2021 TAX LAW CHANGES

The 2020 tax filing year was filled with many changes, some of which were not legislatively approved until well into the tax filing period or programed timely by IRS due to the pandemic. Some clients have still not received refunds or adjusted refunds for the 2020 filing and the IRS is working diligently, with a shorten staff, to resolve. This is definitely an unusual situation but I am trying to keep atop of it.

For the 2021 tax year there will also be many changes that are going to affect the taxpayers and the Tax Preparer. Security and protection of information are a priority for this  tax.  The new demands will be costly and with that being said there may be an increased in preparation fees this year.

I am going to list the important changes and briefly describe the benefit to you as the taxpayer.  If you wish further information, I recommend going to the IRS site (IRS.gov) or google your questions.

Here are some important facts and changes for 2021 filings:

1. For 2021 the Child care credit is being increased.  Those that have children and claimed Child Care Credit in past years may have received monthly IRS checks in Sept through Dec. These payments were an advance for your 2021 claiming of this credit. If your children to be claimed have out-grown the age limits or if the IRS overpaid this credit, you will be liable to repay.
2. The IRS will be sending a Form 6419 letter to those who have received the advanced Child Care credit payments. This letter will identify the amounts received and REQUIRED for preparation.
3. The charitable contribution deduction is limited to $600, up from $300 last year. You don?t need to itemize to get this deduction.
4. Earned Income Credit has been increased.
5. Child Care credit has been increased to $8,000 or $ 16,000 dependent on the number of children.
6. Changes to the tax law as well as IRS having increased the need for more technology.
7. Venmo and PayPal, used last year, will be forms of payment for tax prep, as well as checks or cash. (My Venmo Id is 5184216204 and my PayPal Id is bob@picarillotax.com) .
8. Electronic signatures will be utilized to inform you of preparation results and IRS signing.
9. A Power of Attorney form will be required of all clients. This will help in the resolution of any disagreement or in matters of obtaining tax transcripts.
10. Educator credit remains at $250.
11. College Tuition credit is discontinued.  However, there is still the American Opportunity Credit and the Lifetime Learning Credits that you can use.
12. Refundable tax credits of up to $1,500 for volunteer medical responders, firefighters and ambulance drivers in good standing is pending.
13. Meal deduction expense taken by businesses has been increased from 50% to 100%, if in a restaurant.
14. Bunching itemized deductions is now an approved method. This is claiming the standard deduction in one year and in the next year claiming the itemized deductions for prior year and current year.
15. Standard filing deductions for Married, Single and Head of Households has increased.
16. Standard mileage deduction has decreased to 56 cents per mile.
17. Beware of scams. IRS has reported on a number of scam attempts.
18. If you sell your personal residence and have owned it more than 2 years, you could be entitled to up to $500,000 deferral in capital gains.
19. Business owners need to be aware that the IRS has stepped up their review of classifying employee vs a 1099 contractor.
20. DOCUMENTATION, documentation documentation ?  IRS audits look for documentation for validating expenses.  Just a credit card statement will NOT hold up, you need the receipts.
21. Gift tax exclusions are $ 15,000 per person, per year.  An exception is called Joint Gift Splitting were a husband and a wife could each gift a person $ 15,000.
22. To take a deduction for business miles you need to maintain a mileage record in detail.
23. If you are 70 ? years old and have retirement investments you are required to withdrawal a portion before the end of the tax year. Check with your investors.  (RMD)
24. Minister love offerings are taxable. Gifts are non-taxable.
25. Economic (stimulas) payments are non-taxable.