Tax Changes and Documents to Keep an Eye On
Stimulus and Child Care Reporting
If you got a stimulus check in March 2021 you should have gotten a copy of IRS notice 1444-C at that time. You will need to reconcile your stimulus check on your 2021 tax return.
Then later in 2021, Congress decided the IRS should start sending out the Child Tax Credit on a monthly basis rather than wait until you file your taxes. This will be an eye-opener for those who always got refunds because they had a child tax credit at year-end and don’t realize they already received most of that money in their monthly check.
The IRS has announced they will send letter 6419 in January 2022 reporting what they have paid so you can reconcile this on your tax return. This is an important tax document and should be kept with your W-2 etc. to use when filing your 2021 tax return.
1099 Filing Requirements
For those who file 1099s, the IRS requires you to eFile them if you file over 250 1099s. That drops to 100 1099s for 2021 and 10 returns for 2022. With eFiled 1099s, they can immediately match them to individual income tax returns whereas with paper-filed returns they have to manually key them in before they can match to tax return income.
If you just decide not to file 1099s, the penalty is now $280 per 1099 or W-2 not filed. IRS is getting serious about trying to make sure all income is reported and they want the business owner to give them the payments to match up. Keep in mind the statute of limitations never starts to run on a return you never filed so IRS can come back on unfiled 1099s as far as they want.
If you do file returns, how long do you need to keep payroll tax records?
The latest information says to maintain the supporting documents for four years after the due date for filing or the actual filing date if the returns were filed late. We suggest you keep the bills supporting your income tax returns for at least 6 years since the IRS can audit back that far if they think you have underreported 20% of your tax.
Daycare Deductions Went Up
You can now get a dependent care credit of 50% of the first $8,000 spent if you have one kid and up to $16,000 for two or more kids. They also expanded the definition of who qualifies to include spouse or other person you care for who isn’t able to care for themselves.
For those who pay their dependent care expense through a cafeteria plan/flexible spending plan at work can now put in up to $10,500 of pretax wages to pay daycare.
For 2021, the charity deduction for those who do not itemize increased from $300 in total to $300 per taxpayer ($600 on a joint return).
The deduction for business meals increases from 50% to 100% for 2021 and 2022.
Mortgage Insurance Premiums
The deduction for mortgage premium insurance is extended through 12/31/2021.
Work Opportunity Tax Credit
The work opportunity tax credit for hiring those from certain disadvantaged groups is extended through 12/31/2025.
Teacher Supplies Deduction Expanded
Teachers can include the cost of masks and personal protective equipment in their $250 teaching supplies deduction.
Inflation Is Your Friend At Tax Time
The IRS just released the new inflation-adjusted rates and deductions for taxes. For 2022 a married couple pays no tax until their income exceeds $25,900 which is up from $25,100 in 2021.
Article written by
Bert Doerhoff, CPA
Doerhoff & Associates CPA