Comparison of Taxes Over Two Years

Hi. I have a little tidbit of information to help you make better sense of your tax returns. Many times people have questions about why their tax return is different than 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. That's along with your return. Within that two year comparison, it will tell you the story of what was 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 the 2021. I've got a little comparison here for you to show you and we'll kind of walk through this just to give you a sampling of what you might see when you look. So in many cases people say, well, why do I owe so much money? Or why is my refund not the same as it was in the prior year? Let's take a look at an example here and this may tell you a better picture. So in this case, we're looking at wages on the top line. Wages are up a bit, Little, little bit. So that would generate more income. Tax usually depends on what the withholdings are. Also, when we look down the increase decrease column, the differences between the two years, this is one of the most critical columns in telling you what the story is. So if you had to guess here, you would say of the biggest change, wow. It looks like they had a $57,000 increase in their income. So it almost doubled. What's that from? Ah, the result of the business. They had a big loss in 2020 and not much this year. So there's a big change in the bottom line of their income. Also another factor looks like they had 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 wasn't taxable. So overall a $57,000 swing in income. So income almost doubled based on that comparison. When we look 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 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 in only $3,300. So this is a difference. The balance due is $5,100 and the previous year they were getting back $3,900. So when somebody says, hey, I expect a refund and then they find out there's a balance due, the two year comparison is the trick to kind of seeing that stock 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 and that'll help. Have a better experience to ask questions of me or of your CPA to make sure that you understand what's going on your tax return. I hope this helps you make sense of your tax returns. Have a good day. I'm Donna Bordeaux with pyopaccounting.com Please follow us on Facebook and Instagram. Make sure you check out our blog our website from the link below. Subscribe to our YouTube channel and hit the bell to be notified when we post. To contact me, email me@donnapyopaccounting.com.