Personal Tax

Significant changes came for the dependent care tax credit in 2021.

What you need to know:

-tax law changes apply to 2021 only
-abode rule for 1/2 year in US
-dependent care qualification rules stay the same
-tax credit becomes refundable
-care costs increased to $8,000 for one child and $16,000 for a second
-credit is a huge 50% of care costs for an adjusted gross income (AGI) of up to $125,000
-20% tax credit for AGI’s ranging from $185,000 to $400,000
-credit will zero at AGI’s at $440,000
-FSA contribution goes from $5,000 to $10,500

Major changes came for the child tax credit in 2021. What you need to know:

-Easier to qualify – Income limitation has been removed + new abode rule + dependent qualification rules stay the same
-Age restrictions have been expanded from 16 to 17
-Credit has increased to up to $3,000 and $3,600 (for children 5 and under)
-Base credit of $2,000 remains the same
-New phase out rules for amounts over the base credit
-Applies to 2021 but may be made permanent
-Credit is now fully refundable as opposed to partially refundable
-Child tax credit is advanced by 50% unless you opt-out or modify
-Children are aged for 2021 based on 2020 or 2019 filing
-IRS to send notices to taxpayers about advancement
-Safe harbor allows for easier repayment for amounts overfunded
-Online tools are available to calculate the tax credit

DISCLAIMER: All Freyman CPA, P.C. videos are provided for general informational purposes only and deal with dynamic, time-sensitive, complex matters that may not apply to particular facts and circumstances. Information provided here should not be relied upon as a substitute for professional advice in connection with any particular matter.

We try to ensure accuracy, however, all information provided to you is provided “as is”, with no guarantee of completeness, accuracy, timeliness, or of the results obtained from the use of this information, and without warranty of any kind, express or implied.

Any information provided to you is not a substitute for professional legal, tax, or accounting advice.

Laws, rules, policies, and regulations change from time to time and the application and impact of laws can vary widely based on the specific facts involved. Accordingly, before making any decision or taking any action, you should consult a professional advisor.

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The household employment tax typically applies to nannies, but it may apply to any household worker who fulfills a certain number of hours working for your employ.

A household worker would be a worker you hired and not a worker temp service that you pay, as in the service delivers the nanny and the service issues the nanny with the W2 and takes care of the payroll aspect for you. This situation speaks of when you independently hire a household worker.

What typically happens is that a nanny or other household worker will receive payment “under the table” and does not report the wages earned on their income taxes as they receive no W2.

In the nanny case, once the wages go unreported, the government authorities may not collect the taxes, the parents lose out on any dependent care tax credits, and the worker will not collect any social security or medicare benefits for the services performed.

The right way to handle this situation is to do the following:

1) Register as a household employer with the IRS and the state to receive an IRS household employer tax identification number and an employer registration number with the state. Gather all pertinent documentation from your employee as you would with any other employee.

Documents like proof of identification, payroll withholding forms, and voided checks would all be examples of documents to gather and retain on the employee file.

2) Use a payroll processor specializing in household employment to process the regular pay so that a W2 is issued at yearend and the payroll tax forms are filed with the state tax authority ONLY.

3) Remit the federal employee income and payroll taxes and the employer payroll taxes along with your federal estimated income taxes quarterly or as frequently as you wish via the EFTPS site.

4) File Schedule H with your annual personal income tax return.

5) Claim any dependent care tax credits if they apply to your situation. If your worker is a home health aid, consider reflecting the medical costs (and payroll taxes) as a deduction on IRS Schedule A as a medical itemized deduction.

As always, speak with your tax professional to ensure that the situation you are facing is described above and to ensure that you are in full compliance with labor and tax laws.

Freyman CPA

OUR TAX SYSTEM

Taxation in the US comes in many different varieties. We have taxation on income, self-employment, gifts, and so on. When speaking in terms of the estate tax, we are discussing a tax imposed on a transfer of net assets, a transfer tax. 

Different government bodies impose various types of taxes. Federal tax governs all US citizens or domiciled residents and encompasses all the different states found across the nation. 

Each US state also has its own set of rules and regulations that apply to specific residents of that particular state. 

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By Greg Freyman, CPA and Angela Freyman, MBA

“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world”
~ Franklin D. Roosevelt

There are so many fascinating aspects to real estate. In this edition we will briefly go over important information on financial and tax topics of real estate as personal and investment use.

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“Take a better stand. Put money in my mom’s hand. Get my daughter this college plan, so she don’t need no man.”
~ Biggie

My uncle was a man I greatly respected. My uncle was in fact a self-made multi-millionaire ten times over. You may ask yourself how he got there, and what is his story. Like most millionaires, he was an investor, and he invested his money so that his money would earn money for him. That was his job – his job was managing his investments, and not punching a clock. I remember his living room was filled with financial statements from companies of all kinds, and with prospectuses pilling up to the ceiling. Yes, much like Warren Buffet, he had to know the company inside and out before he would send any money that way.

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“The purpose of a tax cut is to leave more money where it belongs: in the hands of the working men and working women who earned it in the first place.” – Bob Dole

We’ve watched the campaign promises, the debates, the flurry of activity and our government in action. The biggest tax reform of our generation has just been passed into law. So what does that mean for you? Will you see more money in your pockets, or are the taxes going up for you next year?

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You’ve started working on your tax return (or spoken with your accountant) and it looks like you’ll owe more taxes than you’d like. Now what? It’s too late to change your 2016 taxes now that it’s 2017, right? Fortunately, retirement savings can save you and reduce tax liability!

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It’s already December. Before long, it will be 2017, but we’ll all still accidentally write 2016. The start of a new year often brings tax changes, and with a new President in 2017, it is likely that there will be even more changes than usual. This article covers 2016 year-end update for individuals. What can we expect for next year?

Actually, most of the tax changes set for 2017 relate to businesses, and there aren’t that many for individuals. Most of the changes from 2016 simply relate either to amounts that have been indexed for inflation, or to tax benefits that are set to expire in 2016. We’ll cover some of the changes that may impact you for 2017 and beyond.

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Jack and Diane Smith are in their mid-50’s. Jack’s father, Thomas, recently passed away. Jack is named as the executor of his father’s estate. Jack isn’t sure exactly what he’ll need to do to handle his father’s estate, so he hires Greg of Freyman CPA and a local law firm to assist him in all of the legal and financial matters related to the estate.

Greg and the lawyers review the legal documentation related to Thomas’ estate. They review his will, and the trusts that he set up for his grandchildren. Greg had acted as Thomas’ accountant, and worked with him years ago to establish a trust that could help avoid probate. The lawyers and accountants review documents related to Thomas’ assets and liabilities, including the title and deed to his home, and his investment statements.

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