As you gear up for the 2022 tax filing season, there are some challenges and changes of which you should be aware.
1. Significant IRS Delays –
The tax bureau is incredibly overburdened due to understaffing, technology woes, and myriad complications arising from COVID-19 pandemic. “CPA tax professionals greeted the launch of tax season with skepticism that the IRS will be able to contend with its continuing logistical challenges,” explains a recent article from the Journal of Accountancy, “with taxpayers and their preparers likely to experience more frustration and delay.”
2. Rebate for the Third Economic Impact Payment –
Taxpayers who received no payment or partial payment of the $1,400 third stimulus payment can claim it on their 2021 tax return using the Recovery Rebate Credit. In order to know how much to claim, refer to Letter 6475 from the IRS (expected to go out in early 2022) which details the amount of your third stimulus payment. Alternatively, you can determine your stimulus payment amount using your IRS.gov online account.
3. Changes to the Child Tax Credit –
Firstly, the child tax credit increased significantly by the American Rescue Plan Act of 2021 (ARPA)—it was raised from a maximum of $2,000 per child to $3,000 per child aged six or older and $3,600 for children under six. On top of that, half of the tax credit was paid in advance in installment payments to qualifying families in 2021.
Taxpayers who received advance monthly child tax credit payments should be on the lookout for Letter 6419 from the IRS detailing the total amount of payments that they received in 2021. If you received advance payments, there are three possible outcomes for these you:
- You received the correct amount of advance payments. In this case, you simply need to report the advance payments you received and apply the remaining half of the child tax credit to your tax return.
- You received less of an advance payment than you were entitled to. In this case, you will report the amount that you did receive and will then apply the remaining half of the child tax credit, plus the additional amount you are owed, to your tax return.
- You were given more advance payment than you were entitled to. In this case, you will report the amount that you did receive and then your tax return will be lowered by the amount that you received in excess of what you were entitled to.
For further details on this topic, visit the 2021 Child Tax Credit and Advance Child Tax Credit Payments FAQ on IRS.gov
4. Deducting Charitable Contributions Without Itemizing
For 2021, taxpayers who take the standard deduction (rather than itemizing) can still deduct up to $300 for donations to qualifying charities ($600 for married couples filing jointly). Additionally, taxpayers who do itemize can claim charitable contribution deductions for cash contributions up to 100% of their adjusted gross income (AGI). Usually, the deduction is limited to 50% of AGI.
As always, please do not hesitate to reach out to your Brady Martz tax advisor with any questions or concerns regarding the items listed above. We are eager to work with you to ensure that you maximize your return and minimize your tax burden.