instagram, and LinkedIn. Make sure you check out our blogs and our websites from the link below. Subscribe to our YouTube channel and hit the bell to be notified when we post. To contact me, email me at firstname.lastname@example.org.
Donna Bordeaux, CPA with Calculated Moves
Creativity and C.P.A.s don’t generally go together. Most people think of C.P.A.s as nerdy accountants who can’t talk with people. Well, it’s time to break that stereotype. Lively, friendly, and knowledgeable can be a part of your relationship with your CPA, as demonstrated by Donna and Chad Bordeaux. They have over 50 years of combined experience as entrepreneurial C.P.A.s. They’ve owned businesses and helped business owners exceed their wildest dreams. They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.