Tax brief

As 2021 comes to a close, we’ve highlighted a few key issues to watch for as you get ready to have your 2021 tax return prepared. This year likely brought challenges and disruptions that significantly impacted your personal and financial situation –– a continued global pandemic, several significant natural disasters, new tax laws and political shifts. 

As with any tax season, the 2021 tax season will be full of questions and always more learning. We are now booking appointments for the 2021 tax filing season, call anytime. We are scheduling in office appointments, phone, and video appointments; also, you can drop off your tax file at any time. We will be emailing out tax organizers shortly, and these will help you organize your tax file for us & ensure you have everything. 

Key tax considerations from recent tax legislation 

Many tax provisions were implemented under the American Rescue Plan Act that was enacted in March 2021. This act aimed to help individuals and businesses deal with the COVID-19 pandemic and its ongoing economic disruption. Also, some tax provisions were passed late in December 2020 that will impact this filing season. Below is a summary of the highlights in recent tax law changes to help you plan. 

Economic impact payments (EIPs) #3 Letter 6475 from the IRS

The American Rescue Plan Act created a new round of EIPs that were sent to qualifying individuals. As with last year’s stimulus payments, the EIPs were set up as advance payments of a recovery rebate tax credit. If you qualified for EIPs, you should have received these payments already. However, if the IRS owes you more, this additional amount will be captured and claimed on your 2021 income tax return. If you received an EIP as an advance payment, you should receive a letter 6475 from the IRS. Keep this for record-keeping purposes to help us determine any potential adjustment. 

Child tax credit 

As part of the American Rescue Plan Act, there were many important changes to the child tax credit, such as the credit:

• Amount has increased for certain taxpayers 

• Is fully refundable (meaning taxpayers will receive a refund of the credit even if they don’t owe the IRS) 

• May be partially received in monthly payments 

• Is applicable to children age 17 and younger 

The IRS began paying half of the credit in advance monthly payments beginning in July – December –– some taxpayers chose to opt out of the advance payments, and some may have complexities that require additional analysis. Letter 6419 from the IRS which should be received in Jan 2022; keep this for record-keeping purposes to help us determine any potential adjustment.

Charitable contribution deductions

Individuals who do not itemize their deductions can take a deduction of up to $300 ($600 for joint filers). Such contributions must be made in cash and made to qualified organizations (you need to have a receipt for this). Taxpayers who itemize can continue to deduct qualifying donations. In addition, taxpayers can claim a charitable deduction up to 100% of their adjusted gross income (AGI) in 2021 (up from 60%). 

Unemployment compensation

Another thing to note that's different in 2021 is the treatment of unemployment compensation. There is no exclusion from income. The $10,200 income tax exclusion that a taxpayer may have received in 2020 is no longer available in 2021. 

State tax obligations related to teleworking arrangements 

The pandemic has spawned changes in how people work, and more people are permanently working from home (i.e., teleworking). Such remote working arrangements could potentially have tax implications that should be considered by you and your employer. 

Virtual currency/cryptocurrency

Virtual currency transactions are becoming more common. There are many different types of virtual currencies, such as Bitcoin, Ethereum and non-fungible tokens (NFTs). The sale or exchange of virtual currencies, the use of such currencies to pay for goods or services, or holding such currencies as an investment, generally has tax impacts. If you have any of the above let’s discuss this before completing your tax return. 

PPP Loans

Business expenses paid for with the proceeds of PPP loans are tax deductible, consistent with Congressional intent in the CARES Act. Even though these funds are TAX FREE, I will still need to know the know the dollar amount received, if forgiveness was received, and when these items occurred.

Additional planning considerations

Here are a few more tax and financial planning items to discuss with us: 

• Consider tax benefits related to using capital losses to offset realized gains –– and move any gains to the lowest tax brackets, if possible. 

• Make sure you’re appropriately planning for estate and gift tax purposes. There is an annual exclusion for gifts ($15,000 per donee, $30,000 for married couples) to help save on potential future estate taxes. 

• Consider Sec. 529 plans to help save for education; there can be income tax benefits on the state level. 

• Discuss tax consequences of converting traditional IRAs to Roth IRAs. 

• Required minimum distribution (RMDs) were waived for tax year 2020 only, so don’t forget to take your RMD for 2021 by Dec. 31, 2021.

• For 2021 only, the child and dependent care credit increased significantly and is fully refundable even if you have no tax liability, so don’t forget to keep track of your work-related child care expenses.

• We are highly recommending you setup an online Social Security account no matter what age you are. If your Social Security earnings have been recorded incorrectly, it could make a big difference in your benefit amount.

• Reminder, in 2020 entertainment expenses are no longer tax deductible. Thus, in preparing your business financials please keep them separate from Meals.

• Individuals over the age of 70½ who are still working in 2021 can contribute to a traditional IRA.

Looming potential tax legislation 

With potential tax changes looming as Congress debates proposals in President Biden’s “Build Back Better” agenda, there remains uncertainty in how this will impact taxpayers. As legislation continues to evolve, and if it passes, we’ll discuss how changes impact you at your tax appointment. 

1099 Reporting 

The season for 1099s and W-2s is through the month of January. This is an area that we strongly stress you complete accurately if you haven’t done them in the past. If you are in need help with filing any 1099s or W-2s, please contact us as soon as possible so we can process them for you timely and accurately. Anything received after January 21st will not be guaranteed to be completed by January 31st due to volume and time constraints. 

Due Dates Coming Up 

• Reminder: All 1099s need to be filed with the recipients and the IRS by January 31st, 2022. 

• Any W-2s or payroll tax returns are also due by January 31st, 2022. 

• Any farm tax returns are due by March 1st, 2022. There is also the option to pay an estimated tax payment by January 15th, 2022 and extend the due date of your return to April 15th, 2022. 

• All Partnership and S-Corporation tax returns are due by March 15th, 2022. 

• All Individual and C Corporation returns are due by April 15th, 2022. 

If you are concerned about what this year will look like and would like to do tax planning before December 31st, please contact me as soon as possible. This will allow us adequate time to assess your situation and take any steps needed before the New Year. 

As with every year, it is very helpful and appreciated if you can do your best to provide your information as organized and timely as possible. Please use all of our tax organizers to help speed the processing of your returns.

Please rest assured that we will utilize our best resources to provide you once again with timely, complete, and accurate service while keeping your tax burden to the lowest legal amount. Thank you again for your continued support and patience during the upcoming tax season. 

*Advance Payments of Child Tax Credit to Begin July 15*

The IRS has announced that the first monthly payment of the expanded and newly- advanceable Child Tax Credit from the American Rescue Plan will be made on July 15, and continue to be paid the 15th of each month after, unless the 15th falls on a weekend or holiday.

Payment Dates: 7/15/21 - 8/13/21 - 9/15/21 - 10/15/21 - 11/15/21 - 12/15/21

Advance Payment of the Child Tax Credit in 2021

The American Rescue Plan Act of 2021 expands the Child Tax Credit FOR TAX YEAR 2021 ONLY. Under prior law, the amount of the Child Tax Credit was up to $2,000 per qualifying child under the age of 17 at the end of the year. 

The new law expands the credit as follows:

· The credit amounts are increased to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021, and $3,600 per qualifying child under age 6 at the end of 2021.

· The credit for qualifying children is fully refundable

· The credit will include children who turn age 17 in 2021

· Taxpayers may receive part of their credit in 2021 before filing their 2021 tax return

The increased credit amounts are reduced (phased out) for incomes:

· over $150,000 for married filing joint returns and qualifying widows or widowers

· $112,500 for head of household returns

· $75,000 for all other taxpayers.

Advance payments of the 2021 Child Tax Credit will be made regularly starting July 15, 2021 through December of 2021. The total of the advance payments will be up to 50 percent of the Child Tax Credit. Advance payments will be estimated from information included in eligible taxpayers’ 2020 tax returns (or their 2019 returns if the 2020 returns are not filed and processed yet).

Eligible taxpayers who DO NOT want to receive advance payment of the 2021 Child Tax Credit will have the opportunity to decline receiving advance payments. This will be done through an online portal which allows taxpayers to elect out. This portal will also be used to provide updated information which would create a modification of the annual advance amount, such as a change in the number of qualifying children, a change in marital status, a change in income, etc. The IRS portal is live NOW! On a Married Filing Joint Return BOTH SPOUSES MUST ELECT OUT! 

** NOTE** Unlike the stimulus checks, if the advance payments EXCEED the allowable Child Tax Credit when filing the 2021 return, (ex: not claiming the child in 2021, child is now too old now to qualify) the EXCESS WILL INCREASE the TAX LIABILITY on the return.

**You can download our tracking chart found in our Tax Organizers Section

*Advance Payments of Child Tax Credit to Begin July 15*

The IRS has announced that the first monthly payment of the expanded and newly- advanceable Child Tax Credit from the American Rescue Plan will be made on July 15, and continue to be paid the 15th of each month after, unless the 15th falls on a weekend or holiday.

Payment Dates: 7/15/21 - 8/13/21 - 9/15/21 - 10/15/21 - 11/15/21 - 12/15/21

Advance Payment of the Child Tax Credit in 2021

The American Rescue Plan Act of 2021 expands the Child Tax Credit FOR TAX YEAR 2021 ONLY. Under prior law, the amount of the Child Tax Credit was up to $2,000 per qualifying child under the age of 17 at the end of the year. 

The new law expands the credit as follows:

· The credit amounts are increased to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021, and $3,600 per qualifying child under age 6 at the end of 2021.

· The credit for qualifying children is fully refundable

· The credit will include children who turn age 17 in 2021

· Taxpayers may receive part of their credit in 2021 before filing their 2021 tax return

The increased credit amounts are reduced (phased out) for incomes:

· over $150,000 for married filing joint returns and qualifying widows or widowers

· $112,500 for head of household returns

· $75,000 for all other taxpayers.

Advance payments of the 2021 Child Tax Credit will be made regularly starting July 15, 2021 through December of 2021. The total of the advance payments will be up to 50 percent of the Child Tax Credit. Advance payments will be estimated from information included in eligible taxpayers’ 2020 tax returns (or their 2019 returns if the 2020 returns are not filed and processed yet).

Eligible taxpayers who DO NOT want to receive advance payment of the 2021 Child Tax Credit will have the opportunity to decline receiving advance payments. This will be done through an online portal which allows taxpayers to elect out. This portal will also be used to provide updated information which would create a modification of the annual advance amount, such as a change in the number of qualifying children, a change in marital status, a change in income, etc. The IRS portal is live NOW! On a Married Filing Joint Return BOTH SPOUSES MUST ELECT OUT! 

** NOTE** Unlike the stimulus checks, if the advance payments EXCEED the allowable Child Tax Credit when filing the 2021 return, (ex: not claiming the child in 2021, child is now too old now to qualify) the EXCESS WILL INCREASE the TAX LIABILITY on the return.

**You can download our tracking chart found in our Tax Organizers Section

 Delayed tax refunds 

If you’re one of the millions of Americans waiting patiently for your 2020 federal tax refund, I sympathize with you. This tax filing season has been one like never before and I am hearing from many of you wondering why you haven’t received your payment yet. There are several reasons for the delays, but I can assure you that your return was prepared with the utmost care and expertise, and it is likely part of the sizable IRS backlog of returns. 

As of June 5, the IRS reported there are more than 18 million 2020 returns in its pipeline to be processed, and a few million others yet to be finalized from 2019. This past year has been extraordinary, the least of which being the COVID public health crisis and widespread unemployment. In addition, a series of stimulus payments from the federal government to help people navigate COVID financial woes was also managed by the IRS, and to ensure all eligible citizens received stimulus money, the IRS told Americans that everyone should file a tax return. Between more returns, unemployment amendments, issuing stimulus money and processing regular returns, the IRS has had its work cut out for it. Like many businesses during the pandemic, the IRS also had obstacles to overcome like switching its workforce from onsite to virtual and operating with a reduced staff. 

If you have not received your refund 21 days after filing, it is likely that it is under further review. This happens more frequently when a return includes a recovery rebate credit, suspicion of identity theft or fraud, a claim for an earned income credit or other criteria that will ping a return for a manual review. 

If you receive any correspondence from the IRS regarding your return, please contact me with a copy of the letter you received, and I can guide you through that. Unfortunately, due to the delays in processing, some notices are being sent by the IRS despite timely follow-up by you, or myself on your behalf. At this point, I am as powerless as you to speed up the IRS process, so patience is our best option right now. 

I will keep you updated with all important news from the IRS that may apply to your situation. Thank you for your trust in me as your tax return professional and I look forward to serving you in the future.

Amended Returns 

Certain retroactive tax law changes occurred after the 2021 tax season began. If you filed your 2020  tax return before the American Rescue Plan (ARP)  was enacted on March 11, 2021, some changes will  be adjusted automatically by the IRS while others  require an amended tax return. The IRS is making the following corrections  automatically and issuing the resulting refunds,  so an amended return should not be filed. 

• Excluding $10,200 of 2020 unemployment compensation from income if your modified adjusted  gross income (MAGI) is less than $150,000 

 • Refunding the excess advance premium tax  credit repaid with your 2020 return 

 • Adjusting the 2020 recovery rebate credit  (RRC) if an amount was entered on your 2020  return but it’s incorrect Alternatively, you should file an amended return  if you: 

 • Received tax forms reporting additional income  after filing your 2020 return

 • Failed to claim the unemployment  compensation exclusion and become eligible  for certain income-based credits not claimed  on the original return

 • Failed to deduct business expenses because you  received Paycheck Protection Program (PPP)  loans that were forgiven

 • Are eligible for the 2020 RRC but didn’t enter  any amount on your 2020 return 

 IRS notices/letters 

The IRS sends notices and letters for various reasons. First and foremost, don’t panic if you receive  one. Read it carefully. Sometimes it’s just valuable  information to keep with your tax records. Other  times, the notice might say the IRS needs more  information or changed something on your tax  return, especially if you filed your tax return before  March 11, 2021 (see prior article). If you agree with  the change, there’s no need to contact the IRS, but  you must follow the instructions in the notice if you  have a balance due. On the other hand, if you disagree with the change, you must respond as directed  in the notice. Contact me if you receive a notice,  and we can work together on how to respond. 

 Repayment of distributions  related to coronavirus

If you received a coronavirus-related distribution in  2020 that is eligible for tax-free rollover treatment  or made on account of hardship, you may choose  to repay any portion of it within three years of  receiving the distribution. Repayments are treated  as trustee-to-trustee transfers, meaning they aren’t  included in income and aren’t subject to any  contribution or rollover limits.  If you make a repayment before the due date  (including extensions) of your 2020 return, the  repayment reduces the amount included in income  on your 2020 return. Alternatively, if you make  a repayment after filing your 2020 return and the  income was spread over three years, the repayment  generally reduces the amount included in income  on your 2021 return. However, you may file an  amended return for 2020 to reduce your income  by the repayment if you:

 • Elected to include the entire distribution in  income in 2020, or

 • Spread the income over three years, the  repayment exceeds the amount included in income on the 2021 return and you choose  to carry the excess back to 2020 instead of  forward to 2022 Please contact my office if you have any questions or concerns regarding these issues, need to  file an amended return or still need to file your  2020 return.