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The new year is upon us and so is another tax filing season.
With all the late breaking tax law changes, advance payments of the child tax credit, and several stimulus payments, this year's tax return may be a bit chaotic. But your situation does not have to be. Included in this month's newsletter are some tips to help your tax journey be a smooth one.
Also included is a great reminder for all of us to be prepared in case of fire. With the busy nature of our lives, this is an area that can be easily overlooked. There are also timely updates to retirement plan contribution limits for 2022 and a great list of ideas to help your small business prepare for the upcoming tax season.
Please enjoy the information, and pass along articles of interest to all your family and friends. And as always, please call if you have questions or need help.
Prepare for this year's tax return filing season
Tax return filing season usually gets a little crazy, but this year will be more turbulent than most. Due to new tax legislation and guidance from the IRS, you will have to cope with a wide variety of tax changes, some of which relate to the pandemic. Here are several tips for making some order out of the chaos.
Unemployment benefits are taxable once again in 2021. In 2020, the first $10,200 of benefits received by taxpayers with an adjusted gross income (AGI) of less than $150,000 were exempt from tax. Unfortunately the tax-free nature of unemployment benefits in 2020 was made long after many of you filed your tax return. If this pertains to you, and you haven’t received a refund from a tax overpayment yet, you might need to file an amended 2020 tax return.
To kick start the economy during the pandemic, Congress created a loan program called the Paycheck Protection Program (PPP). Similarly, your small business might have received an Economic Injury Disaster Loan (EIDL) or grant. These loans may be forgiven in 2021 without any adverse tax consequences if certain conditions were met. So gather your records—including what you received and when—for optimal tax protection.
Congress handed out three rounds of Economic Impact Payments to individuals in 2020 and 2021. The third payment provided a maximum of $1,400 per person, including dependents, subject to a phaseout. For single filers, the phaseout begins at $75,000 of AGI; $150,000 for joint filers. So review your records and be very clear what payments you received in 2021. Only then can you use your 2021 tax return to ensure you receive credit for your full stimulus payments.
Many families will benefit from an enhanced Child Tax Credit (CTC) on their 2021 tax return. The new rules provide a credit of up to $3,000 per qualifying child ages 6 through 17 ($3,600 per qualifying child under age six), subject to a phaseout beginning at $75,000 of AGI for single filers and $150,000 for joint filers. What will complicate this year's tax filing are any advance payments you received from the IRS during the second half of 2021. It is important that you accurately identify all the payments you received. Only then can correct adjustments be made on your tax return to ensure you receive the full Child Tax Credit amount.
The available dependent care credit for qualified expenses incurred in 2021 is much higher than 2020, with a corresponding increase in phaseout levels. The maximum credit for households with an AGI up to $125,000 is $4,000 for one under-age-13 child and $8,000 for two or more children. The credit is gradually reduced, then disappears completely if your AGI exceeds $440,000.
Due to the ongoing debate of proposed legislation in Washington, D.C., this year's tax filing season will seem a bit chaotic. With proper preparation, though, your situation can be orderly...but only if you prepare!
Fire survival occurs before the first signs of smoke
It’s the dead of night. Something wakes you from a deep sleep. It sounds like popcorn. Is someone in the house? Now you are alert. You grab your phone, open the door and head for the sound. It’s coming from the kitchen. At the same time, the smoke hits you AND the smoke alarms go off. Now is the time to act, and improving your survival comes from thinking about what you need to do….long BEFORE it happens.
Do a review of your situation now. Here are links to two great sources:
American Red Cross
National Fire Prevention Association
This includes smoke and carbon monoxide alarms and proper fire extinguishers all in the proper places and all in working order.
The top causes of home fires are cooking, heating, electrical, smoking and candles. Knowing this, you can reduce the risk of fire by creating an awareness trigger when engaging in these areas. For example:
When a fire occurs, you have two minutes to get out. Create a plan, provide two methods of escape, and practice the plan every six months. Know where you are going to meet so everyone is accounted for after you exit. This is especially important for kids as they may need to escape without your help. Also think about overnight guests and grandkids at sleepovers. This is where reviewing plans from experts can help.
Make this your mantra when in the midst of a fire emergency.
Hindsight is 20-20, and especially so when it comes to fires. Here are some tips from those who have gone through it:
I had a go bag. This is a small bag of essentials stored in your bedroom to grab if you need to leave in a hurry. It contains a change of clothes, coats, or other emergency items for the kids.
I had a good inventory. After the fire, you are going to spend a significant amount of time with insurance adjusters. Periodically review your policy and develop an inventory of your household items. Take videos, document models and ages of major appliances, autos, other equipment, and valuables.
I had a where to go plan. If you cannot return to your home, where will you stay? How will you pay for it? Figure this out ahead of time.
I had a remote backup of my computer and phone. Remote backups can be invaluable in getting you back up and running.
I had an emergency fund. It will take a while to get your life back in order. What if you need to take time off from work? Having 6 months of emergency funds can make all the difference as you recover from your disaster.
The purpose of this article is not to act as an expert in fire safety, but rather to help generate awareness in this often overlooked subject. If, however, you need expert advice with your financial and tax affairs as you navigate this or other disasters, please call for help.
There's good news for your retirement accounts in 2022! The IRS recently announced that you can contribute more pre-tax money to several retirement plans in 2022. Take a look at the following contribution limits for several of the more popular retirement plans:
Now is a great time to make 2022 a year to remember for retirement savings!
Eight ideas to make filing your tax return easier
Consider these suggestions for helping to make tax season smooth sailing this year for your small business:
Should you need help, please reach out for assistance.