When it comes to finances and accounting, the past few years has been pretty wild! Because some of the provisions in the CARES Act in 2020, are expiring, there can be a lot of confusion on what is and is not taxable for 2021. Amy Raven from Sorge CPA discusses some of the common things to be aware of as we wind down 2021 and prepare for end of year.
One of the biggest things to pay attention to is the Child Tax Credit. You need to be aware of how much you received as advanced payment for this credit because it’ll be necessary in reconciling exactly how much you should receive for the credit, how much you did receive, and how much you may owe back. There are some reasons to opt out of this child tax credit so be sure to speak with your CPA. Also, if your income changed during the year or increased, that could affect how much you were owed, leading to a possibility that you may owe that money back to the IRS. Many people who either changed jobs or returned to work should be aware of how their income could affect that.
Charitable donation deductions are a big topic this year. Cash donations of up to $600 are now allowed for 2021 for married filing joint taxpayers. Keep in mind, these donations must be in cash for the above-the-line deduction, so clothing donation to Goodwill does not count, for example.
For 2021, you can contribute up to 100% of your Adjusted Gross Income (AGI) vs. up 60% prior. To qualify, it would need to be a cash contribution, and made to a qualifying organization. Taxpayers can still contribute non-cash items (furniture, clothing, housewares, textiles, etc.) but those contributions are generally capped at 50% of your Adjusted Gross Income.
Required Minimum Distributions (RMD) are back for 2021. For 2020, those RMD’s were suspended for individuals who turned 70 ½ in 2019 and took RMD in 2020. Anyone age 72 or older as of December 31, 2021 must take their RMD by year end.
Moonlighting has become popular during the pandemic. While some deductions may be obvious, others may not. Be sure to talk with your CPA about deducting business miles. This is an often-overlooked deduction and important to discuss with your accountant to see if you can claim those miles.
With the increase of people working from home, there are many questions about what they can deduct and what they cannot. In general, if you are an employee of a company, you have very few, if any, deductions for working from home. In addition, receiving a stipend from your employer for an office, or equipment, may be considered income you weren’t aware of. If you have a side business or full time solo business, there are opportunities to claim home office deductions including internet, computer, business miles, etc., but depends on the individual’s situation.
One of the biggest recommendations is to always be in communication with your Accountant and your Financial Advisor on a regular and consistent basis. Whether you have questions, or need clarification on something, or just to update them on any household changes, it can have a big effect on your taxes. Ideally, your Accountant and your Financial Advisor should be in communication together to be sure they put you in the best financial position possible. 2021 is not over yet, and there are still possible changes that could occur, which make it even more important.
Amy Raven
Managing Partner
Phone: (608) 270-8918 Email: amy@sorgecpa.com
Amy brought her abilities to Sorge CPA in 2006, and became a shareholder-owner of the firm in 2012. She provides an array of accounting, consulting and business advisory services to our clients including outsourced accounting and financial management services, interim CFO services, assessment of financial operations and processes for effectiveness and efficiency, and review of internal controls. Her areas of specialized knowledge include small business development and advisory, Subchapter S Corporation conversion advisory, corporate and partnership taxation, and individual taxation. Her role at Sorge CPA frequently has her meeting with business clients to discuss key performance indicators, financial results, improving financial performance, budgets and financial projections, and tax planning.