RgKAdmin14, Author at Robert J. Kratz & Co.

The Home Gain Exclusion: Make Sure You Qualify!

June 22 2022 RgKAdmin14 Tax Tips, Capital Gains 0 comments Tags: capital gains tax, capital gains, home gain exclusion

Across the country, many homeowners are cashing out to multiples over list price, especially since one of the largest tax breaks available to most individuals is the ability to exclude up to $250,000 ($500,000 married) in capital gains on the sale of your personal residence. Here is what you need to know.

Background

As long as you own and live in your home for two of the five years before selling your home, you qualify for this capital gain tax exclusion. Here are the official hurdles you must jump over to qualify for this tax break:

Main home. This is a tax term with a specific definition. Your main home can be a traditional home, a condo, a houseboat, or mobile home. Main home also means the place of primary residence when you own two or more homes.
Ownership test. You must own your home during two of the past five years.
Residence test. You must live in the home for two of the past five years.
Other nuances:
- You can pass the ownership test and the residence test at different times.
- You may only use the home gain exclusion once every two years.
- You and your spouse can be treated jointly OR separately depending on circumstances.

When to pay attention

You live in your home for a long time. The longer you live in your home, the more likely you will have a large capital gain. Long-time homeowners should check to see if they have a capital gain prior to selling their home.
You have old home gain deferrals. Prior to the current rules, home gains could be rolled into the next home purchased. These old, deferred gains reduce the cost of your current home and can result in a capital gains tax.
Two homes into one. Newly married couples with two homes have a potential tax liability as both individuals may pass the required tests on their own property but not on their new spouse’s property. Prior to selling these individual homes, you may wish to create a plan of action that reduces your tax exposure.
Selling a home after divorce. Property transferred as a result of a divorce is not deemed a sale of your home. However, if the ex-spouse that retains the home later sells the home, it may have an impact on the available amount of gain exemption.
You are helping an older family member. Special rules apply to the elderly who move out of a home and into assisted living and nursing homes. Prior to selling property, it is best to review options and their related tax implications.
You do not meet the five-year rule. In some cases you may be eligible for a partial gain exclusion if you are required to move for work, disability, or unforeseen circumstances.
Other situations. There are a number of other exceptions to the home gain exclusion rules. This includes foreclosure, debt forgiveness, inheritance, and partial ownership.

A final thought

The key to obtaining the full benefit of this tax exclusion is in retaining good records. You must be able to prove both the sales price of your home and the associated costs you are using to determine any gain on your property. Keep all sales records, purchase records, improvement costs, and other documents that support your home’s capital gain calculation.

This blog provides summary information regarding the subject matter at the time of publishing. Please call our office at 610-296-2500 with any questions on how this information may impact your situation. This material may not be published, rewritten, or redistributed without permission. All rights reserved.

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Protect Your Emergency Fund From Inflation

May 17 2022 RgKAdmin14 Others 0 comments

Most financial experts suggest keeping three – to – six months’ worth of household expenses in savings to help in case of an emergency. But with record inflation, that task just got a lot harder to accomplish as virtually every safe place to put your emergency funds will not provide interest rates that keep pace with inflation. But that does not mean you cannot increase the rate of return on these funds.

Here are some ideas to reduce the impact of inflation on your emergency funds.

Actively monitor your savings account rate.
Earlier this year the Federal Reserve increased interest rates for the first time since 2018. In addition, the head of the Federal Reserve is suggesting there may be several of these rate increases in the next twelve months. This should increase the interest you can earn on the cash in your emergency account.

What you need to know: Not all savings accounts are created equal. When the Fed increases the interest rate, your saving account rate should also go higher. . . immediately. But this is not always the case. If your bank is slow to raise your savings rate, be willing to monitor and shift funds to a bank that does. Just make sure the funds are still FDIC insured and are kept at a reputable bank.

Take a look at Series I Savings Bonds.
Series I Savings bonds are issued and backed by the U.S. government and feature two interest rate components: a fixed rate and an inflation rate. The fixed rate is set when the bond is issued and never changes during the life of the bond. The inflation rate resets semi-annually based on the Consumer Price Index.

What you need to know: You must hold an I bond for at least 12 months before redeeming it. And although you can redeem it after one year, you’ll have to pay a penalty worth the interest of the previous three months if you redeem the bond within five years. And remember, you must be prepared to pay the penalty if you need the funds for an emergency.

Creative use of Roth IRA funds in an emergency. Roth IRAs are funded with after-tax dollars. Because of this, early removal of the initial contribution is tax and penalty-free. If you dip into the earnings, however, you will not only be subject to income tax but also may be subject to a 10% early withdrawal penalty.

What you need to know: Use of a Roth IRA is often a creative way to fund your emergency account while achieving higher returns with conservative investment choices, but it is not for the faint of heart. If you get this one wrong, it could cost you in taxes, penalties, and lost fund value in a bear market. Prior to removing funds from any IRA, it makes sense to conduct a tax planning session.

This blog provides summary information regarding the subject matter at the time of publishing. Please call our office at 610-296-2500 with any questions on how this information may impact your situation. This material may not be published, rewritten, or redistributed without permission. All rights reserved.

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The Secret to a Quick Tax Refund

April 04 2022 RgKAdmin14 Others 0 comments

Here’s how to get your overpayment as soon as possible

Delayed tax refunds, penalties for not filing 2020 tax returns on time that were actually filed on time, and timely tax payments being flagged as late are just some of the headaches taxpayers are grappling with due to a massive backlog of several million unprocessed tax returns the IRS is trying to wade out from under.

What you need to know

Here’s how to avoid getting your tax refund delayed and steer clear from late-filing and payment penalties resulting from the IRS backlog:

E-file your return! The secret to getting a quick tax refund is to e-file your 2021 tax return! The IRS says approximately 90% of the more than 160 million individual tax returns expected for the 2021 tax year will be e-filed. The majority of these taxpayers will avoid any issues filing their return and getting their refund. If you do e-file, don’t forget to sign Form 8879, which authorizes the e-filing of your return.
Stay calm if you receive a letter from the IRS. You may receive an IRS notice indicating you have an unfiled tax return or that you have an unpaid balance on your account. If the notice was mailed because of the backlog and you indeed filed the tax return in question or paid the amount due listed, the IRS says there is no need to call or respond to the notice as it’s continuing to process prior-year tax returns as quickly as possible.
Certified mail is your friend. If you receive an IRS notice for a situation not related to the backlog, you’ll want to respond in a timely fashion via certified mail. This will provide proof of your timely correspondence. So even if your response gets lost or caught up in the backlog, you’ll have evidence that you responded by the deadline listed on the notice. Remember that delays in responses could generate penalties and additional interest payments.
Be patient if you need to talk with the IRS. The IRS received a record 282 million phone calls during its 2021 fiscal year, according to National Taxpayer Advocate Erin Collins. Only 32 million of these calls were answered. Collins said the best time to call the IRS are Wednesdays through Fridays, especially early mornings starting at 7 am Eastern time.

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I Owe Tax on That?

March 14 2022 RgKAdmin14 Tax Tips, Tax Preparation 0 comments Tags: Gambling tax deductions, scholarship and financial aid taxes, gambling taxes, unemployment tax, Social Security benefits taxes, alimony taxes

5 Surprising Taxable Items

Wages and self-employment earnings are taxable, but what about the random cash or financial benefits you receive through other means? If something of value changes hands, you can bet the IRS considers a way to tax it. Here are five taxable items that might surprise you:

Scholarships and financial aid. Applying for scholarships and financial aid are top priorities for parents of college-bound children. But be careful — if any part of the award your child receives goes toward anything except tuition, it might be taxable. This could include room, board, books, travel expenses or aid received in exchange for work (e.g., tutoring or research).

Tip: When receiving an award, review the details to determine if any part of it is taxable. Don’t forget to review state rules as well. While most scholarships and aid are tax-free, no one needs a tax surprise.

Gambling winnings. Hooray! You hit the trifecta for the Kentucky Derby. But guess what? Technically, all gambling winnings are taxable, including casino games, lottery tickets and sports betting. Thankfully, the IRS allows you to deduct your gambling losses (to the extent of winnings) as an itemized deduction, so keep good records. For more detailed information about gambling and taxes check out last month’s blog: https://robertjkratz.com/court-is-in-session-notable-tax-court-cases/

Tip: Know when the gambling establishment is required to report your winnings. It varies by type of betting. For instance, the filing threshold for winnings from fantasy sports betting and horse racing is $600, while slot machines and bingo are typically $1,200. But beware, the gambling facility and state requirements may lower the limit.

Unemployment compensation. Congress gave taxpayers a one-year reprieve in 2020 from paying taxes on unemployment income. Unfortunately, this tax break did not get extended for the 2021 tax year. So unless Congress passes a law extending the 2020 tax break, unemployment will once again be taxable starting with your 2021 tax return.

Tip: If you are collecting unemployment, you can either have taxes withheld and receive the net amount or make estimated payments to cover the tax liability.

Social Security benefits. If your income is high enough after you retire, you could owe income taxes on up to 85% of the Social Security benefits you receive.

Tip: Consider if delaying when you start collecting Social Security benefits makes sense for you. Waiting to start benefits means you’ll avoid paying taxes on your Social Security benefits for now, plus you’ll get a bigger payment each month you delay until you reach age 70.

Alimony Deductable. Prior to 2019, alimony was generally deductible by the person making alimony payments, with the recipient generally required to report alimony payments received as taxable income. Now the situation is flipped: For divorce and separation agreements executed since December 31, 2018, alimony is no longer deductible by the payer, and alimony payments received are not reported as income.

Tip: Alimony payments no longer need to be made in cash. Consider having the low-income earning spouse take more retirement assets such as 401(k)s and IRAs in exchange for reduced alimony payments. This arrangement would allow the higher-earning spouse to make alimony payments by transferring retirement funds without paying income taxes on it.

When in doubt, it’s a good idea to keep accurate records so your tax liability can be correctly calculated, and you don’t get stuck paying more than what’s required.

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Court Is In Session – Notable Tax Court Cases

February 16 2022 RgKAdmin14 Tax Tips 0 comments Tags: Gambling tax deductions, Business expenses, travel expenses, advertising tax deductions

Despite the COVID-19 pandemic, political unrest, and severe weather events, the Tax Court has continued to churn out decisions affecting individual and business taxpayers. Here’s a brief sampling of several cases that may be of particular interest.

Coming Up Aces. (Coleman, TC Memo 146, 10/22/20) Gamblers take note of this ruling. You can generally deduct gambling losses up to the amount of your winnings from gambling activities if you can provide proper documentation. Now the Tax Court has allowed one taxpayer to estimate his expenses absent proper documentation.

Facts: A compulsive gambler was able to show that he likely spent the money from a $150,000 personal injury settlement in local casinos. The gambler, however, didn’t have the usual records to substantiate his claims. The Court allowed an estimated deduction because it was clear he had incurred significant expenses. The gambler was able to net his $350,000 in gambling winnings with $350,000 in estimated gambling losses.

Tax Tip: Save documentation for all your tax deductions, including gambling winnings and losses. Don’t rely on a tax court ruling!

Home (Not) Sweet Home. (Soboyede, TC Summ. Op. 2021-3, 1/26/21) This can come as an unwanted surprise. Your tax home for deducting travel expenses isn’t necessarily the place where you live. It’s the general area of your primary workplace.

Facts: The taxpayer was an attorney with separate law practices in Minnesota and Washington, D.C. He deducted his hotel expenses and other travel costs in the D.C. area. But his records showed he actually spent more than 50% of his work time in or near the D.C. location. The Tax Court concluded that the attorney’s tax home is actually in D.C. As a result, he couldn’t deduct his hotel and other expenses from the D.C. area.

Tax Tip: You can deduct travel expenses only away from your tax home. If you work in multiple locations, be sure you know which location the IRS considers to be your tax home.

Skidding Off The Race Track. (Berry, TC Memo 2021-42, 4/7/21) The big question is is it ordinary and necessary? A business can deduct advertising and marketing expenses that are related to its business activities. No write-off is allowed, however, for personal expenses.

Facts: A father and son who owned a construction company were race car enthusiasts. They deducted expenses for the son’s racing activities that were incurred as an advertising and marketing expense of the construction company. The Tax Court disallowed the deduction, ruling the expenses were a hobby expenditure, not an ordinary and necessary business expense that can be deducted for tax purposes.

Tax Tip: Understand what is considered an ordinary and necessary business expense by the IRS and know whether your activity is deemed to be either a hobby or a for-profit business enterprise.

A Slight Understatement. (Pragrias, TC Memo 2021-82, 6/30/21) Under special circumstances, a tax audit can be conducted up to six years after being submitted. The IRS normally has three years from the due date of a tax return to conduct an audit of that return. This three-year period is extended to six years, however, if the tax return omits more than 25% of taxable income.

Facts: The taxpayer received $4.9 million from a complex investment but reported only about $1.5 million. The IRS audited the return after three years. Despite the taxpayer’s contention that he didn’t omit taxable income—he said he merely understated it—the Tax Court ruled that the longer six-year limit applies. And as a general rule, there is no statute of limitations for the IRS when fraud is involved.

Tax Tip: Understand the applicable statute of limitations with your tax returns.

This blog provides summary information regarding the subject matter at the time of publishing. Please call our office at 610-296-2500 with any questions on how this information may impact your situation. This material may not be published, rewritten, or redistributed without permission, except as noted here. All rights reserved.

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Get ready for taxes: Here’s what’s new in 2022

January 19 2022 RgKAdmin14 Tax Tips, Child Tax Credits, Economic Impact Payment 0 comments Tags: filing taxes in 2022, 2022 taxes, economic impact payment, advance child tax credit payments

In case you missed Robert Kratz’s January 18 letter to his clients, following is what to consider when filing your taxes in 2022.

The IRS encourages taxpayers to get informed about topics related to filing their federal tax returns in 2022. These topics include special steps related to charitable contributions, economic impact payments, and advance child tax credit payments. Taxpayers can visit IRS.gov/getready for online tools, publications, and other helpful resources for the filing season.
Here are some key items for taxpayers to know before they file next year.
Changes to the charitable contribution deduction

Taxpayers who don’t itemize deductions may qualify to take a deduction of up to $600 for married taxpayers filing joint returns and up to $300 for all other filers for cash contributions made in 2021 to qualifying organizations.

Check on advance child tax credit payments

Families who received advance payments will need to compare the advance child tax credit payments that they received in 2021 with the amount of the child tax credit that they can properly claim on their 2021 tax return.

Taxpayers who received less than the amount for which they’re eligible will claim a credit for the remaining amount of child tax credit on their 2021 tax return.

Eligible families who did not get monthly advance payments in 2021 can still get a lump-sum payment by claiming the child tax credit when they file a 2021 federal income tax return next year. This includes families who don’t normally need to file a return.

* * * * * In January 2022, the IRS will send Letter 6419 with the total amount of advance child tax credit payments taxpayers received in 2021. People should keep this and any other IRS letters about advance child tax credit payments with their tax records. Individuals can also create or log in to IRS.gov online account to securely access their child tax credit payment amounts.
Economic impact payments and claiming the recovery rebate credit

Individuals who didn’t qualify for the third economic impact payment or did not receive the full amount may be eligible for the recovery rebate credit based on their 2021 tax information. They’ll need to file a 2021 tax return, even if they don’t usually file, to claim the credit.

Individuals will need the amount of their third economic impact payment and any plus-up payments received to calculate their correct 2021 recovery rebate credit amount when they file their tax return.

* * * * * In early 2022, the IRS will send Letter 6475 that contains the total amount of the third economic impact payment and any plus-up payments received. People should keep this and any other IRS letters about their stimulus payments with other tax records. Individuals can also create or log in to IRS.gov online account to securely access their economic impact payment amounts.
More information:

Reconciling Your Advance Child Tax Credit Payments on Your 2021 Tax Return

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Tax Moves to Make Before Year-End

December 15 2021 RgKAdmin14 Tax Tips 0 comments Tags: Year-End Tax Tips

The new year is just around the corner. Have you started thinking about your taxes? It’s not too late, but it will be soon. There are moves you can make to reduce your taxable income. Some of these tax-saving moves, however, must be completed by December 31. Here are several to consider:

Tax-loss harvesting. If you own stock in a taxable account that is not in a tax-deferred retirement plan, you can sell your underperforming stocks by December 31 and use these losses to reduce any taxable capital gains. If your net capital losses exceed your gains, you can even net up to $3,000 against other income such as wages. Losses over $3,000 can be used in future years. Just be sure you do not repurchase the same stock within 30 days, or the loss will be deferred.
Take a peek at your estimated 2022 income. If you have appreciated assets that you plan on selling in the near future, estimate your 2022 taxable income and compare it to your 2021 taxable income. If your 2022 income looks like it may be significantly higher than 2021, you may be able to sell your appreciated assets in 2021 to take advantage of a lower tax rate. The opposite also holds true. If your estimated 2022 taxable income looks like it may be significantly lower than your 2021 taxable income, lower tax rates may apply if you wait to sell your assets in 2022.
Max out pre-tax retirement savings. The deadline to contribute to a 401(k) plan and be able to reduce your taxable income on your 2021 tax return is December 31. See if you can earmark a little more money from each of your paychecks through the end of the year to transfer into your retirement savings accounts. For 2021, you can contribute up to $19,500 to a 401(k), plus another $6,500 if you’re age 50 or older. Even better, you have until April 18, 2022, to contribute to a traditional IRA and be able to reduce your taxable income on your 2021 tax return.
Make cash charitable contributions. If you’re like 90% of all taxpayers, you get no tax benefit from charitable contributions because you don’t itemize your personal deductions. On your 2021 tax return, however, you may contribute up to $300 in cash to a qualified charity and deduct the amount whether or not you itemize your deductions. Married taxpayers who file jointly may contribute $600. You can make your contribution by check, credit card, or debit card. Remember that this above-the-line deduction is for cash contributions only. It does not apply to non-cash contributions.
Bunch deductions so you can itemize. Are your personal deductions near the amount of the standard deduction for 2021: $12,550 for singles, $18,800 for head of household, and $25,100 for married filing jointly? If so, consider bunching your personal deductions into 2021 so you can itemize this year. For most, the easiest way is to bunch two years of charitable contributions into a single year. These can include gifts of appreciated stock where you get to deduct the fair market value without paying capital gains tax.

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Consolidated Appropriations Act, 2021: Employer Credit for Paid Family and Medical Leave

November 17 2021 RgKAdmin14 Families First Coronavirus Response Act, Consolidated Appropriations Act 2021, employer credit for paid family and medical leave 0 comments Tags: Employer credit for Family and Medical Leave

The Consolidated Appropriations Act, 2021 extends the employer credit for paid family and medical leave through December 31, 2025.

Under separate provisions of the Consolidated Appropriations Act, 2021, the credit for coronavirus-related paid sick and family leave, originally part of the Families First Coronavirus Response Act, is extended through March 31, 2021. The Families First Coronavirus Response Act (Act) provides paid sick leave and expands family and medical leave for COVID-19 related reasons and creates the refundable paid sick leave credit and the paid childcare leave credit for eligible employers.

Employer Credit for Paid Family and Medical Leave

Employers who provide paid family and medical leave to their employees may claim a tax credit which is equal to a percentage of wages they pay to qualifying employees while on family and medical leave. The credit is effective for wages paid in tax years beginning after December 31, 2017, through December 31, 2025.

Employers must have a written policy in place that meets certain requirements, including providing:

1. At least two weeks of paid family and medical leave (annually) to all qualifying employees who work full time (prorated for employees who work part-time), and

2. The paid leave is not less than 50 percent of the wages normally paid to the employee.

A qualifying employee is any employee under the Fair Labor Standards Act who has been employed by the employer for one year or more and who, for the preceding year, had compensation of not more than a certain amount.

Family and medical leave for purposes of the credit includes:

· Birth of an employee’s child and to care for the child.

· Placement of a child with the employee for adoption or foster care.

· To care for the employee’s spouse, child, or parent who has a serious health condition.

· A serious health condition that makes the employee unable to perform the functions of his or her position.

· Any qualifying exigency due to an employee’s spouse, child, or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the Armed Forces.

· To care for a service member who is the employee’s spouse, child, parent, or next of kin.

The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per tax year. The minimum percentage is 12.5% and is increased by 0.25% for each percentage point by which the amount paid to a qualifying employee exceeds 50% of the employee’s wages, with a maximum of 25%. In certain cases, an additional limit may apply.

An employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit. Also, any wages considered in determining any other general business credit may not be used in determining this credit.
This blog provides summary information regarding the subject matter at the time of publishing. Please call our office at 610-296-2500 with any questions on how this information may impact your situation. This material may not be published, rewritten, or redistributed without permission, except as noted here. This blog includes, or may include links to third-party internet websites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.

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Get a Jump On Your Taxes

October 28 2021 RgKAdmin14 Tax Preparation 0 comments

This year, 2021, may again prove to be challenging relative to your taxes. Preparing for taxes early can not only save you time, but it may also save you money.

FEMA dollars provided to you due to Hurricane Ida damages, other government benefits, unemployment benefits, or working multiple jobs (several examples) may complicate your taxes. There are formerly temporary deductions that have been made permanent, as in medical deductions. According to the New York Times, there is now “a lower threshold for deducting medical expenses. You can continue to deduct unreimbursed medical expenses that exceed 7.5 percent of their income, instead of 10 percent. To take the deduction, filers must itemize.”

If you have had anything unusual occur that you believe may impact your taxes, preparing your taxes in advance is vitally important. Along with your tax advisor at Robert J. Kratz, you can get things rolling and ensure your taxes are filed on time, without the concern of late filing penalties.

You may find the following checklist helpful.

Let’s start with your basic information:

Name and full address
The names and relationships of all family members
Social Security numbers for all family members
Your filing status, i.e. Married, Single, Head of Household, and so on.

Next, you need your income documentation:

W2s
1099s
Unemployment benefit statements
Social Security benefit statements
Rental property income
Documentation of any other income you received
Alimony
Other business-related income

Now that you have established your income, you can take a look at your possible deductions:

IRA contributions
IRA withdrawals
Mortgage Interest
Real estate taxes
Any other taxes, i.e. city, township, earned income tax
Charitable contributions (cash, miles driven, other donations, etc. – political contributions are not tax-deductible
Medical expenses (including insurance premiums if substantial after-tax premiums paid)
Unreimbursed employee expenses (personal expenses paid for business, job search costs, uniforms, etc.)
Child and/or dependent care expenses
Business use of home expenses (square footage of office, not square footage of house)

Finally, make a list of any questions you have about possible deductions.

This blog provides summary information regarding the subject matter at the time of publishing. Please call our office at 610-296-2500 with any questions on how this information may impact your situation. This material may not be published, rewritten, or redistributed without permission, except as noted here. This blog includes or may include links to third-party Internet websites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.

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American Rescue Plan Act May Impact Your Child Tax Credit

October 26 2021 RgKAdmin14 Others 0 comments

The American Rescue Plan Act of 2021 modifies several tax provisions, including a third round of direct stimulus payments, enhancements of many personal credits meant to benefit people with lower incomes and children, extensions of highly popular payroll tax credits for employers first instituted at the beginning of the pandemic, and changes related to retirement plan funding. This blog explains the changes to the child tax credit that may affect you.

The American Rescue Plan includes a significant overhaul of the child tax credit, but only for the 2021 tax year. Under current law, the amount of the child tax credit is equal to $2,000 per child, but only $1,000 of that amount is refundable (meaning that the taxpayer receives the credit even if there is an insufficient amount of taxes to be credited against). The American Rescue Plan increases the amount to $3,000 per child (or $3,600 for a child under the age of six) and makes the credit amount fully refundable. The American Rescue Plan also increases the maximum age of qualifying children to include 17-year-old children.

The excess of the amount of the credit over the present-law $2,000 amount is phased out by $50 for every $1,000 of modified adjusted gross income in excess of the threshold amount ($150,000 for joint filers, $112,500 for head of household filers, and $75,000 for single filers). Once the excess amount is eliminated, the amount of the credit remains at $2,000 until the present law phaseout thresholds are reached ($400,000 for joint filers, $200,000 for all other filers).

The Treasury and IRS were directed by the American Rescue Plan to issue advance payments of half of the credit amount beginning in July. The advance payments are issued monthly, if feasible, or as frequently as possible if monthly payments are not feasible. The remaining half of the credit not paid in advance is received when filing 2021 returns, as the full amount is claimed on the return but reduced by the aggregate amount received in advance.

In the case of a taxpayer who received advance payments in error (for example, where a 2019 or 2020 return indicated a dependent child who is no longer a dependent in 2021), the American Rescue Plan provides a “hold-harmless” provision, protecting taxpayers from having to pay back overpayments of up to $2,000 per child. The full $2,000 amount is reduced for taxpayers with income above a threshold amount ($40,000 for single filers, $50,000 for head of household filers, and $60,000 for joint filers). The $2,000 is completely eliminated for taxpayers with income double the applicable threshold amounts, and the entirety of the overpayment must be paid back.

Congress has directed the IRS and Treasury to create a website for taxpayers to opt-out of receiving advance payments or to provide information on status changes that would impact the amount of the credit.

https://www.irs.gov/credits-deductions/child-tax-credit-update-portal

If you have any questions on how the changes to the child tax credit under the American Rescue Plan affect you, please call our office at 610-296-2500.

This blog provides summary information regarding the subject matter at the time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten, or redistributed without permission, except as noted here. This blog includes, or may include, links to third-party internet websites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.

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The Home Gain Exclusion: Make Sure You Qualify!

The Home Gain Exclusion: Make Sure You Qualify!

Protect Your Emergency Fund From Inflation

Actively monitor your savings account rate.

Take a look at Series I Savings Bonds.

The Secret to a Quick Tax Refund

Court Is In Session – Notable Tax Court Cases

Get ready for taxes: Here’s what’s new in 2022

Tax Moves to Make Before Year-End

Consolidated Appropriations Act, 2021: Employer Credit for Paid Family and Medical Leave

Get a Jump On Your Taxes

American Rescue Plan Act May Impact Your Child Tax Credit

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