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There’s Still Time To Make an IRA Contribution for 2021
If you haven’t contributed funds to an Individual Retirement Account (IRA) for tax year 2021, or if you’ve put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 18, 2022, due date (April 19 if you live in Maine or Massachusetts), not including extensions.
Be sure to tell the IRA trustee that the contribution is for 2021. Otherwise, the trustee may report the contribution as being for 2022 when they get your funds.
Generally, you can contribute up to $6,000 of your earnings for tax year 2021 (up to $7,000 if you are age 50 or older). You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts.
Traditional IRA. You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer’s pension plan.
Roth IRA. You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.
Each year, the IRS announces the cost of living adjustments and limitations for retirement savings plans.
Saving for retirement should be part of everyone’s financial plan, and it’s important to review your retirement goals every year to maximize savings. If you need help with your retirement plans, give the office a call.
What Is the Credit for Other Dependents?
The credit for other dependents is a tax credit available to taxpayers for each of their qualifying dependents who can’t be claimed for the child tax credit. The maximum credit amount is $500 for each dependent who meets certain conditions. These include:
- Dependents who are age 17 or older.
- Dependents who have individual taxpayer identification numbers.
- Dependent parents or other qualifying relatives supported by the taxpayer.
- Dependents living with the taxpayer who aren’t related to the taxpayer.
The credit begins to phase out when the taxpayer’s income is more than $200,000. This phaseout begins for married couples filing a joint tax return at $400,000.
A taxpayer can claim this credit if:
- They claim the person as a dependent on the taxpayer’s return.
- They cannot use the dependent to claim the child tax credit or additional child tax credit.
- The dependent is a U.S. citizen, national or resident alien.
Taxpayers can claim the credit for other dependents in addition to the child and dependent care credit and the earned income credit. The worksheet in Publication 972, Child Tax Credit and Credit for Other Dependents helps taxpayers determine if they can claim the credit for other dependents.
For more information about this important tax credit for families, please call the office.
Business Meals Fully Deductible in 2021 and 2022
Beginning January 1, 2021, and extending through December 31, 2022, businesses can claim 100% of their food or beverage expenses paid to restaurants as long as the business owner (or an employee of the business) is present when food or beverages are provided, and the expense is not lavish or extravagant under the circumstances.
In most tax years, there is a 50% limit on the amount that businesses may deduct for food or beverages. The temporary exception was included in the Taxpayer Certainty and Disaster Relief Act of 2020, part of a series of tax laws intended to provide coronavirus-related relief.
Where can businesses get food and beverages and claim 100%?
Under the temporary provision, restaurants include businesses that prepare and sell food or beverages to retail customers for immediate on-premises and/or off-premises consumption. However, restaurants do not include businesses that primarily sell pre-packaged goods, not for immediate consumption, such as grocery stores and convenience stores.
Additionally, an employer may not treat certain employer-operated eating facilities like restaurants, even if a third party operates these facilities under contract with the employer.
For more information about this and other coronavirus-related tax relief for business owners, please contact the office today.
Employee Business Expense Deductions: Who Qualifies?
Prior to tax reform, an employee could deduct unreimbursed job expenses, along with certain other miscellaneous expenses, that were more than two percent of adjusted gross income (AGI) as long as they itemized instead of taking the standard deduction. Starting in 2018, however, most taxpayers can no longer claim unreimbursed employee expenses as miscellaneous itemized deductions unless they are a qualified employee or eligible educator.
No other type of employee is eligible to claim a deduction for unreimbursed employee expenses. In other words, employee business expenses can be deducted as an adjustment to income only for eligible educators and specific employment categories such as:
- Armed Forces reservists
- Qualified performing artists
- Fee-basis state or local government officials
- Employees with impairment-related work expenses
A qualified expense is one that is:
- Paid or billed during the tax year
- Used for carrying on a trade or business of being an employee, and
- Ordinary and necessary
Taxpayers should also know there are nondeductible expenses as well. Examples of nondeductible expenses include club dues, commuting expenses, fees and licenses, such as car licenses, lunches with co-workers, meals while working late, expenses to improve professional reputation, and capital expenses. A full list of nondeductible expenses can be found in Publication 529, Miscellaneous Deductions.
Please call if you have any questions.
The Facts: Taxable vs. Nontaxable Income
Are you wondering if there’s a hard and fast rule about what income is taxable and what income is not taxable? The quick answer is that all income is taxable unless the law specifically excludes it. But as you might have guessed, there’s more to it than that.
Taxable income includes any money you receive, such as wages, tips, and unemployment compensation. It can also include noncash income from property or services. For example, both parties in a barter exchange must include the fair market value of goods or services received as income on their tax return.
Here are some types of income that are usually not taxable:
- Gifts and inheritances
- Child support payments
- Welfare benefits
- Damage awards for physical injury or sickness
- Cash rebates from a dealer or manufacturer for an item you buy
- Reimbursements for qualified adoption expenses
Under the CARES Act, emergency financial aid grants made to students at a higher education institution because of an event related to the COVID-19 pandemic are not included in the student’s gross income.
In addition, some types of income are not taxable except under certain conditions, including:
- Life insurance proceeds paid to you are usually not taxable. But if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.
- Income from a qualified scholarship is normally not taxable; that is, amounts you use for certain costs, such as tuition and required books, are not taxable. However, amounts used for room and board are taxable.
- If you received a state or local income tax refund, the amount might be taxable. You should have received a 2021 Form 1099-G from the agency that made the payment to you. The agency might have provided the form electronically if you didn’t get it by mail. Contact them to find out how to get the form. Be sure to report any taxable refund you received even if you did not receive Form 1099-G.
If you have any questions about taxable and nontaxable income, don’t hesitate to contact the office today.