Dear Clients…

As the year winds down, the tax reporting forms begin to arrive and we want to remind you which ones we need you to accumulate and send to us with your tax information. First, there are a couple of new forms this year that most people will see, and which we need you to provide to us:

__ IRS Notice 1444-C for the 2021 stimulus check; and
__ IRS Letter 6419 for those folks that received the advance child credit.

Speaking of the advanced child credit, if you received it in advance, please understand that your refund this year may be greatly reduced!

We still need the annual information forms that are sent to you for tax purposes. As a reminder, here is a simple checklist:

__ W-2 for wages __ W-2G for gambling __ 1099-Int for interest
__ 1099-DIV for dividends __ 1099-B Brokerage __ SSA-1099 Social Security
__ 1099-NEC for income __ 1099-Misc for income __1099-K for income
__ 1099-R for retirement __ 1099-G for refunds & unemployment
__ 1099-Int for mortgages __ 1098-T for tuition __ 1099-SA for HSA’s
__ K-1 forms from investments in S corporations or partnerships
__ Form 5498 for IRA values __ IRA and Roth IRA contributions for 2021

__ Child care costs, and the name, address, amount, and ID # of the recipient
__ Charitable donations-total amounts and recipients
__ Property tax paid on your home, property, or cars
__ Estimated tax payments and dates
__ Any letters you received from the IRS or state tax authorities
__ Our engagement letter

If you have a small business or rental property we can provide you with a separate checklist for those activities if needed.

Again, IRS scrutiny of foreign accounts means that you need to be absolutely clear about any non-US accounts or income so that we report it correctly.

If you have bought and/or sold a home in 2021 we need the closing statements on both purchases and sales.

Finally, in some tentative year-end planning, we are reasonably certain that Federal income tax rates will increase in 2022, so tax deductions will be more valuable next year vs. this year, and if you have any control over year-end bonuses it would be wise to call us and see if they would be better to receive them before the end of 2021 or wait until 2022.

Every year we are reminded how much we value your business, and we want to once again say thank you. Please call us with any questions.

Sincerely,
Your Accountants

Achieving a Better Life Experience Accounts: A financial solution for people with disabilities

Achieving a Better Life Experience (ABLE) accounts are tax-advantaged savings accounts for people who have disabilities and their family members. These accounts are useful to assist people with disabilities pay qualified disability-related expenses without affecting their eligibility for government assistance programs. Distributions are tax-free if used for qualified disability expenses.

The annual contribution limit is $15,000 in 2021. Certain employed ABLE accounts may make additional contributions up to either the designated beneficiary’s compensation for that tax year or the poverty line for a household of one person. The poverty line for 2021 is $12,880 in the continental US, $16,090 in Alaska, and $14,820 in Hawaii.

Some designated beneficiaries may be eligible to claim the saver’s credit for a percentage of their contributions. The beneficiary can claim said credit on Form 8880 (linked at the bottom). The saver’s credit is non-refundable and available to individuals who meet the following requirements: at least 18 years of age, not a dependent or a full-time student, and can meet the income requirements.

Families may rollover funds from a 529 plan to another family member’s ABLE account. Although, the ABLE account must be for the same beneficiary as the 529 account or for a member of the same family as the account holder. Rollovers from a section 529 plan count toward the annual contribution limit.

States can offer ABLE accounts to help people who become disabled before the age of 26 or their families pay for disability-related expenses. Some expenses may include transportation, housing, and/or education. These contributions are not deductible for federal tax purposes. Distributions, including earnings, are tax-free to the beneficiary if they are used to pay for qualified disability expenses.

Form 8880: https://www.irs.gov/pub/irs-dft/f8880–dft.pdf
Distributions From ABLE Accounts and ABLE Account Contribution Information form instructions:
https://www.irs.gov/pub/irs-pdf/i1099qa.pdf

Home Office Deduction

In the pandemic, more people worked from home than usual, and some of those people qualify to claim the home office deduction. This allows taxpayers to deduct certain home expenses on their tax returns when they file their 2021 tax returns next year.

There are some requirements that a taxpayer needs to meet in order to qualify for the home office deduction. First, this deduction is for small business owners only, not employees. This deduction applies to both homeowners and renters who can only deduct from certain expenses such as mortgage interest, insurance, utilities, repairs, and more. In order to claim home expenses as a deduction, they need to meet certain requirements and the deductible amount may be limited.

There are two basic requirements a taxpayer’s home needs to meet in order to qualify for a deduction. The first is that there must be exclusive use of a portion of the home for conducting business on a regular basis. The second is that the home must be the taxpayer’s principal place of business. They can also meet this requirement if administrative or management activities are conducted at home and there is no other location to perform these duties.

Taxpayers who do qualify may choose one of two methods to calculate their home office expense deduction. There is the simplified method which is a rate of five dollars per square foot for the business use of the home which is limited to a maximum size of 300 square feet and a maximum deduction of $1,500. The regular method calculates the deduction for a home office based on the percentage of the home devoted to business use.

IDOR Waives Late Estimated Payment Penalty for Newly Enacted Entity-Level Tax

The Illinois Department of Revenue will not assses penalty for late estimated payments due for tax years ending before December 31, 2022. This is due to the elcection to pay the entity-level tax under Public Act 102-0658. The Illinois Department of Revenue reccomends people make estimated payments to reduce the tax payment due when the return is filed.

Public Act 102-0658, which was created August 27, 2021, created an entity-level tax for partnerships and subchapter S Corporations allowing partners and shareholders to work around the federal cap on the deduction for state and local taxes effective for tax years ending on or after December 31, 2021. When a partnership or S Corps makes the election to pay the entity-level tax, it’s required to make quarterly estimated payments if the tax due is expected to be $500 or greater, or you could incur late payment penalties for the underpayment of estimated taxes per Illinois Income Tax Act Section 804.

For most taxpayers, two estimated payment deadlines have passsed already and the third quarter estimated payment for calender-year filers is due by September 15, 2021. Partners and shareholders of pass-through entitites should continue making all required quarterly installmments even if they expect the pass-through entity to pay an entity-level tax.

I-Cash Can Become Your Cash

I-Cash is the unclaimed property program in Illinois. It safeguards property that is unclaimed, such as unpaid life insurance benefits and forgotten bank accounts. The state treasurer is required to return the money to the public whenever they can.

During the pandemic, I-Cash returned $226 million in lost or misplaced money to about 174,000 people. This was beneficial to those struggling economically during the Covid Pandemic.

There are continuing efforts to improve the I-Cash system that will hopefully make it an easier and more efficient process. With these advancements over the past five years, almost 1.2 billion dollars has been paid out to those who filled claims.

Since the program is growing, there are now paperless claims. Additionally, legislators working in concert with the treasurer have sent unclaimed property checks to qualify members who hadn’t even filed a claim.

There is still more unclaimed property that is updated twice every year. If you want to file a claim, click the link!

https://icash.illinoistreasurer.gov

Fill your stomach while keeping your bank account fuller

Times have changed and so have IRS regulations, again. Thanks to the IRS you now get the chance to write off 100% of your business meals instead of the usual 50%. There are some things you will need to consider while trying to put the deduction into action. 

In order to qualify for the full deduction, you need a restaurant to provide you with the food or beverages but you do not have to pay the restaurant directly. This means that DoorDash or Uber Eats meals will be eligible for deduction. 

Your business meal must be tax code Section 162 ordinary and necessary business expenses, and they must not be subject to disallowance under tax code 274. Additionally, you may not deduct lavish or extravagant meals but they will not be basing this on the total dollar amount nor the restaurant itself. Furthermore, you must be at said business meal and you must be dining with a person who you could foresee engaging in business with, such as a customer, supplier, employee, or client. 

As earlier stated, this deduction requires a restaurant, which is defined in more detail by the IRS. According to the IRS, a restaurant is “ a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business premises.” It is not “ a business that primarily sells pre-packaged food or beverages, not for immediate consumption” including, but not limited to,  grocery stores, liquor stores, and vending machines. Any business meals that do not fit this requirement are still eligible for the 50% deduction.

If you pay for a per diem meal or pay your employees a per diem, you can only deduce 50%. However, if you deduct the actual expense of the meal instead of the per diem you may apply the 100% deduction.

Overall, this is a large incentive for businesses to support IRS-approved restaurants and to move away from per diems. Who doesn’t like a 100% deduction? 

https://bradfordtaxinstitute.com/Content/Deduct-100-Percent-of-Your-Business-Meals-under-New-Rules.aspx