December 15th, 2021 marked the last deposit date for the child tax credit payment expanded under the American Rescue Plan (ARP). Though many had hoped the program would be continued, political leaders are struggling to find a way forward that makes the majority of Congress happy, and as a result, many families have been left waiting and wondering what will come next.
These days the tax return is used for more than just collecting taxes. It has also become a tool for the government to provide social benefits. This article discusses the various reasons and resulting benefits available to you when you file, even if you are not required to, as you may be eligible for a refund of withholding or estimated payments or a refund as a result of a refundable tax credit or even a stimulus payment that you didn’t previously receive. Here are some of the possibilities.
Early in 2021 Congress passed the American Rescue Plan which included a provision that increased the child tax credit amount and upped the age limit of eligible children. Normally, the credit was $2,000 per eligible child under age 17. For the 2021 tax year the American Rescue Plan increased the credit to $3,000 for each child under age 18 and to $3,600 for children under age 6 at the end of the year.
Even though the benefit of a tax credit traditionally isn’t available until after the tax return for the year has been filed, for 2021 the new tax law included a provision to get the credit benefit into the hands of taxpayers as quickly as possible and charged the Secretary of the Treasury with establishing an advance payment plan. Under this mandate, those qualifying for the credit would receive monthly payments starting in July equal to 1⁄12 of the amount the IRS estimated the taxpayer would be entitled to by using the information on the 2020 return. If the 2020 return had not been filed or processed yet by the IRS, the 2019 information was to be used.
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With inflation on the rise and medical care costs escalating, what options do seniors have for keeping up, especially if they have a mortgage on their home and their retirement income is only barely covering their mortgage payments and other necessities, with little left over for some enjoyment in their golden years, without relying on help from family?
One choice may be a reverse mortgage, which would allow the homeowner(s) to borrow against the equity they have built up in their home over the years. The loan is not due until the homeowner passes away or moves out of the home. If the homeowner dies, then the homeowner’s heirs can pay off the debt by selling the house, and any remaining equity goes to them. If the loan balance at that time is equal to or more than the home’s value, then the repayment amount is limited to the home’s worth. Generally, the reverse mortgage won’t be due as long as at least one homeowner lives in the home as their primary home.
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In November of 2021, the Internal Revenue Service launched an improved identity verification and sign-in process that enables more people to securely access and use IRS online tools and applications.
The IRS will transition additional IRS applications to the new method over the next year. Identity verification is critical to protect taxpayers and their information and is the reason the IRS has been making improvements in this area, and this new verification process is designed to make IRS online applications and tools as secure as possible.
For tax purposes, the term “basis” refers to the monetary value used to measure a gain or loss. For instance, if you purchase shares of a stock for $1,000, your basis in that stock is $1,000; if you then sell those shares for $3,000, the gain is calculated based on the difference between the sales price and the basis: $3,000 – $1,000 = $2,000. This is a simplified example, of course—under actual circumstances, purchase and sale costs are added to the basis of the stock—but it gives an introduction to the concept of tax basis
If you claimed the employee retention credit (ERC) in the fourth quarter of 2021, you better read this about a retroactive change affecting the credit for the fourth quarter of 2021.
Background: The ERC was created by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), and the American Rescue Plan Act (ARP Act) extended the ERC for wages paid through December 31, 2021.
Now the recently passed Infrastructure Investment and Jobs Act (IIJ Act) has retroactively repealed the ERC for the fourth quarter of 2021 for all taxpayers except recovery start-up businesses. A recovery start-up business is an employer that began carrying on any trade or business after February 15, 2020, and has gross receipts under $1,000,000 for the three-tax-year period ending with the tax year that precedes the calendar quarter for which the ERC is determined.
Many businesses already claimed the ERC for wages paid the fourth quarter of 2021 before the IIJ Act was passed in mid-November. Thus, other than recovery start-up businesses, employers that have claimed a fourth quarter 2021 ERC will be required to repay advance payments but will not be subject to any penalties. IRS Notice 2021-65 provides guidance on how to repay any advance credit payments and how to avoid penalties.
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Disabled individuals, as well as parents of disabled children, may qualify for a number of tax credits and other tax benefits. Discussed in this article are several tax credits and other benefits that are available if you or someone listed on your federal tax return is disabled.
If you are fortunate enough to have an estate large enough to be subject to the estate tax upon your death, you might be considering ways to give away some of your wealth to your family and loved ones now, thereby reducing the estate tax when you pass on. This tax strategy may be more important this year than it has been in the last few years, because legislation being considered by Congress would reduce the lifetime gift and estate tax exclusion by about half while retaining the annual gifting exclusion.
Frequently, taxpayers think that gifts of cash, securities or other assets they give to other individuals are tax-deductible; in turn, the gift recipient sometimes thinks income tax must be paid on the gift received. Nothing can be further from the truth.
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Some holiday gifts you provide to members of your family, employees and others may also yield tax benefits—think of it as Santa Claus meets Uncle Sam. Here are some examples: