Tax law changes in the last couple of years you may need to know about:  (last updated 2/3/22)

General

  • Many received additional Economic Impact (stimulus) payments in 2021. For a variety of reasons, some did not. Actual calculation of the amount you qualify for is based off your 2020 income. As was the case last year, you never have to repay if you received too much. But if the calculations demonstrate that you deserve more than you have yet received, it will be applied to your 2021 taxes. This includes those who were counted as dependents in 2020 but did not qualify as such this year.
  • Congress increased the amount of Child Tax Credit for lower income families. In additional, the IRS sent many taxpayers ½ of the CTC amount, called the Advanced CTC. If you previously used the credit to cover your yearly tax liability and you received substantial ACTC payments, you may have to pay some of it back.
  • The IRS has issued IP PINs to taxpayers who have had potential fraud associated with their tax account. They are now opening up the opportunity to anyone who would like to receive an IP PIN for extra security on their account to request one. Once requested, the IP PIN (sent out new each year) must be provided on your return to be accepted by e-file.
  • The Affordable Care Act no longer penalizes taxpayers for not having health insurance, but CA now does.
  • Unemployment is taxable. You will need to have your 1099G to file.
  • Many people worked from home in 2020. If you are self employed, there may be a beneficial deduction. Employee work expenses are not currently allowed by the IRS and seldom qualify for benefit for CA.
  • The IRS is now asking on every return whether you bought or sold or otherwise dealt with virtual currency. Nothing else is reported if you only purchased coin but if you earned or sold/disposed/used some, the sale has to be reported. If your exchange is foreign then you may also have to report foreign account holdings.

Retirement Funds

  • There is a new exception to the 10% penalty for birth and adoption distributions from qualified retirement accounts. Each parent may withdraw up to $5,000 without penalty, though income tax still applies.
  • Required minimum distributions were not mandatory for 2020. They resumed in 2021 but the new age to begin them is 72.
  • If you inherit a retirement account from someone other than your spouse in 2020 or later, you have 10 years to withdraw all of the funds. They may no longer be taken over your life expectancy.
  • IRA contributions are now allowed after you turn 72 if you continue to have earned income.

Deductions

  • A limited deduction is allowed for charitable contributions for those who do not itemize. It must be a payment (cash/check/charge) to a qualified charitable organization (most GoFundMes do not count).

Alimony

  • Alimony payments where the divorce was final in 2019 and later or the alimony terms were modified after 2018 without expressly stating the old rules apply are not deductible by the payor and not includible in income by the recipient.

Businesses

  • Business mileage is $0.56 for 2021 and $0.585 for 2022.
  • While business entertainment is no longer allowed for IRS returns, CA still allows the deduction.
  • Business meals have been limited to a 50% deduction for a long time. To stimulate the restaurant industry, it has been increased to 100% for 2021 and 2022.
  • Paycheck Protection Loans are available to help businesses that have been affected by shutdowns and/or reduced work. A statement has to be included on your return in the year the loan was forgiven.
  • Employee Retention Credits and Employee Sick Pay Credits are also available to help. If you have employees, please ask how they work.
  • If you were self employed and were a) sick from Covid or b) took time off work to care for someone with Covid prior to 9/30/21, there is a credit to help compensate you for your down time.
  • If you chose to defer some of your SE Tax last year, the first installment was due 12/31/21. The second and third installments are due 12/31/22 and 12/31/23.
  • Qualified improvements to non-residential buildings now qualify retroactively for 15-year depreciation and, therefore, bonus depreciation. An example of this is tenant improvements. An amended return may be warranted.

Education Expenses

  • Taxpayers may now take up to $10,000 from a 529 Plan to pay off student loans of the beneficiary or their siblings. Reminder, Amounts withdrawn from a 529 plan must be spent on qualified expenses in the same calendar year.

Estates and Trusts

  • If you received a final K-1 from a decedent’s estate or trust in 2018 or 2019 and there were excess deductions on termination, we may want to amend your return. They are now deductible as an adjustment to income after being disallowed on Schedule A.