Accounting and Consulting
If your operations were suspended due to government orders or your sales decreased by more than 20% in a quarter, then you might be able to get a credit for 50% of wages paid to your W-2 employees during that quarter. The calculation is a bit complicated, so reach out to us to find out more. This credit is available for the first 3 quarters of 2021.
If you have to get your hands on IRA or 401K money before age 59 ½ , then usually you have to pay a 10% penalty. You might be able to avoid this penalty if your withdrawal is to pay for large medical bills, college expenses, the birth or adoption of a child, a first-time home purchase, or is related to a disability. Furthermore, some of these exceptions only apply to IRA withdrawals. So, for example, if you are purchasing your first home, a withdrawal from your 401K to fund it will be subject to a 10% penalty but a withdrawal from an IRA won’t be. Solution: Roll funds from your 401K to your IRA, and then withdrawal the funds from the IRA to use for your house down payment.
You now get a tax credit of 50% of the amount paid for child care for each child under age 13. The max credit is $4K for 1 child or $8K if you have 2 children in day care. If married, both spouses need to have earned income equal-to-or-greater than the amount of child care expenses.
What does this mean for you? If you are married and have 1 child in day care that costs $8K, then you save $4K in tax only if both spouses earn at least $8K. If you only have 1 spouse working, then you get no child care credit. Thus, the first $8K that the normally-non-working-spouse earns might cause tax of $2,700 ($8K times combined FICA, Federal Income, and State Income tax of 33%), but earns the family $4K in credits….so that spouse is being paid $1,300 by the IRS to work!
Obviously, this gives the normally-non-working-spouse an incentive to at least earn the amount of the child care cost!
This credit gets a little confusing when you coordinate it with a pre-tax dependent care plan through work….it might make sense to NOT DEFER money into the pre-tax plan through work since the amount of the credit might be more than the tax saved by the deferral…ask us with questions so that we can guide you on how much to defer into your pre-tax dependent care plan through work.
If you are getting subsidized health insurance through the Federal health insurance exchange then you likely can receive more subsidy due to a recent law change. In the past, you could receive NO subsidy if your income exceeded 400% of the Federal Poverty Level. Now there is no bright-line phaseout and you will always receive a subsidy to keep you from paying more than 8.5% of your income towards health insurance. If you need any clarification on how this impacts your tax return then please call us.
If the IRS thinks that you qualify for the child tax credit in 2021 ($3.6K per children age
5 and younger and $3K for most other children), then the IRS has been sending you prepayments of that credit. While we don’t believe that it ever makes sense to opt-out of
receiving the pre-payments, you probably want to make sure there is not a surprise at
tax-time – talk to us if you need us to take a look.
Previously, only those between ages 25 and 65 could receive the credit on their tax return. A recent law change has expanded that range to those ages 19 (except for certain full-time students) to infinity. If you want us to calculate if you now qualify for this credit under these new rules then reach out to us.
Common Giving Reminders:
• Donating your services doesn’t create a deduction and doesn’t appear anywhere on the tax return
• Donating your “stuff” (i.e. goodwill donations) allows you a deduction equal to the lesser of the cost of the item or its fair-market-value only if you itemize. The maximum amount per group of donated items is $5,000 per year (unless you want to get a formal appraisal of what you donated)
• You generally only get a deduction on your return if you give money or stuff to a church, government entity or 501c3 organization and only if you itemize
• …but for 2021 only, you can deduct up to $600 on your return even if you don’t itemize. This deduction is available for donations of money only (donations of stuff doesn’t qualify)
• Donating to a gofundme campaign for an individual is never a deduction on your return (it is a gift to a friend) since your friend is not a church, government entity or 501c3 organization
• If you are taking RMDs from a traditional IRA then it is always more tax-efficient to give money directly from the traditional IRA to the organization (versus giving from your checking or savings account) – this is known as a QCD – Qualified Charitable Distribution
• If you spend money while doing work for an organization, then you can deduct the cost of what you spent if you get a letter from the organization stating that you spent that money on behalf of the organization (if you spend money to go on a mission-trip, then document your expenses and then ask the sponsoring-organization for a letter stating that they acknowledge that you spent the money on their behalf)
• Generally, if you want to somehow take credit for a donation on your return (whether a QCD, a goodwill donation, a monetary donation, etc.) then you need a receipt/letter from the organization by the date that you file your return that contains the following information:
o Name of charity
o Date of contribution
o Detailed description of property donated
o Amount of contribution
o A statement regarding whether or not any goods or services were provided in exchange for the contribution
If both spouses work, then the credit is up to 50% of the amount spent on childcare (max credit of 4K per child) – you can take this credit for up to 2 children in childcare – so for 2 kids, the max credit is 8K and it is refundable. Your ability to enjoy this credit phases out as your joint AGI exceeds 125K If you would rather pay for childcare pre-tax, then (if your employer allows), you can defer up to $10,500 into a Dependent Care FSA, but whatever you defer into the FSA can’t be used to calculate the child care credit. Depending on your situation, a decision needs to be made whether to take advantage of the FSA deferral or the credit – let us help you make the decision.
Under previous law, your ability to get a subsidy (i.e., the government helped you pay for your Health Insurance) through the Health Insurance Marketplace phased entirely if your income exceeded 400% of the Federal Poverty Level. The new law passed in March now allows you to get a subsidy, no matter your income, to the extent that your Health Insurance Premiums obtained through the Marketplace exceed 8.5% of your income. Ask us if this applies to you and how to take advantage of this new rule.
Starting in July, the IRS will send you 1/12th of what they expect your 2021 child tax credit to be (up to $3,600 per child). They are basing their calculations off of the income and children that you claimed on your 2020 return. When you file your 2021 tax return, you will then true up with the IRS and either pay them or they will pay you any difference. If you want to unenroll from the monthly payments then go to www.irs.gov/childtaxcredit2021
If you are under age 59 ½ , then you might have to pay a penalty to get your hands on your 401K or IRA funds. If you were impacted by COVID in 2020, then you can withdrawal up to 100K from these retirement plans by the end of 2020 and not have to pay the 10% penalty. In addition, you can spread the income out over 3 years (pay tax on it evenly in 2020, 2021, and 2022)
Rental losses are passive losses and are not typically able to be used to reduce your ordinary income. But if your AGI is under $100,000, you can deduct up to $25,000 of your rental loss. If you are a real estate professional you can deduct all of your rental loss no matter what your income is. Using cost-segregation strategies, we can make sure that your rental shows a loss on your tax return, even if it produces positive cash-flow.