GET READY TO HAVE YOUR REFUND LOWERED THIS TAX YEAR! THAT’S RIGHT. IF YOU ARE A FAMILY WITH CHILDREN UNDER AGE 18, YOUR CHILD TAX CREDIT WILL BE CAPPED AT $2000 THIS TAX YEAR INSTEAD OF THE MORE GENEROUS $3000 CREDIT FOR CHILDREN AGE 17 TO AGE 7 OR $3600 FOR CHILDREN UNDER AGE 7.
ANOTHER NEGATIVE SITUATION IS FOR PARENTS OF CHILDREN UNDER AGE 13 OR DISABLED DEPENDENTS, WHERE IT’S NECESSARY TO PAY FOR DAYCARE IN ORDER FOR THE TAXPAYER TO WORK SINCE THAT DAYCARE CREDIT HAS ALSO DECREASED. NOW, THE MAXIMUM CREDIT IS LIMITED TO 30% OF WHAT WAS PAID FOR DAYCARE FROM 50%. FURTHER, LAST YEAR’S DAYCARE CREDIT HAD A REFUNDABLE FEATURE WHERE THIS YEAR, IT’S NON REFUNDABLE.
THE EARNED INCOME CREDIT HAS ALSO COME UNDER FIRE FOR TAXPAYERS UNDER AGE 24 SINCE LAST YEAR YOU QUALIFIED FOR THE EIC ONCE YOU REACHED AGE 19. THIS YEAR, IT’S GONE BACK TO THE OLD RULE OF AGE 24 TO QUALIFY IF YOU DON’T HAVE DEPENDENT CHILDREN.
THE TAX BRACKETS HAVE BEEN EXPANDED FOR INFLATION WHICH MEANS MORE MONEY WILL BE TAXED AT A LOWER RATE. THAT’S A POSITIVE MOVE. THE SAME HOLDS TRUE WITH AN INCREASE IN THE STANDARD DEDUCTIONS.
DON’T FORGET THE 3RD INSTALLMENT IS DUE IF YOU WERE SOMEONE WHO WITHDREW MONEY FROM A PENSION OR IRA DUE TO A COVID EMERGENCY WHERE THE IRS ALLOWED YOU TO SPREAD OUT THE TAXABILITY OVER A 3 YEAR PERIOD. THIS YEAR IS THE FINAL INSTALLMENT OF THAT TAX.
LET US NOT FORGET ABOUT THE NEW RULES FOR THE 1099K FORM. NOW, IF YOU USE A THIRD PARTY TO SELL ITEMS OR RECEIVE MONEY THAT EXCEEDS $600 ANNUALLY, YOU WILL RECEIVE THE FORM 1099K. ON IT, THE IRS ASSUMES YOU ARE IN THE BUSINESS OF SELLING ITEMS. IT IS VERY IMPORTANT THAT YOU KEEP GOOD RECORDS REGARDING THE COST BASIS OF THE ITEMS BEING SOLD AND WHETHER OR NOT THE ITEMS WERE PERSONAL OR BUSINESS IN NATURE.
FOR EXAMPLE, ASSUME YOU HAD TICKETS TO A CONCERT THAT COST YOU $1000 BUT YOU WERE UNABLE TO ATTTEND DUE TO SOME UNSEEN EMERGENCY SO YOU SOLD THESE TICKETS ON EBAY FOR $700. SINCE THE SALES EXCEEDED THE $600 THRESHOLD, YOU WILL RECEIVE FORM 1099K WHERE THE IRS WILL ASSUME THAT YOU ARE IN THE BUSINESS OF SELLING ITEMS. WHEN YOU PREPARE THE SCH C. TO REPORT THAT SALE, YOU WILL INCLUDE THE COST LIMITED TO THE SALE PRICE SINCE IT WAS A PERSONAL SALE RATHER THAN BUSINESS OR $700…..RESULTING IN NO GAIN AND NO LOSS.
HOWEVER, IF YOU ARE IN THE BUSINESS OF SELLING ITEMS OR TICKETS, YOU NEED TO KEEP TRACK OF ALL YOUR EXPENSES INCLUDING THE COST OF THE ITEMS BEING SOLD. EG TAX WILL HELP YOU IF YOU RECEIVE THE 1099K FORM AND YOU DON’T KNOW WHAT TO DO WITH IT….BUT, MAKE SURE YOU DON’T IGNORE IT AS IT WILL CAUSE AN AUDIT.