We hope that this letter finds you well and that 2021 has been a better year for you than 2020 was. There’s been a lot going on in the tax world, and we wanted to prepare you for next year’s tax season with a few tips.
1- Several deadlines are coming up at the end of this month.
- Signups for the health insurance exchange ends on December 15th. Medicare open enrollment ended on December 7th.
- If you are over age 72, required minimum distributions need to be made from retirement plans before the end of the year. Distributions made to charity are non-taxable.
- Charitable donations must be made by December 31st. All taxpayers now get up to $300 tax deductions ($600 for couples) for donations to eligible charities. (Amounts over $300 still eligible for itemizing)
- For small businesses, deferring income into 2022 and accelerating purchases in December is a good way to lower 2021 tax liabilities.
- The end of the year is also a good time to review your general financial picture, including investments, insurance, and if your income has changed to expose you to tax liabilities in the past year. 2022 will be here before we know it, and this window of reflection will quickly be closing.
- The fourth and final quarterly estimate payment deadline remains January 15th for the self-employed and those with substantial investment income. Failure to do estimates could result in some penalties added to your tax.
2- The Internal Revenue Service will be sending out two key notices that we will need at tax time.
- Notice 1444-C will go out to everybody who received a third economic stimulus payment last spring. Remember- those payments were not taxable, but will need to be reconciled on the 2021 tax return. (If you didn’t get the right amount, there’s still a way to recover that third stimulus)
- Notice 6419 will be going out in January to all parents who received an advanced child tax credit for 2021. The amounts received for this credit will need to be reconciled on the 2021 tax return, so it will be essential that we have the information from these notices.
3- As of now, there are a few tax law changes that will affect 2021 or 2022, with more being proposed in congress. The CARES act changed many things for 2021, but most of them will be expiring at the end of this year unless things change. The biggest changes we see at this time include:
- Child tax credits and child care credits will revert to previous amounts in 2022 and the advanced credits will no longer be mailed out unless congress acts.
- Starting in 2022, gig workers will be subject to income reporting if they make over $600 from their activity. This amount is much lower than previously used, and will alert the IRS to much unreported gig income.
- All Covid-related programs, such as the forgivable PPP Loans, Employee Retention Credits, and Economic Stimulus payments are done or will end soon.
- Unemployment payments were excluded from income for 2020 only- they are fully taxable for 2021 and beyond.
- For 2021 and 2022 only, business meals that are normally 50% deductible are instead 100% deductible. There are rules that restrict this option to only small business and self-employed taxpayers, and only for meals with a legitimate business purpose.
4- The IRS is still a mess, with budget cuts and COVID delaying processing of 2020 returns, which is still not completed. A budget increase is being proposed for the IRS, but still not signed into law. Hopefully if they can hire more people they will get caught up with their enormous backlog. Here is some important IRS news you can use.
- Tax filing season is expected to start in late January of 2022 with the filing deadline still at April 15th. Those dates could change depending on conditions with the pandemic and/or new tax laws.
- The IRS is trying to switch from in-person and telephone contact to virtual contact via their website and new taxpayer accounts. The new online accounts allow taxpayers to check their tax records and notices. You can sign up for yours at https://www.irs.gov/payments/your-online-account (Alternatively, you can authorize Buenger Accounting to access your records online as well)
- There are some bogus scam emails going around regarding the third stimulus payment claiming that you can apply for more money. If you get one of these do not answer it! The IRS never contacts people through email like that.