Parental Custody & Tax Credits: What You Need to Know

Parental Custody & Tax Credits: What You Need to Know

Do you have a legal agreement with your child’s other parent about who claims the child on their taxes? If so, you may have some questions about how to handle the Child Tax Credit and the 2021 Recovery Rebate Credit when filing your tax return.

Economic Impact Payments and the Recovery Rebate Credit

The third Economic Impact Payment (EIP) was an advance payment of the 2021 Recovery Rebate Credit. The IRS used your 2020 or 2019 tax information to determine eligibility and amounts. Here’s what that means for you:

  • If you did NOT receive a third-round EIP for a child you will be claiming on your tax return, you can claim the Recovery Rebate Credit, regardless of any EIP the other parent received.
  • If you DID receive a third-round EIP for a child you will NOT be claiming on your tax return, you are NOT required to pay back the EIP if, based on the information reported on your 2021 tax return, you should have received less.

Child Tax Credit

The IRS determined who received 2021 Advance Child Tax Credit payments based on the information on your prior-year’s tax return. So if you claimed the Child Tax Credit on your 2020 return, you would have received the Advance Child Tax Credit payments in 2021. Here’s what that means for you: 

  • If you knew you would not claim a child on your 2021 return, you had the option to unenroll from receiving monthly payments. If you did NOT unenroll and received monthly payments last year for a child you won’t be claiming on your 2021 tax return, you may have to repay those payments when you file. You may be excused from repaying some or all of the excess amount if you qualify for repayment protection.
  • If you were an eligible parent who did NOT receive advance payments for your child, you will be able to claim the full amount of the Child Tax Credit on your 2021 tax return — even if the other parent received Advance Child Tax Credit payments.

Where Do You Stand?

The rules on economic impact and child tax credit payments can be confusing. If we’re preparing your taxes for you, we’ll make sure to take advantage of every tax credit available to you. Please don’t hesitate to call us at 706-632-7850 with any questions.

 

Start 2022 Off Right by Checking Your Withholding

If you’re getting back a large tax refund, that only means that you’ve been giving the IRS more money from each paycheck than you should. Since you don’t earn interest on that money, you should not be using that as a way to save. It’s often smarter to have less money withheld from your paycheck and sock it away in a savings account that pays you interest.

On the other hand, if you owe a lot on your taxes, then you should be having more money taken out of your paycheck, or you should be making quarterly estimated payments. Not paying enough taxes throughout the year can incur fees and penalties, adding to your tax bill.

Get the new year off to a good start by checking your federal income tax withholding and adjusting it if necessary. You can use the IRS’ Tax Withholding Estimator to help you figure the right amount of tax to withhold, whether you’re an employee or self-employed. To use the tool, you’ll need to estimate:

  • Your 2022 income.
  • The number of children you will claim for the child tax credit and earned income tax credit.
  • Other items that will affect your 2022 tax return.

If you have more complicated income and expenses, such as pension income or long-term capital gains, you will not get a valid result using the Tax Withholding Estimator. Instead, contact us for help determining the appropriate withholding for your situation.

Tax Checklists & Deadlines

Please note the following deadlines for providing your materials to us:

  • March 1: Corporate/Partnership Tax Returns to file by March 15 (without extension).
  • March 25: Personal Tax Returns to file by April 18 (without extension).

You may bring your paperwork to our office during regular business hours, or drop it off in our after-hours dropbox. To make sure you provide everything we need, please use our 2021 Tax Preparation Checklist (Personal and/or Business):

IRS Video Tax Tip

Don’t have all the documents needed to file your return? Watch this tax tip for information on what to do.

8 Tips to Avoid Costly Tax Return Mistakes

8 Tips to Avoid Costly Tax Return Mistakes

While tax laws are complicated, most common tax return errors are surprisingly simple. While we’ll do everything possible to help you avoid these mistakes, it’s important for you to know what they are and how to avoid them. Many errors can be avoided by filing electronically, which is how we file all the returns we complete.

#1: Don’t File Too Early

While you don’t want to file late, you should avoid filing as soon as the IRS begins accepting returns (January 24 this year). If you file before you receive all the necessary tax reporting documents, you risk making mistakes, incurring processing delays or even reducing your refund.

#2: Check Your Details

Missing or inaccurate Social Security numbers will cause problems, so beware of transposing numbers. Likewise, the names listed on your tax return should match the names on each person’s Social Security card.

#3: Gather All Your Paperwork

Wages, dividends, bank interest and other income received must all be entered (and added up correctly). We’ll need copies of all your information returns (i.e., W-2s, 1099s, etc.) to be sure nothing is left out.

#4: Know Your Filing Status

It’s possible to choose (and use) the wrong tax-filing status, especially if more than one filing status applies. Let us help you determine the best filing status for your situation. (See the article below for more details.)

#5: Double-Check the Math

Math errors are some of the most common mistakes, and they typically occur if you’re still filing your taxes by mailing in a paper return. We use professional-level tax-filing software and file electronically, which eliminates these types of errors. Input errors can still occur, so we always double-check the math — and ask you to do the same.

#6: Figure Credits and Deductions

With such intricate tax laws, it’s easy to overlook money-saving credits and deductions — Earned Income Tax Credits, Child and Dependent Care Credits, Child Tax Credits, Recovery Rebate Credits and others. We’ll make sure that you get credit for each and every possible deduction so you don’t pay more in taxes than required.

#7: Verify Bank Account Numbers

If you are due a refund, you should choose direct deposit to get your money quick and easy. However, be sure to include the correct routing and account numbers on your tax return, especially if you’ve recently changed banks or accounts.

#8: Sign Your Return

Your tax return must be signed to be valid. For a joint return, both spouses must sign unless one spouse is a member of the armed forces or there’s a valid power of attorney. When you file electronically, you can “digitally” sign your return before sending it to the IRS.

Avoid Costly Errors

When we process and file your tax return, we look at every possible way to save you money, while also ensuring that everything is done correctly and on-time. The more information you can give us — and the sooner you can do so — will ensure the best possible outcome.

We have begun processing 2021 federal and state tax returns. When you’re ready, you may drop off your paperwork at our office during regular business hours. We also have an after-hours dropbox out front to make it even more convenient. If you have an unusual situation or questions, please don’t hesitate to contact us at 706-632-7850 or email our office manager, Kimberly Mortimer, at kimberly@premiercpaservices.com.

We ask that you use our 2021 Tax Preparation Checklists (Personal and/or Business) to help make sure you’ve gathered all the necessary documents. Just click here to download:

Do You Know Your Correct Filing Status?

Your tax-filing status typically depends on whether you are considered married or unmarried on December 31, 2021. But more than one filing status may apply, so you can typically choose the one that allows you to owe the least amount of tax.

Five Tax-Filing Statuses

Your filing status affects whether you must file a federal tax return, your standard deduction amount, various tax credits and more. Familiarize yourself with each of these five options to choose your correct filing status.

  • Single. This applies if you are unmarried, divorced or legally separated.
  • Married filing jointly. If you are married, you can file a joint tax return with your spouse. If your spouse died in 2021, you can still use married filing jointly as your filing status for 2021 in most cases.
  • Married filing separately. If you are married, you can choose to file a separate tax return from your spouse. Choose this if you want to be responsible only for your own tax, or if it results in less tax than filing a joint return.
  • Head of household. If you are unmarried, you may be able to file using this status in certain circumstances. For example, you must have paid more than half the cost of keeping up a home for yourself and a qualifying person living in your home for at least half the year.
  • Qualifying widow or widower with dependent child. This status applies if your spouse died in 2019 or 2020, you didn’t remarry before the end of 2021, and you have a dependent child. Other conditions may also apply.

We can help you determine the correct — and most tax-advantageous — filing status for your situation. If you have any questions or are unsure of your status, contact us today. You can also use the IRS Interactive Tax Assistant to help determine your filing status.

Money Minute: New Child Bonus

Do you have a new baby? If you are a parent or guardian who added a child to your family last year, you may be eligible to receive up to $1,400 by claiming the Recovery Rebate Credit. This applies if you did not receive a third-round Economic Impact Payment for that child.

Money Minute: Adoption Tax Credit

If you adopted or started the adoption process last year, you may qualify for the Adoption Tax Credit. This applies to international, domestic, private, and public foster care adoption. (It does not apply if you adopt your spouse’s child.) The maximum credit is $14,440 per eligible child, depending on your income. An eligible child must be younger than 18, or physically unable to take care of themselves if older than 18.

IRS Video Tax Tip

Families may be eligible for various tax credits, such as the Earned Income Tax Credit, the Child Tax Credit, and the Child and Dependent Care Credit.

Timely Tax Tips Help Ensure Correct Returns

Timely Tax Tips Help Ensure Correct Returns

When you provide your paperwork to Premier CPA Services, you’re entrusting us to file your tax return accurately and efficiently. We use sophisticated software to handle the math, find common errors and flag missing information. But we also use our years of experience to ensure you get all the valuable credits and deductions due to you.

We’ve created Checklists for both business and personal returns to ensure you provide us with all the necessary materials to prepare your return. You can download those here:

Follow these tips

To further ensure the accuracy of your return, please consider these additional tips:

  • Choose Direct Deposit for your refund (and verify bank routing and account numbers).
  • Verify Social Security numbers.
  • Double-check the spelling of all names.
  • Confirm filing status (i.e., single, married filing jointly, married filing separately, or head of household).
  • Check the final numbers to ensure all income and expenses are accounted for correctly.
  • Review credits and deductions for things like the earned income tax credit, the child and dependent care credit, and the recovery rebate credit.
  • Sign all forms.
  • Return them to us in a timely manner so we can file your forms on time.

Thank you for entrusting us with your tax return. Please let us know if you have any questions or concerns about your tax files.

Tax Tip: Claim Dependent Credit

If you don’t qualify for the child tax credit, you may still be able to claim credit for other dependents, up to a maximum of $500 per dependent. The credit starts to phase out for incomes above $200,000 single, $400,000 married filing jointly.

Dependents must meet certain conditions, including:

  • Be age 17 or older.
  • Have individual taxpayer identification numbers.
  • Be a parent or other qualifying relative you support.
  • Be an unrelated dependent who lives with you.

You can claim the credit if:

  • You claim the person as a dependent on your tax return.
  • You cannot use the dependent to claim the child tax credit or additional child tax credit.
  • The dependent is a U.S. citizen, national or resident alien.

If you’re unsure whether you can claim someone as a dependent, please contact us for details.

Business Returns Due March 15

Don’t forget! While personal tax returns are due April 15, business and corporate returns are due on March 15. To get your business return done on time, please have all your materials to us no later than February 22.

Access your IRS information online

Online Account is a website system where you can securely access your individual account information. You can:

  • See any amounts you owe to the IRS
  • Make a payment, if due
  • View balance details by year
  • Review payment history, including any scheduled or pending payments
  • Review payment plan details and payment plan options, or request a payment plan
  • Get digital copies of select notices from the IRS
  • View any Economic Impact Payments (EIP) you received
  • Review key information from your most recent tax return, or access your tax records via Get Transcript

To gain access to Online Account, you’ll need to create an account by going through a rigorous identity verification process. Click here for more details.

Tax Tip: Sick and Family Leave Credits

If you are self-employed, you may be eligible to claim tax credits for leave taken between April 1, 2020, and December 31, 2020, due to COVID-19 in which you were unable to work or telework for reasons relating to your own health or that of a family member.

Form 7202: Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals will be used to claim the tax credit passed as part of the Families First Coronavirus Response Act (FFCRA). The credits will help offset your federal income tax. Note that you may also be eligible in 2021 for leave taken between January 1, 2021, and March 31, 2021.

8 Top Tax Tips for Year-end 2020

8 Top Tax Tips for Year-end 2020

I think most of us will be glad when 2020 is finally over so we can look forward to a new start in 2021. As the year winds down in the next four weeks, take some time to look over your finances. There may be a few things you can do before the end of the year to get ready for the 2021 tax-filing season.

Check Your Financial To-Do List

#1  Report changes — If you moved in 2020, notify the IRS of your new address. Name changes should be updated with the Social Security Administration.

#2 Renew expiring ITINs — If your Individual Taxpayer Identification Number is set to expire at the end of this year, be sure to renew it now. Visit the ITIN page for more details.

#3 Donate to charity — Even if you don’t itemize your deductions anymore, the CARES Act passed earlier this year allows you to take a charitable deduction of up to $300 for cash contributions made to qualifying charities. The Coronavirus Aid, Relief, and Economic Security Act also temporarily suspends limits on charitable contributions and temporarily increases limits on contributions of food inventory.

#4 Check your EIP — If you received an Economic Impact Payment (EIP), you should have also received a Notice 1444, Your Economic Impact Payment, which you’ll need to give to your tax preparer. If you did NOT receive an EIP, you may be able to claim the Recovery Rebate Credit if you meet certain criteria. For additional information, visit the Economic Impact Payment Information Center.

If you received interest of at least $10 on a delayed federal tax refund for your 2019 return, you will receive a Form 1099-INT from the IRS. In true IRS fashion, this interest payment is taxable, and must be included on your federal tax return for 2020.

#5 Verify retirement plan distributions — The CARES Act waived required minimum distributions (RMDs) during 2020 for IRA or retirement plan accounts, and allowed eligible individuals to take a coronavirus-related distribution of up to $100,000 by December 30, 2020. Ask us for more details, or visit the IRS’s page on retirement plan relief.

#6 Contribute to your retirement plan — Depending on your AGI, you may be able to take a tax credit of 50%, 20% or 10% of eligible contributions to your IRA or employer-sponsored retirement plan. While the total salary deferral limit for 2020 is $19,500 ($26,000 if you’re 50+), only contributions of up to $2,000 qualify for the credit ($4,000 if married filing jointly), making the maximum credit $1,000 ($2,000 if married filing jointly). See the chart below for details.

Also note that the Setting Every Community Up for Retirement Enhancement (SECURE) Act repealed the maximum age for traditional IRA contributions, so you can continue to contribute to a traditional IRA at any age as long as you earn compensation. The SECURE Act also increased the minimum RMD age from 70½ to 72.

#7 Verify your withholding — Use the IRS’s tax withholding estimator to make sure your withholding and estimated taxes align with what you actually expect to pay. Keep in mind that most income is taxable, including unemployment compensation. If you received non-wage income like self-employment income, investment income, taxable Social Security benefits and, in some instances, pension and annuity income, you may be in danger of underpaying your taxes, which could result in penalties. In this case, you can make an end-of-the-quarter estimated tax payment or have additional taxes withheld from your next few paychecks.

#8 Make business purchases — If you own a business, consider purchasing some business supplies now to take the deduction in 2020. Everything from reams of paper to a new computer or desk can qualify as an eligible business expense.

Also note that the CARES Act fixed a technical issue with bonus depreciation, a provision that allows businesses to immediately deduct the full cost of many types of investments. The legislation expands bonus depreciation to qualified improvement property (QIP), which applies to almost any improvement to the interior of a building that is either owned or leased. The fix is retroactive, so businesses can deduct qualified improvements dating back to January 1, 2018, either by amending their 2018/2019 returns, or by employing an accounting method change.

Prepare Now for a Smooth Tax-Filing Season

With so many changes affecting tax filing for 2020, we expect there could be confusion and delays. Start gathering your paperwork now, so you’re ready to go when your Forms W-2, Forms 1099-Misc and other income documents start arriving in the mail. If you have any questions, we’re here to help — just call 706-632-7850 or email us.

Money Brief: Feb. 1, 2021, Deadlines

Wage and tax statements normally due on January 31 of each year will be due on Monday, February 1, 2021, because January 31 falls on a Sunday next year. Keep this in mind and plan ahead if you are required to file:

  • Form W-2, Wage and Tax Statements,
  • Form W-3, Transmittal of Wage and Tax Statements,
  • Forms 1099-MISC, Miscellaneous Income, and
  • Forms 1099-NEC, Nonemployee Compensation.

Automatic extensions of time to file Forms W-2 are not available. If you need assistance filing any of these forms for your employees, please contact us as early in January as possible. You might want to get a head start now on verifying or updating employee information like names, addresses and Social Security numbers.

Money Brief: IRS Interest Rates

Interest rates charged by the IRS will remain the same for the first quarter of 2021:

  • 3% for overpayments (2% in the case of a corporation);
  • 5% for the portion of a corporate overpayment exceeding $10,000;
  • 3% for underpayments; and
  • 5% for large corporate underpayments.

Money Brief: Newly Marrieds

If you got married in 2020, consider this quick checklist:

  • Name and Address Changes — If you plan to change your name, be sure to notify the Social Security Administration. The name on your tax return must match the one on file with the SSA to avoid refund delays. To update your information, file Form SS-5, Application for a Social Security Card, available at SSA.gov, by phone at 800-772-1213 or at your local SSA office. If you changed your address, send the IRS Form 8822, Change of Address.
  • Withholding Taxes — Ask your employer for a new Form W-4, Employee’s Withholding Allowance. Depending on how you choose to file, you may want to adjust your withholding amount. Check the IRS Withholding Estimator or give us a call to help you complete a new Form W-4.
  • Filing Status — If you are married as of December 31, you are considered married for the whole year for tax purposes. And as a newly married couple, you can choose to file your federal income taxes jointly or separately next year. In most cases, filing jointly is typically more beneficial. But we can help you determine the best method for your personal situation.