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
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Any information provided to you is not a substitute for professional legal, tax, or accounting advice.
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You should avoid filing your taxes late. Filing your tax return late will cause late filing penalties. You can avoid late-filing penalties by filing an extension of time to file a form with the federal and state tax authorities.
If you think you may not make the due date of your return, you should seek help as soon as possible to receive the full benefit of the extension of time to file. Remember that an extension of time to file is an extension to file and not an extension to pay the taxes.
Our tax system is a pay-as-you-go tax system, which means that the taxes are due as you earn the taxable income throughout the year. There are many tax types, so do not automatically assume that the extension of time to file is always April 15th.
As always, remember our core belief resonates with you, our client, and our motto here at Freyman CPA is that your success is our success, all day, every day!
Pitfalls are many, and one should be careful when going into business to plan accordingly. It is one thing looking at your business plan on paper, and then there is the practical application.
As business advisors and tax accountants, we see it all too often, folks plan well. Still, when they start their business, there are so many things coming to them at once, the business plan goes by the waist side, and many business owners are what we call “winging it” and never really have a good start or a good grasp on how to run the ship right.
It is so essential to hire the right team to guide you in business advisory. You must surround yourself with the right people and make the right decisions in your line of work before you open your doors for business, and let me say that again, “before” you open your doors for business. What are these reasons people tend to fail in their plight for success as an entrepreneur, you ask? ask, and you shall receive, here they are:
1) Not selling fast enough
That is right, not selling fast enough would be our top number 1 reason. You might have the proper capitalization, but if you do not sell enough at the right price or enough of what you need to sell, you will be out of money faster than you say, “show me the money.”
2) No having enough startup seed funds
The days of starting in your basement are less and less ideal; you need money! You need as much money as you can either gather from your pocket or a loan. Many people are afraid of lending money when starting a business as there is so much that can stand to go wrong, but I can assure you that loaned startup money can a long way fast if you use the funds the right way.
3) Not setting up the right processes as things change – getting too comfortable – this is not a W2 job – you have to move quick in this town!
Once you start your operations, you should quickly realize that things are not working exactly how you planned on them to work. That is because the business environment is never perfect, and the business tides are always changing, so as things change, you should be adapting and evolving.
4) Not hiring the right professionals to help the business avoid pitfalls
If I had a dollar for each time we helped a client climb out of tax problems, that could have been easily avoided had they sought out the right help in the first place; I would have many dollars, oh wait, I do, do you know why? Because it takes a lot more dollars to fix problems than it does to get it right the first time. Remember, folks; tax problems are like cancer for a person; it could literally put your business out of business almost immediately.
5) Not delegating soon enough
We saved the worst for last, not as easily spotted as you would think, you may ask, how about budgeting or maximizing profits or some other accounting-related item? Isn’t that what you are pitching for here, Greg? Nope, not delegating fast enough so that you can do what you do best as fast as you can. Frustration can get you drained faster than a speeding ticket. As soon as you can, start handing off your responsibilities where you can, hopefully into capable hands. Start tunning the business, and stop working for the business as an employee. Your job is to be the CEO, the owner, the visionary, the entrepreneur, not the employed individual who bought him or herself a regular W2 job.
Now I know I bashed around the W2 worker here a bit, but I honestly mean no harm in it; it is what it is. A regular job has many benefits and comes with its rewards. If you are ready to become that owner, that visionary, you better be prepared to make some significant sacrifices in your life and be prepared to risk as it all, as there is no reward without no risk.
If anyone ever asks me, I always say, I love what I do, and it is hard as all heck, but I would not trade it for the world.
Remember folks, here at Freyman CPA, your success is our success, all day, every day! Freyman CPA
As long as there was a tax, taxpayers were attempting to circumvent the tax system.
A good example would be the assignment of income, where a wealthy individual would shift earned income to a child who did not earn the income to pay through a reduced child’s rate. Hence, the family would benefit overall from overall lower taxes as the parent was in a higher tax bracket compared to the child. Courts have struck down taxpayers’ efforts in high tax brackets to assign income for personal services to low tax rate individuals.
So what ends up happening? The IRS eventually catches up to these “creative and aggressive ways around the tax system” and corrects the “loophole” by introducing a new law to close the hole and to set things right.
Some examples of the taxes introduced to close out ways around the tax code would be what we now call the “kiddie tax.” Another classic example that many have heard about would be the “generation-skipping transfer tax,” or the GSTT. Freyman CPA, your success is our success each day, all day!
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.
Leaving a job and starting as a business owner is a big step. There are many variables to consider when deciding to go on your own. Here we will discuss some less familiar topics that deal with forming an LLC in Florida.
Ensure you are forming the LLC for the right reasons. The main reasons why someone would choose to form an LLC are:
b) professional association
c) legal protection
d) tax purposes
Common prior accountant mistakes we see in practice are vast and many, however, we would like to highlight some serious mistakes that may be easily spotted by the right team early on.
As always we are here to serve you, the client, your interests are what we are all about. Join our exclusive POWER BUILT program for tax accounting success
Here is the list we have compiled in the last decade worth of experience, we call this our top “dirty dozen” list of mistakes that can set any business back:
1) Missing essential legal documents or legal documents are not reviewed by the accounting team
2) Unnecessary S corporation elections to complicate tax filings and increase accounting, payroll processing fees needlessly as well as incurring tax liability incorrectly
3) Unconfirmed and unfiled S elections all while the owner operates as an S corporation without actual confirmation from the tax authorities
4) Incorrect entity type selection potentially triggering taxation due to the wrong setup
5) Merchant processor (example: Square) sets up sales tax collection for a vendor that offers non-sales taxable services
6) Personal vehicles depreciated under a corporate entity as if the entity assets and the personal assets are one and the same (as with a disregarded entity LLC) – incurring audit and penalty risk
7) Regular leased vehicles depreciated as if the leased vehicle was an asset owned by the business or business owner
8) Inaccurate reporting of financial data that stems from poor communication with the accounting team
9) Missing common tax deductions, for example, reimbursements for the home office, health insurance, and vehicle travel
10) Hidden tax notices from the IRS and the State going back to the inception of the business
11) Needless registrations for payroll and sales taxes or registrations without any form filing (zero returns need to be filed regardless of activity once registered)
12) Basic audit proofing the tax position with the filing, some may be easy steps like correct itemization of receipts and mileage logs, by law, all contemporaneous requirements
The tax mistakes listed above are the most common mistakes we see, but there are plenty of more tax mistakes that businesses and individuals can make. If you have any questions or concerns, contact us today by using the form below or give us a call at (904) 330-1200. Our experienced CPA Firm in Jacksonville, FL can assist you and answer any accounting questions you may have.
“We love small business, we are small business, your success is our success”