Additions to the June 2021 Newsletter:
Helicopter View of Meals and Entertainment (2021-2022)
Check the table below for what you can do in 2021 and 2022 as the law stands now:
More on Expanded Child Tax Credit for 2021 Only
Taxpayers who have qualifying children under age 18 at the end of 2021 can now get the full credit if they have little or no income from a job, business, or other source. Prior to 2021, the credit was worth up to $2,000 per qualifying child, with the refundable portion limited to $1,400 per child. The new law increases the credit to as much as $3,000 per child ages 6 through 17 at the end of 2021, and $3,600 per child ages 5 and under at the end of 2021. For taxpayers who have their main homes in the United States for more than half of the tax year and bona fide residents of Puerto Rico, the credit is fully refundable, and the $1,400 limit does not apply.
The maximum credit is available to taxpayers with a modified adjusted gross income of:
Above these income thresholds, the excess amount over the original $2,000 credit — either $1,000 or $1,600 per child — reduces by $50 for every $1,000 in additional modified AGI. The original $2,000 credit continues to be reduced by $50 for every $1,000 that modified AGI is more than $200,000; $400,000 for married couples filing a joint return.
Advance child tax credit payments
From July 15 through December 2021, Treasury and the IRS will advance one half of the estimated 2021 child tax credit in monthly payments to eligible taxpayers. Eligible taxpayers are taxpayers who have a main home in the United States for more than half the year. This means the 50 states and the District of Columbia. U.S. military personnel stationed outside the United States on extended active duty are considered to have a main home in the United States.
The monthly advance payments will be estimated from their 2020 tax return, or their 2019 tax return if 2020 information is not available. Advance payments will not be reduced or offset for overdue taxes or other federal or state debts that taxpayers or their spouses owe. Taxpayers will claim the remaining child tax credit based on their 2021 information when they file their 2021 income tax return.
How to Keep Tabs on Your Credit Reports
Last spring, in response to the coronavirus crisis, the three major credit bureaus – Equifax, Experian and TransUnion – began offering consumers a free credit report every week at www.annualcreditreport.com. The bureaus recently extended the period for you to see weekly reports for free through April 2022. (Free reports are typically available once every 12 months.) Regularly checking your credit reports is important in case a lender or other provider furnishes erroneous information to the bureaus, the bureaus mix up your file with that of someone else, or an identity thief opens fraudulent accounts in your name. If you find a problem, contact the lender or company that provided the faulty data and file a dispute with each credit bureau that is reporting it.
Calculating a Safe Harbor for 2021
Question: I have been taking required minimum distributions from my retirement plan for a number of years, and I generally have an annual taxable income of more than $150,000. As a safe harbor, I pay estimated taxes equal to 110% of the previous year’s taxes. Will that rule still apply when I pay estimated taxes for 2021? I will be basing those estimated tax payments on 2020 income, which was considerably lower than usual because I did not have to take an RMD.
Answer: The safe harbor rule to avoid penalty will work for 2021, but it can be both an opportunity and a trap for the unwary. The rule calls for paying 100% of the previous year’s tax liability and bumping up that percentage to 110%, if your adjusted gross income is more than $150,000. Although that is sufficient to avoid penalties and interest, even in 2021 when your income will rise (at a minimum by the amount of your RMD), you are likely to owe money to the IRS next April. You can take advantage of the float, but don’t get lulled into forgetting you will owe more tax. I suggest putting aside what you’re likely to owe so that you’re prepared when the tax bill comes due. If you know your income will rise primarily because of the RMD, you could also estimate how much more you should pay each quarter this year. Another option is to have the taxes withheld from your RMD, which you can do anytime during the year, even Dec. 31, and still not incur a penalty. You could also use the RMD to make a qualified charitable distribution from your IRA. Up to $100,000 can be donated this way each year tax-free. As of 2021, RMDs are not required before age 72.
February 18, 2021
Earlier this month, the IRS issued notices to approximately 260,000 taxpayers stating they haven’t filed their 2019 federal tax return.
These notices, referred to as CP59 notices, are issued yearly to identified taxpayers who have failed to file tax return that was due the prior calendar year (Tax Year 2019).
Due to pandemic related shutdowns, the IRS has not completed processing all 2019 returns at this time.
Therefore, the CP59 notices should not have been sent because some portion of the recipients may actually have filed a return that is still being processed.
People who filed their 2019 return but nevertheless received the CP59 notice, can disregard the letter and do not need to take to take any action. There is no need to call or respond to the CP59 notice because the IRS continues to process 2019 tax returns as quickly as possible.
The IRS regrets any confusion caused by this mailing.
The IRS encourages those who have yet to file their 2019 return to promptly do so.
Here are reasons people should file a 2019 tax return; Economic Impact Payment, tax credits available for some. https://go.usa.gov/xwMS9
Addition to June 2020 Newsletter - RMD
Want to put your RMD (Required Minimum Distribution) back? This year, and only this year (we hope), due to COVID-19, you can if done by August 31, 2020. Great news from IRS!
Here’s the scoop:
Normally, once you hit (age 70 ½ old rules) age 72 (new rules) you have to start taking a RMD each year from your IRA’s (and usually 401k’s). Children or others who inherited an IRA, must take RMD’s regardless of age. The CARES Act said you don’t need to take RMD’s for 2020. But what if you already took it? Normally, once per year, you can have IRA money and put it back within 60 days. But when the CARES Act waiver came along it was already over 60 days for some people (such as me) and so we thought we were out of luck. But new IRS Notice 2020-51, now says we can put back into IRA these dollars that were taken, even if more than 60 days have passed. And we can do this for several distributions (not just once in this year) as long as they are put back by August 31, 2020.
In addition, the IRS has recently expanded COVID eligibility for loans from IRA’s and 401(k)’s and payback.
Also note our article in our newsletter about Roth conversions.
And remember you can send money directly to a charity, if in RMD age, and it never is included in your taxable income.
If you have questions about any of these items, please contact us.
Important Reminder - From the U.S. Department of Treasury website:
If you receive calls, emails, or other communications claiming to be from the Treasury Department and offering COVID-19 related grants or stimulus payments in exchange for personal financial information, or an advance fee, or charge of any kind, including the purchase of gift cards, please do not respond. These are scams. Please contact the FBI at www.ic3.gov so that the scammers can be tracked and stopped.
Fraud involving payment of Federal taxes should be reported to the Treasury Inspector General for Tax Administration.
March 23, 2020
COVID-19 MEMO NUMBER 2
TO OUR CLIENTS AND FRIENDS,
Iowa Governor Kim Reynolds announced the creation of the Iowa Small Business Relief Fund at her press conference on March 23, 2020. This program will provide relief to small businesses that have suffered business disruption due to COVID-19. Grant funds of $5000-$25,000 will be available to businesses that employed from 2 to 25 employees prior to 3/17/2020. If you get a grant, you automatically qualify for a deferral of payment of state withholding and sales tax until July 31, 2020. For all other employers, you may be eligible for deferral of the same taxes within this application process.
There will be one application for both and will be available on the Iowa Economic Development website (www.iowaeconomicdevelopment.com)at 8 a.m. on March 24, 2020. The deadline for filing the application will be March 31, 2020.
The Iowa Workforce Development is allowing delay until July 31, 2020 of unemployment tax payments for the first quarter of 2020 for employers with fewer than 50 employees.
There may be more funds available in the future according the Debi Durham, Director of the Iowa Economic Development Authority.
March 18, 2020
TO OUR FRIENDS AND CLIENTS,
Many of you have felt an immediate economic impact as a result of the closures and limitations caused by the recent Disaster Declaration due to COVID-19. We are monitoring the various government websites with all of you in mind. The following information may be helpful:
You can visit www.iowaworkforcedevelopment.gov for more information.
You can visit www.dol.nebraska.gov for more information.
You can visit SD Department of Labor and Regulation, www.dlr.sd.gov for more information.