The American Rescue Plan modifies the child tax credit for 2021 and 2022. The fully refundable credit has been increased to $3,000 for children ages 6-17 and $3,600 for children under age 6. The credit applies for children who turn 17 in 2021 (the previous credit did not).
Follow the link to irs.gov for detailed information soon to be released regarding the advance payment of the credit in monthly payments and options for opting out of advance payments as well as info on how to update your info with the IRS.
The Covid-19 stimulus bill anticipated to be signed into law on or about Dec 22, 2020 includes several notable tax changes:
An "above the line" deduction for charitable deductions has been extended to 2021. For 2020 the deduction is limited to $300 per return. For 2021 the deduction is limited to $300 for a single filer and $600 for a joint filer. (You do not have to itemize other deductions in order to claim this adjustment.) Like all charitable deductions, receipts are required.
A new EITC lookback provision will provide potential benefit to taxpayers who received the EITC in 2019 but find their 2020 earned income is reduced and their normal EITC for 2020 drops accordingly. This provision may restore the EITC to the previous level in many cases.
Small businesses that received loans in the first round of stimulus relief will be able to deduct the expenses paid with the loan proceeds. Loan proceeds, once forgiven, are considered a nontaxable grant. This information is general in nature - each taxpayer should confirm eligibility for these potential tax benefits with their CPA or Enrolled Agent.
The standard deduction amounts have been increased. Most taxpayers will no longer itemize their deductions on Schedule A due to these increased amounts.
Employee business expenses are no longer deductible on the federal return.
The personal exemption has been eliminated.
The child tax credit has been changed. There is also a new credit for certain other dependents.
Forms 1040EZ and 1040A have been eliminated and replaced with a new form 1040SR.
Tax rates have been reduced.
Minnesota has conformed to most federal tax changes effective with the 2019 tax year.
Changes pertaining to the most recent tax legislation may not apply to the MN or WI returns.
Health Savings Accounts are now an integral part of a tax efficient health care program. If you don't have an "HSA", you need to find out if you qualify and if so, contribute at least $1 to the account to "start the clock".
Roth IRA accounts aren't new but are still underutilized. Everyone who is eligible should have a ROTH IRA and contribute something to it. Workers and retirees (with existing IRA accounts) are usually eligible to contribute to or convert a small part of their traditional IRA to the Roth.
Popular tax breaks like the educator adjustment, tuition and fees deduction, and exclusion for mortgage debt forgiveness have been extended or made permanent.
"Able" Accounts are now available and work like the popular 529 plans for college savings. Able accounts allow family members to contribute to a tax free account on behalf of a disabled family member for the purpose of assisting that individual with living expenses.
Minnesota has introduced a reading credit. If you pay for private reading lessons or incur other qualified expenses, you may be eligible for the state reading credit.
States are aggressively enforcing their requirements regarding income tax and sales and use tax. If you work in a state other than your home state, be sure to discuss the details with us so we can advise you accordingly. If you buy goods (including cigarettes) on the internet and do not pay sales tax at the time of purchase, you may owe use tax to your home state. Minnesota has a $770 exemption for individuals. Wisconsin does not have an exemption amount.
Small employers may be subject to a $100 per day per employee fine for reimbursing their employees for health insurance premiums. Small employers without a qualified plan in place should never reimburse employees for health insurance premiums or medical expenses.
The best way to keep the IRS (and State) at bay is to learn the rules and follow them. Once a problem develops, it is more difficult and time consuming than ever to clear up due to budget cutbacks at the IRS.
Please let me know if you have specific questions that I can answer regarding these changes or other aspects of the tax law that impact your situation.
"Anyone who isn't confused doesn't really understand the situation." --Edward R. Murrow (1908-1965, American Journalist
43% of Americans pay no income tax.
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