This tax season is NOT going to be typical. Here’s why and here’s what you need to do about it.
The American Rescue Plan Act (ARPA) went into effect in 2021. This presents some special situations for taxpayers… here are 3 of the main updates you need to be aware of:
- Economic Impact Payments: Those 3rd economic stimulus checks that hit our bank accounts in March aren’t subject to federal income tax. However, those who received less than they are entitled to are eligible for a credit on their 2021 return. Think you should have received your payment but not sure if you did? Check the status of your 3rd economic impact payment here.
- Child Tax Credit: ARPA also enhanced the Child Tax Credit (CTC) by raising the maximum up to $3,600 per kid, making the credit fully refundable. And the IRS began to prepay taxpayers their CTC beginning in July. These prepayments need to be factored into 2021 tax returns and could cause some complications. Taxpayers should be informed that their tax refund may be smaller than expected due to advance CTC payments. The IRS has a tool that allows you to check how much advanced child tax credits you received between July to December of last year. Just click here to get started.
- Dependent care credits: Under ARPA, the maximum dependent care credit for 2021 is increased to up to $4,000 for one child; and $8,000 for two children. (Prior to 2021, the maximum credit was up to $1,050 per child.) The amount of credit received is based on adjusted gross income. This credit is limited to those with AGI greater than $125,000. The credit is fully refundable. For more details about this particular credit, click here.
Ok that was a lot… With stimulus checks, tax law changes, and the advance child tax credits that went out, it is important to be aware of the latest information available about your federal tax account. Keep reading to learn what actions you need to take to keep you on alert.
How do I know what changes are relevant to me??
Register with the IRS website. You’ll then be able to see the amounts of Stimulus received, CTC information, and 5 years of payment history. You’ll also be able to see any pending or scheduled payments and view notices that may have been sent to you.
How can I get ready for 2021 tax filing season?
- Watch for your documents. They’ll come in the mail and/or electronically. I’m talking about important tax forms such as forms 1098s, 1099s, W2s, and other documents necessary to file a complete tax return.
Set yourself a reminder to start looking for your tax documents now! When you receive any documents, make sure to organize them in one place. Perhaps you work with an Accountant who has given you access to a secure portal. Upload documents to your portal as you receive them, do not delay.
- Catch up on your 2021 books and records.
My hope is that this is done by the end of January 2022, but if not, spend time catching up on your record-keeping so you can have it accurate & fresh in your mind for tax returns.
- Find a tax professional.
If the ARPA and other tax law changes have taught us anything, it’s that the time to hire a tax professional is yesterday. Even as a CPA myself, these new changes perplexes me; this stuff is complicated y’all.
Tax professionals are a hot commodity in these strange and ever-changing tax times. Make sure you are connected with a seasoned and licensed tax professional. It will make a world of difference to your peace of mind having an expert on your side.
I’d be happy to connect you with a professional in my network. Click here to tell me a little about your business and your tax needs, let’s see if I can help!
This all might be a bit overwhelming. Breathe. And just know that taking action early, working with an accountant, and gathering your tax documents early (not on April 13th) will help you tremendously. And remember, you are not alone, we’re in this together!
Still have tax questions? Head over to my Instagram. We drop helpful infographics and talk taxes in the comments section💬! I’d love to have you there!