Welcome to the New Year! At Lyle & Associates, we’re kicking it off with a new logo and a new website. We hope you approve.
During 2021 we CPAs experienced the joy that comes with changes in the tax law, three times over: The American Rescue Plan Act, The Taxpayer First Act, and The Infrastructure Investment and Jobs Act. All three included changes affecting your 2021 and 2022 income tax returns.
Those followed on the heels of The Setting Every Community Up for Retirement Enhancement (SECURE) Act, The Coronavirus Aid, Relief and Economic Security (CARES) Act and The Consolidated Appropriations Act, all signed into law in 2020.
You may have read about and/or benefitted from some of these key individual income tax provisions:
- Economic Impact (aka Stimulus) Payments handed out in both 2020 and 2021 – initial payments of $600 and subsequent payments of $1,200 in 2020, and another $1,400 in 2021
- Advance Child Tax Credit payments on an increased annual child tax credit of $3,600 per child up to age six, and $3,000 for children between ages six and 17, paid monthly starting in July, 2021.
- Tax exemption of up to $10,200 of unemployment benefits received during 2020.
Some things you might not know or even thought about...
If you didn’t receive all of the stimulus money you were entitled to you can have it refunded when you file your 2021 returns. The IRS is supposed to send you a letter in January stating the amount of payments their records show you received. Please save that with the rest of the documents you need to provide to your tax preparer.
Those monthly advance payments of child tax credit you are getting take the place of an annual credit claimed on your tax return, which you may have counted on in the past to generate a refund. The legislation contained an opt-out provision, but if you didn’t take that option you were automatically enrolled in the monthly tax payment system. Keep that in mind when it’s time to file your 2021 return, and don’t be surprised if you don’t get a refund, or even owe tax. You should receive a letter from the IRS this month listing the payments they sent you during 2021.
We see many clients whose employers have under-withheld their federal income tax. The employer is just following the instructions you gave them when you filled out Form W-4. If you owe money at the end of the year you should review your W-4, and make changes in the number of exemptions you are claiming. We advise people to instruct their employer to withhold using the single rates, not the married rates. We also recommend claiming zero exemptions, no matter whether you have dependent children or not.
It’s not clear whether there will be another partial exemption for unemployment benefits paid in 2021. Right now employment is a bigger issue than unemployment.
A couple of other bits of information that you might benefit from...
The deduction for business meals has been increased to 100% for both 2021 and 2022.
If you had capital gains from securities sales late in 2021, you may have an opportunity to defer or even eliminate the tax on them by investing in a Qualified Opportunity Zone. The investment must be made within 180 days after the gain is incurred. Ask your investment advisor to help you evaluate your options for 2021 gains, but don’t dally. That 180-day clock is running.
Next up in 2022 will be the Build Back Better Act, which includes major changes in income tax and estate tax rates if it’s enacted. We’ll address that next time around.
Until then, stay safe and healthy.