Tag: <span>Enrolled Agent</span>

Imitation may be the sincerest form of flattery, but when scammers pose as the IRS it means trouble for taxpayers. Identity thieves may contact taxpayers through fraudulent calls, emails, texts or social media messages pretending to be the IRS. Here are tips to help taxpayers know when the IRS is contacting them.

Letters and notices
A letter or notice is usually the first way the IRS will contact a taxpayer. When a taxpayer receives a suspicious letter or notice, they can check to see if it’s really the IRS:

Phone calls
After first mailing a notice or letter to a taxpayer, IRS agents may call to confirm an appointment or discuss items for a scheduled audit. Taxpayers should know that:

  • The IRS doesn’t leave pre-recorded, urgent or threatening messages. Scammers will tell victims that if they do not call back, a warrant will be issued for their arrest. Anyone making threats is a scammer.
  • Private collection agencies contracted by the IRS may call taxpayers to collect certain outstanding inactive tax liabilities, but only after the taxpayer and their representative have received written notice.
  • The IRS and its authorized private collection agencies will never ask a taxpayer to pay using any form of pre-paid card, store or online gift card. Taxpayers can review the IRS payments page at IRS.gov/payments for all legitimate ways to make a payment.

Email, text and social media
The IRS doesn’t first contact taxpayers by email, text message or social media channels to request personal or financial information. Some common electronic scams that thieves use are:

  • Sending phishing emails to taxpayers.
  • Posing as an IRS social media account to contact taxpayers about a fake bill or refund.
  • Texting taxpayers about fake “tax credits” or “stimulus payments.”

These messages will often direct taxpayers to click fraudulent links they claim are IRS websites or other online tools. Again, the IRS will mail a letter or notice before calling or emailing, and it will never contact a taxpayer by social media or text message.

In person visits
The IRS recently ended most unannounced visits to taxpayers by agency revenue officers. Ending these unannounced visits to taxpayers will improve overall safety for taxpayers and IRS employees.

 

Tax Tip 2023-112

If you’re in business and use QuickBooks to keep track of income and expenses for the year, you should do the following:

 

For the year, you must maintain accurate accounting records, and this includes saving your bank records and maintaining all your income receipts and expense receipts. You must maintain your records under the CASH method of accounting and furnish year-end statements to your accountant. This includes year end:

 

  1. Detailed General Ledger
  2. Profit & Loss Statement
  3. Balance Sheet Statement
  4. Working Trial Balance
  5. Year End Payroll Reports
  6. Year End Payroll Summary
  7. Bank Statement Reconciliation
  8. Statement of Cash Flow
  9. List of all new assets and furnish a description of purchased, date and cost.
  10. Furnish information on all assets sold, date and amount received.
  11. Do you maintain a mileage log for all your business vehicles.
  12. Do NOT include personal expenses in with your business expenses.
  13. Personal expenses paid by your business should be shown in a draw or distribution account.

 

If you’re a General Partnership, you must have a partnership agreement or if you’re a Partnership LLC, you must a have an operating agreement along with your partnership agreement. If you wish your LLC to be an S Corporation, you will need to file Form 2553 and if you want to be taxed as a C Corporation, a copy of Form 8832 needs to be filed.

 

If you’re an “S” Corporation, or a “C” Corporation, you must have a Corporate Minute Book and keep it current each year and stock certificates must be issued to each shareholder.

 

Every business should have an “Accountable Reimbursement Plan” for all their employees. By having this, it is a business expense and not income to the employee.

 

Provide copies of each.

 

You should not attempt to form any of these entities without consulting with legal counsel.

 

You should have regular meetings with your accountant/tax professional, bookkeeper, legal counsel, and insurance representative. To be successful, you need good people and good records.

 Using a Durable Power of Attorney rather than a Form 2848 in Tax Matters

 

Normally, a taxpayer must sign an IRS Form 2848, Power of Attorney and Declaration of Representative, to allow someone to represent them in a tax matter with the IRS — the representative must also have certain professional credentials. In some cases, however, a taxpayer is unable to complete and sign a Form 2848 because they become physically or mentally incompetent. What can you do to prepare for the day when you or someone you know may be in that situation? Plan ahead! In many cases, you may be able to use a “durable power of attorney” — often used for estate planning or other purposes — to overcome a legally incompetent taxpayer’s inability to complete a Form 2848.

Durable powers of attorney created for estate planning or other purposes give your designated agent or “attorney-in-fact” authority to make healthcare and financial decisions. The word “durable” means the power of attorney has staying power and will remain in effect if you later become incompetent. Needless to say, the durable power of attorney must be created before you become physically or mentally incompetent. For a durable power of attorney to work for federal tax matters, however, specific information required under the Internal Revenue Code and regulations needs to be included. The requirements related to use of durable power of attorneys in federal tax matters are stated in Reg. 601.503(b), which can be found in Publication 216, click below.

If care isn’t taken in preparing the durable power of attorney, it may not be sufficient to authorize your agent to act for you in tax matters for the IRS. In that case, your agent may also have to be designated a guardian or similar fiduciary, which is typically done by a state court and can be a lengthy process. Once your agent is designated a guardian or similar fiduciary, they would then have to file an additional form (Form 56) with the IRS that informs the IRS of the fiduciary relationship.
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For more information about using durable powers of attorney as a substitute Form 2848 and about Form 56, give me a call.

Taxpayers who make home energy improvements in 2023 may be able to take advantage of tax credits for a portion of the qualifying expenses. The credit amounts were increased, and types of qualifying expenses were expanded, by the Inflation Reduction Act of 2022.

Who can claim energy credits. There are two energy-related credits available to taxpayers making qualifying improvements to their home: the Energy Efficient Home Improvement Credit or the Residential Energy Clean Property Credit. A taxpayer may claim these credits in the year the taxpayer makes a qualifying improvement to their primary home. Usually, a taxpayer’s primary home is where the taxpayer spends most of their time. In addition, to qualify for an EEHIC, the improved home must an existing home located in the United States.

Note. Generally, a taxpayer may claim these credits only for qualified improvements to their primary residence; however, a taxpayer may be able to claim energy-related credits for certain improvements to a second home if the taxpayer does not use the second home as a rental property. In addition, renters who purchase energy efficient appliances and other products for their rental home may be able to claim these tax credits.

Taxpayers can claim an Energy Efficient Home Improvement Credit for many home improvements that meet certain energy efficiency requirements. This includes:

  • Exterior doors,
  • Windows, skylights,
  • Insulation materials,
  • Central air conditioners,
  • Heat pumps and heat pump water heaters,
  • Biomass stoves and boilers, and
  • Home energy audits

Generally, the maximum credit a taxpayer may claim each year is:

  • $1,200 for energy property costs and certain energy efficient home improvements, with limits on doors ($250 per door and $500 total), windows ($600) and home energy audits ($150)
  • $2,000 per year for qualified heat pumps, biomass stoves or biomass boilers.

The actual amount of the taxpayer’s credit is a percentage of the total cost of the improvements in the year of installation. In certain circumstances, the credit may be capped.

The EEHIC has no lifetime dollar limit. A taxpayer can claim the maximum annual credit every year they make eligible improvements until 2033.

The EEHIC is not refundable and cannot be carried over to another tax year. So, it might make sense to take a large project, like replacing windows, and do some of it over several years.

Taxpayers who invest in renewable energy for their primary home may be able to claim the Residential Clean Energy Credit. Qualified RCE credit improvements include:

  • Solar, wind and geothermal power generation,
  • Solar water heaters,
  • Fuel cells, and
  • Battery storage

Generally, the credit amount is a percentage of the total cost of the improvement in the year of installation. For tax years 2022-2032 that percentage is 30%. Generally, there is no annual maximum or lifetime limit.

The Residential Clean Energy Credit can be claimed for qualified improvements to a taxpayer’s new or existing home located in the United States.

An informed taxpayer and their tax professional can use these benefits to assist in paying the lowest legal amount of tax.

The base Medicare Part B monthly premium for 2022 increases to $170.10/month (from $148.50/month for 2021).

The higher premiums some taxpayers have to pay for 2022 vary depending on the taxpayers’ modified AGI (MAGI) as shown on their 2020 income tax returns. The various MAGI levels increased a small amount with the exception of the maximum MAGI levels which stayed the same (except for MFS where the maximum MAGI level actually went down). The exact costs and modified AGI levels can be found at medicare.gov by clicking on the “Your Medicare Costs” tab and then on “Part B Costs”. The top of the page shows the premiums for 2021 and the bottom of the page shows the premiums for 2022.

The highest Medicare Part B premium for 2022 is $578.30/month (up from $504.90/month for 2021) and applies to:

– Individuals with modified AGI of $500,000 or more.

– Married Filing Jointly taxpayers with modified AGI of $750,000 or more.

– Married Filing Separately taxpayers with modified AGI of $409,000 or more ($412,000 for 2021).

With the year-end approaching, it is time to start thinking about strategies that may help lower your tax bill for not only 2021 but 2022 as well.

Planning is more challenging than usual this year due to the uncertainty surrounding pending legislation that could, among other things, increase top rates on both ordinary income and capital gain starting in 2022.

Whether or not tax increases become effective next year, the standard year-end approach of deferring income and accelerating deductions to minimize taxes will continue to produce the best results for all but the highest income taxpayers, as will the bunching of deductible expenses into this year or next to avoid restrictions and maximize deductions.

If proposed tax increases do pass, however, the highest income taxpayers may find that the opposite strategies produce better results. Pulling income into 2021 to be taxed at currently lower rates, and deferring deductible expenses until 2022, when they can be taken to offset what would be higher-taxed income. This will require careful evaluation of all relevant factors.

Our firm has compiled a list of actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all of them will apply to you, but you, or a family member, may benefit from many of them. We can narrow down specific actions when we meet to review your particular tax situation.

Please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves might be beneficial:

  • Higher-income individuals must be wary of the 3.8% surtax on certain unearned income. The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of MAGI over a threshold amount, $250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case. • As year-end nears, the approach taken to minimize or eliminate the 3.8% surtax will depend on the taxpayer’s estimated MAGI and NII for the year. Some taxpayers should consider ways to minimize additional NII for the balance of the year, others should try to reduce MAGI other than NII, and some individuals will need to consider ways to minimize both NII and other types of MAGI. An important exception is that NII does not include distributions from IRAs or most other retirement plans.
  • Pending legislative changes to the 3.8% net investment income tax NIIT proposed to be effective after this tax year would subject high income, phased-in starting at $500,000 on a joint return; $400,000 for most others, S shareholders, limited partners, and LLC members to NIIT on their pass-through income and gain that is not subject to payroll tax. Accelerating some of this type of income into 2021 could help avoid NIIT on it under the potential 2022 rules, but would also increase 2021 MAGI, potentially exposing other 2021 investment income to the tax.
  • The 0.9% additional Medicare tax also may require higher-income earners to take year-end action. It applies to individuals whose employment wages and self-employment income total more than an amount equal to the NIIT thresholds, above. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward the end of the year to cover the tax. This would be the case, for example, if an employee earns less than $200,000 from multiple employers but more than that amount in total. Such an employee would owe the additional Medicare tax, but nothing would have been withheld by any employer.
  • Long-term capital gain from sales of assets held for over one year is taxed at 0%, 15% or 20%, depending on the taxpayer’s taxable income. If you hold long-term appreciated-in-value assets, consider selling enough of them to generate long-term capital gains that can be sheltered by the 0% rate. The 0% rate generally applies to net long-term capital gain to the extent that, when added to regular taxable income, it is not more than the maximum zero rate amount, $80,800 for a married couple; estimated to be $83,350 in 2022. An example: If $5,000 of long-term capital gains you took earlier this year qualifies for the zero rate then try not to sell assets yielding a capital loss before year-end, because the first $5,000 of those losses will offset $5,000 of capital gain that is already tax-free.
  • Postpone income until 2022 and accelerate deductions into 2021 if doing so will enable you to claim larger deductions, credits, and other tax breaks for 2021 that are phased out over varying levels of AGI. These include deductible IRA contributions, child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. In some cases, it may benefit some taxpayers to actually accelerate income into 2021. An example: A person who will have a more favorable filing status this year than next such as head of household versus individual filing status, or who expects to be in a higher tax bracket next year.
  • If you believe a Roth IRA is better for you than a traditional IRA, consider converting traditional-IRA money invested in stocks and mutual funds that have devalued into a Roth IRA in 2021 if eligible to do so. Keep in mind that the conversion will increase your income for 2021, possibly reducing tax breaks subject to phaseout at higher AGI levels. This may be desirable, however, for those potentially subject to higher tax rates under pending legislation.
  • It may be advantageous to try to arrange with your employer to defer, until early 2022, a bonus that may be coming your way. This might cut as well as defer your tax. Again, considerations may be different for the highest income individuals.
  • Many taxpayers will not want to itemize because of the high basic standard deduction amounts that apply for 2021,$25,100 for joint filers, $12,550 for singles and for marrieds filing separately, $18,800 for heads of household, and because many itemized deductions have been reduced or eliminated, including the $10,000 limit on state and local taxes; miscellaneous itemized deductions; and non-disaster related personal casualty losses. You can still itemize medical expenses that exceed 7.5% of your AGI, state and local taxes up to $10,000, your charitable contributions, plus mortgage interest deductions on a restricted amount of debt, but these deductions will not save taxes unless they total more than your standard deduction. In addition to the standard deduction, you can claim a $300 deduction , $600 on a joint return, for cash charitable contributions.

Some taxpayers may be able to work around these deduction restrictions by applying a bunching strategy to pull or push discretionary medical expenses and charitable contributions into the year where they will do some tax good. An example: a taxpayer who will be able to itemize deductions this year but not next will benefit by making two years’ worth of charitable contributions this year. The COVID-related increase for 2021 in the income-based charitable deduction limit for cash contributions from 60% to 100% of MAGI assists in this bunching strategy.

  • Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2021 deductions even if you do not pay your credit card bill until after the end of the year.
  • If you expect to owe state and local income taxes when you file your return next year and you will be itemizing in 2021, consider asking your employer to increase withholding of state and local taxes or make estimated tax payments of state and local taxes before year-end to pull the deduction of those taxes into 2021. But this strategy is not good to the extent it causes your 2021 state and local tax payments to exceed $10,000.
  • Required minimum distributions RMDs from an IRA or 401(k) plan or other employer-sponsored retirement plan have not been waived for 2021, as they were for 2020. If you were 72 or older in 2020 you must take an RMD during 2021. Those who turn 72 this year have until April 1 of 2022 to take their first RMD but may want to take it by the end of 2021 to avoid having to double up on RMDs next year.
  • If you are age 70½ or older by the end of 2021, and especially if you are unable to itemize your deductions, consider making 2021 charitable donations via qualified charitable distributions from your traditional IRAs. These distributions are made directly to charities from your IRAs, and the amount of the contribution is neither included in your gross income nor deductible on Schedule A, Form 1040. However, if you are still entitled to claim the entire standard deduction. The qualified charitable distribution amount is reduced by any deductible contributions to an IRA made for any year in which you were age 70½ or older, unless it reduced a previous qualified charitable distribution exclusion.
  • Take an eligible rollover distribution from a qualified retirement plan before the end of 2021 if you are facing a penalty for underpayment of estimated tax and increasing your wage withholding won’t sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2021. You can then timely roll over the gross amount of the distribution, the net amount you received plus the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2021, but the withheld tax will be applied pro rata over the full 2021 tax year to reduce previous underpayments of estimated tax.
  • Consider increasing the amount you set aside for next year in your employer’s FSA if you set aside too little for this year and anticipate similar medical costs next year.
  • If you become eligible in December of 2021 to make HSA contributions, you can make a full year’s worth of deductible HSA contributions for 2021.
  • Make gifts sheltered by the annual gift tax exclusion before the end of the year if doing so may save gift and estate taxes. The exclusion applies to gifts of up to $15,000 made in 2021 to each of an unlimited number of individuals. You cannot carry over unused exclusions to another year. These transfers may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.
  • If you were in federally declared disaster area, and you suffered uninsured or unreimbursed disaster-related losses, keep in mind you can choose to claim them either on the return for the year the loss occurred or on the return for the prior year, generating a quicker refund. If you were in a federally declared disaster area, you may want to settle an insurance or damage claim in 2021 to maximize your casualty loss deduction this year.

These are just some of the year-end steps that can be taken to save taxes.

If you received an Economic Impact Payment in 2021 or received  Advanced Child Tax Credit Payments, these amounts will be required to be reconciled on your 2021 Federal Income Tax Return.

With holidays rapidly approaching, we wish each of you safe travels and wonderful times with friends and family.

We are here to serve you and look forward to your call.

With year-end approaching, it is time to think about moves that may help lower your business’s taxes for 2021 and 2022.

2021 is more challenging than usual due to the uncertainty surrounding pending legislation that could increase corporate tax rates plus the top rates on both business owners’ ordinary income and capital gain starting in 2022.

Whether or not tax increases become effective next year, the standard year-end approach of deferring income and accelerating deductions to minimize taxes will continue to produce the best results for most small businesses, as will the bunching of deductible expenses into this year or next to maximize their tax value. If proposed tax increases do pass, however, the highest income businesses and owners may find that the opposite strategies produce better results: Pulling income into 2021 to be taxed at currently lower rates, and deferring deductible expenses until 2022, when they can be taken to offset what would be higher-taxed income. This will require careful evaluation of all relevant factors.

We have compiled a list of actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all of them will apply to you or your business, but you may benefit from many of them. We can determine specific actions when we meet to tailor a particular plan for your business, In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves might be beneficial:

  • Taxpayers other than corporations may be entitled to a deduction of up to 20% of their qualified business income. For 2021, if taxable income exceeds $329,800 for a married couple filing jointly, about half that for others, the deduction may be limited based on whether the taxpayer is engaged in a service-type trade or business, such as law, accounting, health, or consulting, the amount of W-2 wages paid by the business, and/or the unadjusted basis of qualified property, such as machinery and equipment held by the business. The limitations are phased in; for example, the phase-in applies to joint filers with taxable income up to $100,000 above the threshold, and to other filers with taxable income up to $50,000 above their threshold.
  • Taxpayers may be able to salvage some or all of this deduction, by deferring income or accelerating deductions to keep income under the dollar thresholds, or be subject to a smaller deduction phaseout, for 2021. Depending on their business model, taxpayers also may be able increase the deduction by increasing W-2 wages before year-end. The rules are quite complex.
  • More small businesses are able to use the cash method of accounting rather than the accrual method than were allowed to do so in earlier years. To qualify as a small business a taxpayer must, among other things, satisfy a gross receipts test, which is satisfied for 2021 if, during a three-year testing period, average annual gross receipts don’t exceed $26 million. Next year this dollar amount is estimated to increase to $27 million. Not that many years ago it was $1 million. Cash method taxpayers may find it   easier to shift income, for example, by holding off billings till next year or by accelerating expenses, for example, paying bills early or by making certain prepayments. • Businesses should consider making expenditures that qualify for the liberalized business property expensing option. For tax years beginning in 2021, the expensing limit is $1,050,000, and the investment ceiling limit is $2,620,000. Expensing is generally available for most depreciable property. other than buildings, and off-the-shelf computer software. It is also available for interior improvements to a building. but not for its enlargement, elevators or escalators, or the internal structural framework, for roofs, and for HVAC, fire protection, alarm, and security systems.

The generous dollar ceilings mean that many small and medium sized businesses that make timely purchases will be able to currently deduct most if not all their outlays for machinery and equipment. What’s more, the expensing deduction is not prorated for the time that the asset is in service during the year.  Expensing eligible items acquired and placed in service in the last days of 2021, rather than at the beginning of 2022, can result in a full expensing deduction for 2021.

  • Businesses also can claim a 100% bonus first year depreciation deduction for machinery and equipment bought used, with some exceptions, or new if purchased and placed in service this year, and for qualified improvement property, described above as related to the expensing deduction. The 100% write-off is permitted without any proration based on the length of time that an asset is in service during the tax year. As a result, the 100% bonus first-year write-off is available even if qualifying assets are in service for only a few days in 2021.
  • Businesses may be able to take advantage of the de minimis safe harbor election, also known as the book-tax conformity election, to expense the costs of lower-cost assets and materials and supplies, assuming the costs aren’t required to be capitalized under the UNICAP rules. To qualify for the election, the cost of a unit of property cannot exceed $5,000 if the taxpayer has an applicable financial statement. If there’s no AFS, the cost of a unit of property cannot exceed $2,500. Where the UNICAP rules are not an issue, and where potentially increasing tax rates for 2022 are not a concern, consider purchasing qualifying items before the end of 2021.
  • A corporation, other than a large corporation, that anticipates a small net operating loss (NOL) for 2021 and substantial net income in 2022 may find it worthwhile to accelerate just enough of its 2022 income or to defer just enough of its 2021 deductions to create a small amount of net income for 2021. This allows the corporation to base its 2022 estimated tax installments on the relatively small amount of income shown on its 2021 return, rather than having to pay estimated taxes based on 100% of its much larger 2022 taxable income.
  • Year-end bonuses can be timed for maximum tax effect by both cash- and accrual-basis employers. Cash-basis employers deduct bonuses in the year paid, so they can time the payment for maximum tax effect. Accrual-basis employers deduct bonuses in the accrual year, when all events related to them are established with reasonable certainty. However, the bonus must be paid within 2½ months after the end of the employer’s tax year for the deduction to be allowed in the earlier accrual year. Accrual employers looking to defer deductions to a higher-taxed future year should consider changing their bonus plans before yearend to set the payment date later than the 2.5-month window or change the bonus plan’s terms to make the bonus amount not determinable at year end.
  • To reduce 2021 taxable income, consider deferring a debt-cancellation event until 2022. • Sometimes the disposition of a passive activity can be timed to make best use of its freed-up suspended losses. Where reduction of 2021 income is desired, consider disposing of a passive activity before year-end to take the suspended losses against 2021 income. If possible 2022 top rate increases are a concern, holding off on disposing of the activity until 2022 might save more in future taxes.

In our year- end planning, these are some of the steps that can be taken to save taxes.

Our firm looks forward to your call.

Here’s how a taxpayer’s custody situation may affect their advance child tax credit payments  

COVID Tax Tip 2021-147, October 5, 2021

Parents who share custody of their children should be aware of how the advance child tax credit payments are distributed. It is important to remember that these are advance payments of a tax credit that taxpayers expect to claim on their 2021 tax return. Understanding how the payments work will parents to unenroll, if they choose, and possibly avoid a possible tax bill when they file next year.

Here are some of the most common questions about shared custody and the advance child tax credit payments.

If two parents share custody, how will the IRS decide which one receives the advance child tax credit payments?

Who receives 2021 advance child tax credit payments is based on the information on the taxpayer’s 2020 tax return, or their 2019 return if their 2020 tax return has not been processed. The parent who claimed the child tax credit on their 2020 return will receive the 2021 advance child tax credit payments.

If a parent is receiving 2021 advance child tax credit payments and they shouldn’t be, what should they do?

Parents who will not be eligible to claim the child tax credit when they file their 2021 tax return should go to IRS.gov and unenroll to stop receiving monthly payments. They can do this by using the Child Tax Credit Update Portal. Receiving monthly payments now could mean they have to return those payments when they file their tax return next year. If their custody situation changes and they are entitled to the child tax credit for 2021, they can claim the full amount when they file their tax return next year.

If parents alternate years claiming their child on their tax return, will the IRS send the 2021 advance child tax credit payments to the parent who claimed the child on their 2020 tax return even though they will not claim them on their 2021 tax return?

Yes. Because the taxpayer claimed their child on their 2020 tax return, the IRS will automatically issue the advance payments to them. When they file their 2021 tax return, they may have to pay back the payments over the amount of the credit they’re entitled to claim. Some taxpayers may be excused from repaying some or all of the excess amount if they qualify for repayment protection. If a taxpayer won’t be claiming the child tax credit on their 2021 return, they should unenroll from receiving monthly payments using the Child Tax Credit Update Portal.

If one parent is receiving the advance child tax credit payments even though the other parent will be claiming the child tax credit on their 2021 tax return, will the parent claiming the qualifying child still be able to claim the full credit amount?

Yes. Taxpayers will be able to claim the full amount of the child tax credit on their 2021 tax return even if the other parent is receiving the advance child tax credit payments. The parent receiving the payments should unenroll, but their decision will not affect the other parent’s ability to claim the child tax credit.

Things people do during the summer that might affect their tax return next year

IRS Tax Tip 2021-102, July 15, 2021

It’s summertime and for many people, summertime means change. Whether it’s a life change or a typical summer event, it could affect incomes taxes. Here are a few summertime activities and tips on how taxpayers should consider them during filing season.

Getting married

Newlyweds should report any name change to the Social Security Administration. They should also report an address change to the United States Postal Service, their employers, and the IRS. This will help make sure they receive documents and other items they will need to file their taxes.

Sending kids to summer day camp

Unlike overnight camps, the cost of summer day camp may count towards the child and dependent care credit.

Working part-time

While summertime and part-time workers may not earn enough to owe federal income tax, they should remember to file a return. They’ll need to file early next year to get a refund for taxes withheld from their checks this year.

Gig economy work

Taxpayers may earn summer income by providing on-demand work, services or goods, often through a digital platform like an app or website. Examples include ride sharing, delivery services and other activities. Those who do are encouraged to visit the Gig Economy Tax Center at IRS.gov to learn more about how participating in the sharing economy can affect their taxes.

Normally, employees receive a Form W-2, Wage and Tax Statement, from their employer to account for the summer’s work. They’ll use this to prepare their tax return. They should receive the W-2 by January 31 next year. Employees will get a W-2 even if they no longer work for the summertime employer.

Summertime workers can avoid higher tax bills and lost benefits if they know their correct status. Employers will determine whether the people who work for them are employees or independent contractors PDF. Independent contractors aren’t subject to withholding, making them responsible for paying their own income taxes plus Social Security and Medicare taxes.

 

With the recently enacted American Rescue Plan, there were changes made to the child tax credit that may benefit many taxpayers, most notably:

  • The amount has increased for certain taxpayers
  • The credit is fully refundable
  • The credit may be partially received in monthly payments
  • The qualifying age for children has been raised from 16 to 17

The IRS will pay half the credit in the form of advance monthly payments beginning July 15 and ending Dec. 15. Taxpayers will then claim the other half when they file their 2021 income tax return.

How much will you receive?

The credit for children ages five and younger is up to $3,600 with up to $300 received in monthly payments. The credit for children ages 6 to 17 is up to $3,000 with up to $250 received in monthly payments.

How do you qualify?

The following criteria must be met to quality:

  • A 2019 or 2020 tax return was filed and claimed the child tax credit, or your information was provided to the IRS using the non-filer tool
  • Have a main home in the U.S. for more than half the year or file a joint return with a spouse who has a main home in the U.S. for more than half the year
  • Care for a qualifying child who is under age 18 at the end of 2021, and who has a valid Social Security number
  • Have a modified adjusted gross income less than certain limits:
    • $75,000 for single filers
    • $150,000 for married filing jointly filers
    • $112,500 for head of household filers

The credit begins to phase out above those thresholds. Higher-income families (e.g., married filing jointly couples with $400,000 or less in income or other filers with $200,000 or less in income) will generally get the same credit as prior law (generally $2,000 per qualifying child) but may also choose to receive monthly payments.

You won’t need to do anything to receive payments as the IRS will use information on file to start issuing payments.

IRS’s child tax credit update portal

The IRS has a child tax credit and update portal where you can update your information to reflect any recent changes to things like filing status or number of children. You can also opt out of the advance payments and check on payment status in the portal. If you file a joint return, both you and your spouse will need to opt out, otherwise a portion of the payment will still be issued. If you prefer not to opt out online, you can also call the IRS at 1-800-908-4184.

We’re here to help

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