CPA addresses tax-filing questions for individuals

Individuals can claim several credits this year; some businesses will have new reporting rules.
157
Taxpayers with children should pay close attention to child tax credits when filing for 2021. Courtesy iStock

A local accountant recently shared advice for individuals and businesses who have not yet filed their tax returns.

Robert Roper, a certified public accountant and senior tax manager with Grand Rapids-based Kroon & Mitchell, recently spoke to the Business Journal about a few things to know this year as far as tax filing goes.

Robert Roper. Courtesy Kroon
& Mitchell

For individuals, the first thing to note is the reporting of the advance child tax credit. According to the Internal Revenue Service, under the American Rescue Plan (ARP) Act of 2021, advance payments of up to half the 2021 child tax credit were sent to eligible taxpayers. 

Roper said households already should have received or will receive a document called letter 6419 — one letter per parent, rather than one per household — that will need to be saved and given to the tax preparer so they can be input on the child tax credit worksheet of the household’s 2021 tax return. The letters contain documentation, for each parent, of half the amount of the payment for half of the children in the home, so each parent will need to retain letter 6419 to claim the dollar amount and the number of children listed on their letter on their return.

“(The child tax credits previously) were never prepaid,” Roper said. “They were always taken on the tax return. So, what this letter is telling you is the amount that the government prepaid from July to December of 2021, which should represent one-half or thereabouts of your eligible credit.”

The child tax credit for 2021 was $3,600 per qualifying child ages 5 and younger and $3,000 per child ages 6-17, and these amounts are subject to phase-out limitations, Roper said.

He added there was an option to defer the child tax credit, so households that opted for that will be claiming the full amount on their 2021 worksheet.

Another thing individuals should know about is the economic impact payments that were issued under ARP in 2021, Roper said. Some people didn’t receive their third installment. Individuals should by now have received letter 6475 detailing the amount of the payment they should have received between March and December 2021. If the amount on the letter is not equal to what the individual received, Roper said they should plan to save the letter and — subject to limitations — claim any unreceived payment as a recovery rebate credit on their tax return.

A second important piece of information for households with children is that child and dependent care for 2021 are refundable for the first time. Qualifying expenses include up to $8,000 for one qualifying child or $16,000 for two or more. The credit equals 50% of qualifying expenses for adjusted gross incomes (AGI) under $125,000, with a gradually declining credit down to 20% of expenses for AGIs up to $183,000, and the 20% rate for AGIs between $183,001 and $400,000. Both parents must have earned income or be seeking employment to qualify for the credit, Roper said. The IRS guidance on that is at irs.gov/taxtopics/tc602.

New this year, a charitable contribution credit is available for individuals taking the standard deduction who made cash donations to a charity, capped at $300 for individuals or $600 for those married filing jointly. For the purposes of this credit, cash donations are defined as those made by check, credit card or debit card, as well as amounts incurred by an individual for unreimbursed out-of-pocket expenses. Tax filers who opt to itemize their deductions would not qualify for this credit, Roper said.

Businesses, especially small retailers, have a new tax reporting requirement that will take effect for tax season 2022 that they should know about now, Roper said. Any business-related transactions greater than $600 completed through a payment settlement entity — such as Venmo, Paypal, Cash App, eBay, etc. — could be subject to reporting on return 1099-K. The previous threshold for 1099-K reporting for these types of transactions was $20,000, so this is a significant change, Roper said.

The reason businesses need to know this now is that the third-party payment settlement entities will be requesting from them tax identification numbers and/or Social Security numbers to ensure they’re properly reporting in line with the new guidance, and the businesses will need to give those out to ensure compliance.

As with these and any other changes that happen from year to year, Roper said he recommends people seek help from a CPA to ensure they are following tax law.

“Your tax situation may have changed due to the tax law changes, and you might need to update your withholdings based on your new circumstances,” he said. “Please ensure that your withholdings are accurate and adequate for your current situation and work with your CPA or your employer to make sure that you’re properly addressing your current tax liability.”

Facebook Comments