Member of Russell Bedford International, a global network of independent professional service firms.
Member of Russell Bedford International, a global network of independent professional service firms.
A federal tax credit for the purchase and installation costs of a residential solar system has been extended through 2023. The solar tax credit for 2021 and 2022 is 26% of the cost of the solar installation but drops to 22% for 2023, the final year of the credit (unless extended again by Congress).
When you see TV ads for home solar power, you may get the impression that Uncle Sam is going to pick up 26% of the cost, and you only have to come up with the other 74%. But that is not the whole picture. It’s true that the federal government has a 26% tax credit for the cost of a qualified solar installation (some states also have solar credits or other incentives). However, the federal credit is non-refundable and can only be used to offset your current tax liability. Any excess carries over to future years, as long as the credit still applies in future years. Currently, the credit is allowed through 2023. This means that you may not get all the credit in the first year, as you might have been led to believe.
Consider this example: In 2021, your solar installation costs $25,000. That would qualify you for a solar tax credit of $6,500. But suppose the income tax on your tax return is only $4,000. The credit would reduce your tax liability to zero, and the other $2,500 ($6,500 – $4,000) of the credit is carried over to 2022’s tax return, where the credit will be limited to that year’s tax amount. If your tax is again less than the amount of the credit, the excess credit carries to the following year, and so on, until the credit is used up or expires.
Compare the cost of the system (and the interest you will be paying, if you are financing it) to conventional electricity costs. How many years will it take to recover your cost? Do you plan to live in your home beyond that time? Is a solar system really worth the cost? Electricity costs can vary significantly according to locale.
Even if not financially beneficial, there are situations in which the cost may not be the deciding factor. Some areas experience frequent power outages, you may simply want to go green, or you may want to go off the grid where electric service is not reliable.
If you plan to move forward with a solar installation, here are some of the tax issues you need to be aware of.
Only the following solar power systems are eligible for the credit:
The credit may be claimed on the tax return of the year during which the installation is completed. For example, if you purchase and pay for a system completed in 2022, the credit will be 26% of the cost. But if the project isn’t completed until 2023, the credit will only be 22%. This becomes an even a bigger issue for systems installed during 2023 that aren’t completed before 2024, when the credit rate will be zero. So, if you plan to purchase a solar system in 2023, the purchase should be made early enough in the year to ensure the installation is completed before 2024.
There is a lot to consider before making the final decision to install a solar system. Is it worth it? Is it the right financial move for you? Please call Cray Kaiser at (630) 953-4900 before signing any contract to make sure a solar system is appropriate for you.
Please note that this blog is based on tax laws effective in March 2021 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
As if this past year has not been stressful enough, the Office of the Inspector General for the Department of Labor has just announced that at least $36 billion, and possibly as much as $63 billion, has been lost to unemployment fraud. In many cases the improper payments are a result of fraudsters who spent the earliest months of the pandemic filing unemployment claims using stolen personal data. What this means is that millions of unsuspecting Americans are about to receive federal forms reporting unemployment benefits that they never received. Not only does this leave them potentially vulnerable to identify theft issues, but in the short term it also means that the federal government may be expecting them to pay income taxes for money somebody else received.
If your identity was stolen, you’ll receive a form known as the 1099-G from the federal government, which treats certain unemployment benefits as taxable income.
There is a solution if you are sent a 1099-G for unemployment benefits that you did not receive. Though it represents a bit of work, the IRS has indicated that it is aware of the problem and is working hard to help. They say that recipients of an incorrect 1099-G need to contact their state’s unemployment agency and ask them to send a corrected, revised form that will reflect the correct amount received. Though this may be difficult if you live in a state where the unemployment agency’s response rate has been slowed by the pandemic, some states have established hotlines dedicated to addressing this specific issue and have increased the number of support staff available to help. Much of this increase in attention is the result of guidance that the IRS issued to states at the end of 2020, notifying them of the identity fraud issue.
If you aren’t able to get a revised form by the tax filing deadline, the IRS indicates that you should simply file a return that accurately reflects the amount that you received. Be sure to discuss with your tax advisor about how they can best document your issue.
It’s completely natural to feel a bit panicked if you receive one of these forms erroneously, but the IRS has said that there is no need to file an Identity Theft Affidavit that is specific to the IRS. The agency says that those affidavits are specifically for taxpayers whose e-filed tax return is rejected as a result of a duplication of the use of their Social Security number for a tax filing. Still, if you are concerned and want to take additional steps to protect your identity then you can ask for an Identity Protection PIN when you file your income taxes. Having this unique number will help keep anybody else from being able to use your Social Security number to file a fraudulent tax return.
Beyond that, you can take the following steps to protect yourself against the impact of unemployment fraud and identity theft:
If you have been a victim of unemployment fraud and received a 1099-G, contact Cray Kaiser immediately. We’re here to help.
Please note that this blog is based on tax laws effective in March 2021 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
The first quarter of 2021 has been one for the record books with legislation enacted to strengthen our economy through continued pandemic funding and taxpayer relief. To put it simply – The Consolidated Appropriations Act of 2021 (Con App)and the American Rescue Plan Act (ARPA) have transformed the playing field. Through the Con App, taxpayers can now qualify for both Paycheck Protection Program (PPP) loans and Employee Retention Credits (ERC) simultaneously, as long as the specific payroll costs are used only once. In other words, you cannot use an employee’s wages to claim both an ERC credit and PPP loan forgiveness for the same day of pay. As the first quarter of 2021 comes to an end, employers will have substantial planning and strategizing to do in order to maximize the benefits offered by both the ERC and PPP loans.
You can revisit the basics of the ERC by reading our past blog here. Below we will review the additional guidance we now have on the interplay of the ERC and PPP loans.
As a result of the ARPA, the 2021 ERC has been extended and will currently end on September 30, 2021. The amount of the credit is based upon eligible payroll costs for each employee, up to $10,000 on a quarter-by-quarter basis at 70%. Therefore, the maximum credit is 70% of eligible payroll costs, or $7,000 per employee, per quarter. In 2020, the credit was based upon annual payroll costs at 50%, or a maximum credit per employee, per year of $5,000.
What are payroll costs? The guidance clearly indicates that payroll costs are not limited to wages paid. In addition to wages paid, qualified health expenses are eligible for the ERC. Qualified health expenses generally include both employer and employee pretax payments for insurance under a qualified health plan. The formula for determining qualified expenses is dependent on the number of employees an employer has.
In 2021, the ease of qualifying for the ERC has lessened. You can now be eligible with a 20% decline in gross receipts measured on a comparable quarterly basis. For example, a decrease of 20% or more in quarterly gross receipts for the quarter ending March 31, 2021 in comparison to March 31, 2019 would make you eligible. There is also a safe harbor that allows you to use the previous quarter such as the quarter ended December 31, 2020 in comparison to December 31, 2019. For the safe harbor, you would need to show a 20% decline in gross receipts in the comparable quarters.
Note that you can also qualify for the ERC in 2021 if you had a government order for a full or partial shutdown of your business.
The ERC is claimed on federal payroll tax returns (Form 941) based upon the quarter the payroll costs were paid. As many organizations use third-party payroll providers in preparing and submitting payroll returns, it is extremely important to communicate with these providers on how to implement the ERC once you determine that you are eligible. These payroll providers will need information from you on the wages that you will be using for the ERC. In some instances, you will need to set up pay codes for the ERC and these pay codes will be used by the provider to prepare and report the credit on Form 941. The credit can also be claimed through an amended Form 941; however, this would include additional costs and the credit would be delayed to you.
While we have discussed the ERC at length, the PPP loan forgiveness still provides a greater benefit to most taxpayers. As such, employers should be focused on applying payroll costs first to PPP loan forgiveness. From there, you will want to provide the payroll provider with the payroll costs you will use the ERC for. But beware – any wages that will be claimed under a loan forgiveness application for PPP and used for the ERC may result in denial of a portion of your loan forgiveness. In some instances, it may be beneficial to delay claiming the ERC on your payroll tax filings and later amend the filings so you can appropriately determine the payroll costs used for the ERC vs. the PPP loan. Although this may result in additional costs and time, the benefits of leveraging both the ERC and PPP will outweigh these costs.
Here are some considerations to keep in mind as you apply for the ERC:
ERC Implementation without PPP Loan Funding
ERC Implementation with PPP Loan Funding
For further guidance on how to apply for the Employee Retention Credit or assistance with allocating payroll costs to maximize your PPP loan forgiveness and applicability for the ERC, contact Cray Kaiser today.
Please note that this blog is based on tax laws effective in March 2021, and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
Wondering how to implement the Employee Retention Credit in QuickBooks Online? As a subscriber to the QuickBooks Online (QBO) Payroll community, our Accounting Services team prepared the guidance below to assist you in implementing the Employer Retention Credit (ERC) in your payroll software. As you may have heard, the ERC is claimed on federal payroll tax returns (Form 941) based upon the quarter the payroll costs were paid. With this in mind, organizations who use third-party payroll providers, such as QBO, in preparing and submitting the payroll returns will need to take steps to implement this credit once they determine their eligibility. This includes setting up your payroll to accept and track the credit in “real time”.
Before we get into the details behind the implementation, we would like to highlight some underlying issues:
Another issue to consider is how the ERC will impact other relief programs such as the Paycheck Protection Program (PPP) loans. Remember, you cannot use the same payroll for both the ERC and PPP loans. If you did not receive PPP loan round 2, then this is not an issue. However, if you did receive PPP loan round 2 and you do not have a proper plan in place to utilize payroll costs, you may be inclined to start coding all wages as “ERC”. But beware – this may affect your ability to receive loan forgiveness on the PPP loan. In this situation, you may want to consider holding off the ERC implementation in QBO until a plan is put in place to maximize both the ERC and PPP loan funding and opt to file amended returns at a later date, instead.
Filing amended returns in QBO is different depending on your subscription.
For Elite and Premium Subscriptions:
For Core and Enhanced Subscriptions:
Step 1: Set Up Your Employees with the Pay Types
Step 2: Run Your Payroll Using the Pay Types
Lastly, you should be prepared to manually calculate your credits to verify the computation generated within the software. Please look for further guidance from us to assist you in this process. For more information on the ERC please contact Cray Kaiser today.
Please note that this blog is based on tax laws effective in March 2021, and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
Over the past few weeks there have been several legislative updates impacting the Economic Injury Disaster Loan (EIDL) program and the Paycheck Protection Program (PPP) loans. Below is a summary of the most important changes, and we encourage you to call us at 630-953-4900 with any immediate questions.
The U.S. Small Business Administration (SBA) recently announced a major update to the COVID-19 EIDL program. As of the week of April 6, 2021, the maximum loan amount for COVID-19 EIDLs will increase to $500,000.
Under the CARES Act, the EIDL program was expanded to cover eligible businesses experiencing substantial economic injury resulting from the pandemic. The act also relaxed a number of traditional EIDL loan stipulations, making COVID-19 EIDL loans more readily available.
This latest update from the SBA drastically expands both the maximum loan limit and the period of economic injury that they cover. Previously, the limit for COVID-19 EIDL loans was a maximum of $150,000 covering six months of economic injury. As of the week of April 6, 2021, the maximum loan amount will increase to $500,000 and extend to cover up to 24 months of economic injury.
Loan applicants whose loans are already in process at the time of the EIDL expansion will automatically be considered for the new maximum limits. Additionally, current COVID-19 EIDL loan recipients will be able to request a loan increase. Borrowers should visit the SBA website for further guidance.
The U.S. Senate approved the PPP Extension Act of 2021 on March 25 and the bill was sent to President Biden for his signature. This legislation extends the time for borrowers to apply for a PPP loan until May 31, 2021. No additional funding was provided through the legislation, but it extended the time to submit an application for either PPP round 1 or round 2. Borrowers should consult with their bank on the process and procedures in applying for these loans.
If you’d like to further discuss how the legislative changes to the EIDL program and the PPP loans impact you, please contact Cray Kaiser today. We’re here to help!
Please note that this blog is based on tax laws effective in March 2021, and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
Most taxpayers think they have to itemize their deductions to claim them on their tax return. However, that is not entirely true! There are certain deductions that can be claimed while still using the standard deduction. Here is a list of those tax deductions you can take without itemizing:
For 2020, non-itemizers can deduct up to $300 of cash contributions above-the-line. The $300 limits apply both to single and married taxpayers. Donations to donor-advised funds and private foundations aren’t eligible for the above-the-line deduction (2020 and 2021). The term “above-the-line” is a shorthand way of saying that the deduction reduces gross income when figuring adjusted gross income (AGI).
For 2021, non-itemizers filing a joint return can deduct up to $600 of cash contributions, while taxpayers using the other filing statuses continue to be limited to $300. Unlike the 2020 version of this deduction, which is an above-the-line deduction, the 2021 deduction is claimed after the AGI is determined.
A qualified educator can annually deduct above-the-line to a maximum of $250 of qualified unreimbursed classroom expenses. These expenses include:
Note that a qualified educator is generally considered a kindergarten through grade 12 teacher, instructor, counselor, principal or aide and works in a school at least 900 hours during the school year.
Contributions to Health Savings Accounts (HSA) are also an above-the-line deduction. HSAs can only be established by eligible individuals who are covered by high-deductible health plans and generally not covered under any other health plan. There are statutory limits to the amounts that can be contributed to an HSA. Subject to statutory limits, eligible individuals may make tax deductible contributions to HSAs, and employers as well as other persons (e.g., family members) may contribute on behalf of eligible individuals. Since an employer’s contributions to an employee’s HSA are excludable from the employee’s income, the employee can’t also claim a deduction for those contributions.
Amounts in HSAs accumulate tax-free, and distributions are tax-free if used to pay for or reimburse qualified medical expenses. Some individuals use HSAs as supplemental retirement plans when they are maxed out on other available tax beneficial retirement plans.
A taxpayer can deduct up to $2,500 above-the-line of interest paid by the taxpayer on a student loan on behalf of the taxpayer, spouse or dependents. The deduction is phased out for higher-income taxpayers.
This above-the-line deduction is allowed for qualified tuition and related expenses only to the extent the expenses are in connection with enrollment at an institution of higher education during that tax year. The expenses are limited to $2,000 or $4,000, depending upon the taxpayer’s AGI. The same expenses can’t be used for this deduction and the American Opportunity Credit or the Lifetime Learning Credit, and 2020 is the last year for this deduction.
A self-employed taxpayer can deduct one-half of the self-employment tax computed on Schedule SE for the year.
A self-employed individual (or a partner or a more-than-2%-shareholder of an S corporation) may be able to deduct 100% of the amount paid during the tax year for medical insurance on behalf of themselves, their spouse and dependents as an above-the-line expense. The deduction is limited to the amount of the individual’s net SE income. Additionally, the individual, spouse or dependent cannot participate in an employer subsidized health plan.
For divorce or separation instruments entered into before 2019 that haven’t been modified to include the tax law change effective for post-2018 instruments, an individual may be able to claim an above-the-line deduction for alimony payments made during the year, if certain requirements are met. Effective for divorce or separation instruments entered into after December 31, 2018, alimony payments aren’t deductible by the payer and aren’t taxable to the recipient.
As part of the 2018 tax reform, certain businesses are allowed a deduction that is generally equal to 20% of their qualified business income (QBI). This deduction is most commonly known as a pass-through income deduction because it applies where the business income passes through to the individual’s, partner’s, or stockholder’s 1040 income tax return. While not an above-the-line deduction because it doesn’t reduce gross income, this pass-through deduction, like the standard and itemized deductions, is subtracted from AGI to figure taxable income.
Contributions to traditional IRAs, self-employed SEPs, SIMPLEs, and other qualified retirement plans are above-the-line deductions. However, the deduction for some of these contributions for an employee won’t appear as a line item on the tax return because the tax benefit has already been applied by reducing their taxable wages. The most common example of this treatment is 401(k) plan contributions in which the employee designates a percentage of their wage that is contributed to the plan and their gross wages are reduced by the contribution amount, leaving the balance of the wages as taxable.
If you have questions about tax deductions you can take without itemizing or how any of these deductions might apply to your tax return, please contact Cray Kaiser today. We’re here to help!
Please note that this blog is based on tax laws effective in March 2021, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
The Internal Revenue Service announced on March 17 that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021. The IRS will be providing formal guidance in the coming days. Here’s what the extended tax deadline for individuals may mean for you:
The postponement applies to individual taxpayers filing their 2020 income tax return. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021.
Individuals with estimated tax requirements do not have an extension on the first quarter 2021 estimated tax payment date. These payments are still due on April 15. We expect that individuals who usually file an extension with a payment that is specifically meant to cover the first quarter estimated tax payment will need to send two payments – the first quarterly payment on April 15, and the extension payment on May 15. If the IRS specifies otherwise, we will let you know.
The announcement did not indicate that calendar year estate/trust income tax filings received an extension of time to file. Estates/trusts appear to have the same April 15 due date.
The announcement did not indicate that calendar year C corporation tax filings received an extension of time to file. C corporations appear to have the same April 15 due date.
As the guidance seems geared specifically to individual 2020 tax returns, we do not expect that other tax filings will be extended from April 15, 2021, to May 17, 2021.
As the IRS extended the individual tax deadline, states have begun to react.
Notably, on March 18, Illinois announced that the 2020 individual income tax deadline was similarly extended from April 15, 2021, to May 17, 2021. The extension only applies to the 2020 individual income tax return; it does not apply to individual tax estimates, corporations, or estate/trust tax returns, which remain due on April 15, 2021.
Earlier this year, the IRS announced relief for victims of the February winter storms in Texas, Oklahoma and Louisiana. These states have until June 15, 2021, to file various individual and business tax returns and make tax payments. The extension to May 17 does not affect the June 15 deadline.
In short, the extended tax deadline for individuals seems to have limited application, especially for those individuals with estimated tax requirements. At Cray Kaiser, we continue to push ahead with tax season accordingly. If you have questions on how the extension may affect you, please contact us today at 630-953-4900.
Please note that this blog is based on tax laws effective in March 2021, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
Owning and operating a small business can be both exciting and stressful. When it comes to financial statements, there is a lot of information at your disposal, so much so that you can easily suffer from “analysis paralysis” if you don’t understand what your financial metrics are trying to tell you or how they can be used to implement change.
In today’s fast-paced world, it is incredibly important to not only have timely financial information to make management decisions, but to also have relevant financial information. Knowing which numbers are most important to your business, the financial ratios applicable and beneficial to your business, and how to interpret that data to make well-timed and impactful decisions is vital to your success. Below we detail 10 of the most important financial metrics and how to leverage them.
Nobody understands your business like you; however, it’s equally important to understand your industry. Are you staying up to date on issues, technology, regulations, etc. that impact your industry? If not, look into industry publications that have this information readily available. There are also numerous online resources for industry financial data and benchmarks, which is valuable in comparing the metrics discussed in this blog to your peers. For example, your business may have a quick ratio (see #6) of 1.00, which is technically considered “acceptable”. However, your peers may have a quick ratio of 1.20 which may be indicative that you have some adjustments to make.
Cash flow is the most telling metric of all since cash is the lifeblood of any company. This financial metric demonstrates your cash inflows and outflows and helps identify any potential issues in your business. If you’re not keeping an eye on your cash flow you could find yourself caught by surprise when it comes to collection issues or making essential payments to vendors or paying off debt.
This metric is the number of times your receivables have turned over, or collected, for a given period. The higher the number, the more times the receivables have been converted to cash during that period. Conversely, the lower the number, the less frequently accounts receivable is being collected and may suggest collection issues. As many businesses fluctuate during the year due to business seasonality, it is often best to compute this metric using average receivable balances rather than using a “snapshot” balance, which can produce misleading results.
Similar to sales to receivables, day’s receivables express the average number of days that receivables are outstanding. The greater the number of days, the greater the probability of delinquencies in accounts receivable as this represents how quickly your sales are converted to cash from the date of the sale to when it hits your bank account.
The aging schedule within your accounting software is a standard report. This information is compiled and calculated based on the dates in which your sales/receivables are entered into the system and lays out the aging of your customer receivables in “buckets”. Typically, these buckets are “Current”, “31-60 days”, “61-90 days” and “90+ days”. This metric helps you identify not only potential collection issues, but the customer or balance that is delinquent. Further, it can also help you determine if there are any errors in your accounts receivable balance. For example, does it make sense that your customer is paying their current receivables but not the balance that is 91+ days outstanding? It might be an invoice that was overlooked or an accounting error.
Current ratio and quick ratio are listed together because they both show your business’ ability to service its current obligations. The difference is that the current ratio considers all current assets and the quick ratio only utilizes the business’ most liquid current assets, such as cash and accounts receivable. You want both ratios to be greater than 1.00.
Have you created a budget and then compared it to your actual activity? Budgets should be created based on experiences and trends, as well as any known future occurrences (i.e. planned asset acquisitions or annual pay raises). If you compare what you’ve budgeted to what you’ve actually spent, it will give you a far better sense of whether you’re staying on track and what kind of adjustments you need to make.
No matter how well you are doing, there is always a chance that you will encounter an unforeseen circumstance that will drive the need to cut costs. The best way to prepare for this is to take a close look at your fixed charges and compare them to your Earnings Before Interest, Taxes, and Depreciation – known as EBITDA. This ratio shows how many times your company’s earnings can cover its fixed expenses such as leases, rent, debt, etc. This is extremely valuable in assessing whether you may be overextended, or it can help determine if any loan, lease, or contract that you sign may overextend your business. Furthermore, banks will often calculate this ratio when determining whether to lend you money.
This is similar to the fixed charge coverage, with the difference being that debt obligations are assessed with the business’ net operating income rather than EBITDA. If this ratio is greater than 1.00, the business is well equipped with profits to cover debt payments. If the coverage ratio is less than 1.00, the business has not generated sufficient income to cover its debt obligations. This ratio is particularly important because banks will often require this to be at a certain level, which may be greater than 1.00, as a condition of their loan. Expect your lender to monitor this ratio on an ongoing basis during the terms of the loan.
It’s important to know and understand your working capital not only from a financial standpoint, but also from a regulatory or compliance standpoint. Working capital assesses your business’ ability to pay its current liabilities with its current assets, which gives you an indication of your business’ short-term health. Depending on your industry, you may be required to keep a minimum working capital amount or follow any covenants outlined in your business’ loan agreement. In addition, it can also help you determine if you have too much cash on hand and/or if you’re not effectively putting your cash to work by re-investing in the business to facilitate growth (i.e. with asset acquisitions, technology upgrades, or other capital expenditures). For example, if you have approximately $1 million in current assets but only $100,000 in short-term liabilities (including short-term debt), you may have approximately $900,000 that you can re-invest in your business.
Each of these financial metrics are extremely beneficial in helping you understand the performance of your business. However, this list is not comprehensive; there are many more metrics that are vital to understand.
All businesses are different and operate in different industries and often have different objectives and external influences. If you would like to discuss these financial metrics or how Cray Kaiser can help you, please contact us today.
On March 11, President Biden signed the American Rescue Plan Act (ARPA). Below are the highlights of the ARPA. If you have any questions about how these provisions impact you, please contact us today.
Another round of economic impact payments (also known as stimulus checks) for people who meet certain income eligibility requirements is provided under the ARPA. Single taxpayers who earn less than $75,000 will receive $1,400 and married taxpayers filing jointly who earn less than $150,000 will receive $2,800. The payments phase out at an adjusted gross income of $80,000 for single filers and $160,000 for joint filers. The bill also includes a $1,400 payment per dependent. Payment amounts will be determined using 2020 tax returns, if already processed by the IRS, or 2019 returns.
Like rounds one and two of the stimulus payments, if a taxpayer receives more of a payment than they are entitled to based on their tax filing, the excess is not required to be repaid.
The ARPA makes the first $10,200 of unemployment insurance benefits for households with incomes at or below $150,000 non-taxable. Interestingly, the income limit applies regardless of filing status – the same limit applies for single taxpayers and married filing jointly taxpayers. For those taxpayers that have already filed their 2020 tax returns, it is unclear if the IRS will require amended returns or will have an internal mechanism to correct already filed returns. If you have not already filed your tax return and would qualify for this benefit, we recommend not filing until tax forms for 2020 have been updated.
Additionally, the bill renews federal unemployment benefits at a lower level—$300 per month—through September 6, 2021.
The existing child tax credit is greatly enhanced under the ARPA. These changes include:
Clearly, the ARPA is favoring those taxpayers with children; the credit prior to the ARPA was a maximum of $2,000 per child. The increased credit amounts phase out at certain income levels ($75,000 for singles, $150,000 for married couples filing jointly, and $112,500 for heads of household).
To distribute the monthly estimated child tax credit payments, the IRS will create an online portal where taxpayers can both opt out of advance payments and provide information that modifies the amount of their payments.
The ARPA again favors taxpayers with children in that the credit for working parents is expanded and will be refundable in 2021. Under the old law, income at much lower levels reduced the credit to 20% of the maximum paid ($3,000 for one child, $6,000 for two or more children). For 2021, the maximum credit is 50%, and does not phase out unless taxpayers have more than $125,000 of adjusted gross income. Taxpayers with higher incomes will still be eligible for a 20% credit. The maximum amounts eligible for credit are increased to $8,000 for one child and $16,000 for two or more children.
It is important to note that this credit is only available to those taxpayers with earned income (a married couple would need to show earned income for both husband and wife).
The ARPA increases the exclusion for employer-provided dependent care assistance for 2021 to $10,500. Employees with existing elections to exclude dependent care assistance from their wages should check with their payroll department if they choose to change their election.
The American Rescue Plan Act demonstrates that the government is continuing to provide support through tax and other incentives during the COVID-19 pandemic. At Cray Kaiser we are committed to educating our clients and friends as changes continue to occur at a rapid pace. If you’d like to discuss how any of the ARPA changes may affect you, please call us at (630) 953-4900.
Please note that this blog is based on tax laws effective in March 2021, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
Many taxpayers rent out their first or second homes without considering tax consequences. Even if you rent out your property using rental agents or online rental services that match property owners with prospective renters (i.e. Airbnb, VRBO, HomeAway), it is still your responsibility to properly report the rental income and expenses on your tax return. You should be aware of some special tax rules for renting your home that probably apply to you.
When a property is rented for fewer than 15 days during the tax year, the rental income is not reportable, and the expenses associated with that rental are not deductible. Interest and property taxes are not prorated, and the full amounts of the qualified mortgage interest and property taxes are reported as itemized deductions (as usual) on the taxpayer’s Schedule A.
Rentals are generally passive activities, which means that losses from these activities are generally only deductible up to the amount of gains from other passive activities. However, an activity is not treated as a rental if either of these statements applies:
If the activity is not treated as a rental, then it will be treated as a trade or business, and the income and expenses, including prorated mortgage interest and real property taxes, will be reported on Schedule C.
If the personal services provided are similar to those that generally are provided in connection with long-term rentals of high-grade commercial or residential real property (such as public area cleaning and trash collection), and if the rental also includes maid and linen services that cost less than 10% of the rental fee, then the personal services are neither significant nor extraordinary for the purposes of the 30-day rule.
The tax rules for renting your home can be complicated. Please call Cray Kaiser at 630-953-4900 to determine how they apply to your particular circumstances and what actions you can take to minimize tax liability and tax maximize benefits from your rental activities.
Please note that this blog is based on tax laws effective in December 2020, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
