If you happen to thought final tax season was difficult, brace your self. Most of the situations that prompted the IRS Taxpayer Advocate Service to explain 2021 as “probably the most difficult 12 months taxpayers and tax professionals have ever skilled” are again. And so they introduced some associates.
There are a number of objects to which tax professionals ought to give particular consideration when getting ready filings this season.
Advance little one tax credit score funds
Hopefully your shoppers are watching their mail for IRS Letter 6419. If they’ve already obtained it, hopefully they didn’t recycle it. The letter, which started going out in late December, offers documentation on the advance little one tax credit score funds that had been issued throughout 2021.
One facet of Letter 6419 that might trigger confusion is the truth that each dad and mom will obtain a letter in some instances. The TAS, in a TAS Tax Tip issued Jan. 25, warns dad and mom they have to add collectively the quantities from the 2 letters to find out the full quantity of advance little one tax credit score funds that should be reported.
How is it decided who will get two letters? The reason offered by the TAS is slightly complicated. It identifies dad and mom who claimed “married submitting collectively” on the return that was utilized by the IRS to calculate the advance funds and oldsters who “might be submitting a joint tax return for 2021” as those that ought to count on two letters. It’s unclear how the IRS is figuring out who might be submitting a joint return.
If that isn’t complicated sufficient, the IRS introduced on January 24 that a number of the letters already mailed out by the IRS could include errors. It didn’t give numbers on what number of probably unhealthy letters went out, however famous they had been associated to taxpayers who moved or modified financial institution accounts in December 2021.
To make sure the knowledge associated to the kid tax credit score is right, the very best apply could also be to substantiate the quantities utilizing the Baby Tax Credit score Replace Portal on IRS.gov. An up to date IRS webpage at www.childtaxcredit.gov offers extra info.
Restoration rebate credit
IRS Letter 6475, which filers had been speculated to obtain by the top of January 2022, pertains to the financial affect funds, generally often called stimulus funds, that had been issued in 2020 and 2021. Those that both didn’t obtain a 2021 stimulus fee, which might have been issued between March and December 2021, or who didn’t obtain the complete quantity to which they had been entitled, could also be eligible to obtain a restoration rebate credit score. IRS Letter 6475 will include the knowledge that’s wanted to find out eligibility.
The IRS issued a reality sheet in January 2022 that explains a number of the circumstances that will have led to taxpayers not receiving the 2021 stimulus fee or not receiving the correct quantity. It additionally explains how “plus-up funds” could have an effect on eligibility for the restoration rebate credit score. As soon as eligibility is decided, a tax return should be filed to assert it, even when the return will not be required primarily based on revenue.
Unemployment revenue
Whereas the variety of folks submitting for unemployment advantages decreased steadily all through 2021, tax professionals should be serving to extra folks than regular with filings that embrace unemployment revenue. For taxpayers with unemployment revenue, it’s essential to notice that the availability offered by the American Rescue Plan Act, which allowed for as much as $10,200 in unemployment advantages to be exempted from taxes in 2020, is not in impact.
The federal, state or native company that offered the advantages will report them to the taxpayer on Kind 1099-G. In early 2021, the IRS issued a information launch warning taxpayers of schemes wherein stolen identities had been getting used to assert unemployment advantages. It suggested anybody who obtained a Kind 1099-G reporting revenue that they didn’t accumulate to report it to the suitable company and request a corrected kind.
Residence workplace bills
Taxpayers looking for to assert deductions associated to dwelling workplace bills could need assistance understanding these deductions usually don’t apply to staff who shifted to distant work on account of the COVID pandemic. IRS steerage on the problem explains that workers “who obtain a paycheck or a W-2 solely from an employer are usually not eligible for the deduction, even when they’re at present working from dwelling.”
Typically, the provisions associated to dwelling workplace deductions apply to those that are self-employed or impartial contractors. Those that take part within the gig economic system, which the IRS defines as individuals who “earn revenue offering on-demand work, companies or items,” may also usually declare the deductions.
Worker retention credit
The passage of the Coronavirus Help, Reduction, and Financial Safety (CARES) Act in early 2020 established worker retention credit in an effort to carry tax reduction to sure qualifying companies. The Infrastructure Funding and Job Act signed by President Biden in late 2021 set an expiration date of Sept. 30, 2021, for the credit.
Usually, the credit can be found to companies that both had been ordered by the federal government to shut as a result of pandemic or noticed a big drop in gross receipts on account of the pandemic. Tax professionals ought to pay particular consideration to companies that will have obtained tax credit for the ultimate quarter of 2021 prematurely as these credit will must be repaid to keep away from penalties.
Processing delays
Whereas the IRS has promised that it’ll “work laborious to ship refunds rapidly,” it additionally warns there are a number of elements that may result in delays. It advises these getting ready filings to be particularly cautious to make sure that info associated to Earned Revenue Tax Credit and little one tax credit be right. These hoping for quick returns ought to comply with the recommendation of the IRS and use digital submitting and direct deposit.