Congress managed to pass the Infrastructure Bill, but it doesn’t have any provisions that will affect your taxes this year. It does have some crypto currency law changes that go into effect in 2023. The Build Back Better Bill contains many dramatic tax law changes, but as the School House Rock song goes, it’s “just a bill”. Almost nobody thinks Congress will pass it this year, so I’ll let you know about all that fun sh.., stuff, when and if it actually happens. Meanwhile, here are some reminders you may want to act on before the year ends.
- Donations – With the huge increase in the standard deduction, most taxpayers are no longer itemizing deductions. If you still are itemizing: Clean out your closets and get those bags to Salvation Army or Goodwill. Buy/donate toys to Goodwill, Toys for Tots, Salvation Army, or another recognized charity. Write checks to the charities near your heart. Whatever you do, KEEP THE RECEIPTS! Charitable donations have become a favorite audit item at IRS. For 2021, you can deduct $300 of charitable cash contributions ($600 if Married) even if you don’t itemize. It still has to be a designated charity and you need to keep the donation receipts.
- Flex-Spending Accounts – USE IT OR LOSE IT! Although the rules have loosened a bit with the new tax law, you still have to use up most of the money set aside from your paycheck for child care or medical expenses by the end of the year. For 2021, unused funds can roll-over to 2022, but must be used by Dec 31, 2022.
- Capital Gains – The stock market was up big time again this year! If you have profits to report for 2021, now is the time to get rid of a few losers. The reverse is also true: if you took a loss on shares earlier in the year, December is a great time to sell a couple of winners and offset the losses. Remember that you are limited to a maximum of $3,000 of capital loss in any one year, so if you had a stock that lost you $5,000, you can claim only $3,000 this year and have to carry the balance to next year’s return unless you also had a winner or two to reduce the loss.
- Self Employed – Businesses can invest up to $1 million in new equipment and write it all off in the year the equipment was bought AND PUT INTO SERVICE, so if you are going to buy that new piece of machinery before December 31, make sure you put it to business use by December 31. If you buy it and it gets delivered on January 2, it won’t help you on your 2021 tax return!
- Gifting – The annual gift tax limit for 2021 is $16,000 per person. If you and her Mom gave your daughter a car for graduation last May, I hope it cost less than $32,000!
- Required Minimum Distributions – People over age 72 are normally required to take an RMD from their retirement accounts. You can instruct your broker to send all or part of your RMD to charities and avoid tax on what you donate.
- IRA Distributions – Remember, if you elected to spread the tax on a 2020 IRA distribution over 3 years, 1/3 of that distribution will be added to your 2021 income!
- Plug-In Electric Vehicles – There’s a significant federal (and often state) tax credit for buying certain plug-in electric vehicles as well as installing the charging station in your home, but you have to put the vehicle in service before Dec 31 if you want the credit in 2021.
KEEP THOSE STATEMENTS! It is going to be doubly hard to prepare your taxes this year. We ran into a lot of problems last year when you and the IRS disagreed on the amount of stimulus you received. That problem hasn’t gone away! Add to the mix, we need to know the amount of child tax credit “pre-payments” you received for the year. The IRS is supposed to send you a year-end statement for each. Bring us those statements!
Don’t Get Hacked! The IRS will never contact you by phone or by email. THOSE CALLS AND EMAILS ARE SCAMS! There wouldn’t be so many of them if they weren’t successful. Guard your social security # and your bank account # as if it were gold, because it is. Ask for a phone number to call them back and then call us (we know all the IRS phone numbers). If they start threatening, just hang up!
As always, please feel free to call or email us if you have any tax related questions before tax season.