Professional Financial Designations

When it comes to managing your personal finances, you need the right financial professional on your team. Knowing the differences between the various professional designations will help.

CPA (Certified Public Accountant):

One of the more widely recognized certifications. These professionals are tax and accounting specialists who can help with reducing taxes, preparing tax returns, and organizing investments.

CFP (Certified Financial Planner):

These experts can help with investment, estate and retirement planning. And they have a fiduciary duty to make decisions with their client’s best interest in mind.

IA (Investment Advisers):

They are regulated by either the Securities and Exchange Commission or a state regulator and are able to give advice or recommendations about specific investments. An investment adviser may also be a CFP.

https://e.clientlinenewsletter.com/mcmillcpasandadvisors

Big Changes to Child Tax Credit

The American Rescue Plan Act, signed into law in March 2021, made significant changes to the child tax credit for 2021 only — unless Congress extends these changes.

OLDER CHILDREN COVERED

The tax credit now includes children who are age 17 as of December 31, 2021.

INCREASED AMOUNT

The credit amount increased from $2,000 to $3,000 per child aged 6 to 17 and $3,600 for children under age six, as of December 31, 2021.

ELIGIBILITY

Calculating the total credit is difficult, because there are two phaseout rules that apply. The credit is reduced—or eliminated—for parents who earn above a certain amount. Your tax professional will be able to calculate how much, if any, tax credit you might receive.

ADVANCE PAYMENTS

The IRS will estimate your child tax credit for 2021 and half of it will be paid to you in monthly installments from July through December 2021.

The remaining amount due to you will be credited when you file your 2021 tax return. However, if you file your 2021 tax return and the advance payments you received exceeded your actual credit, with a few exceptions for low and moderate-income taxpayers, you’ll have to repay the excess.

https://e.clientlinenewsletter.com/mcmillcpasandadvisors

Restaurant Revitalization Fund (RRF)

Applications are now open for restaurants and other eligible businesses that have been impacted by COVID-19. The Restaurant Revitalization Fund (RRF) was established under the American Rescue Plan Act and provides up to $10 million per business and no more than $5 million per physical location for pandemic-related revenue loss. Businesses will not have to repay funds as long as they are used for eligible expenses no later than March 11, 2023.

If your business has already applied for/or received other funding options, you may still be eligible to apply for RRF. Refer to the cross-program eligibility chart on the SBA website for details.

Eligible businesses that have experienced revenue loss due to the pandemic include but is not limited to restaurants, food stands, food trucks, food carts, caterers, bars, bakeries, breweries, wineries and more.

Businesses receiving the funds must use the funds for specific expenses, no later than March 11, 2023, to avoid repayment. These approved expenses include business payroll costs (including sick leave), payments on business mortgage obligations, business rent payments (not including prepayment of rent), business debt service, business utility payments, business maintenance expenses, construction of outdoor seating, business supplies (including protective equipment and cleaning materials), business food and beverage expenses, covered supplier costs and business operating expenses.  

Applications may be submit at https://restaurants.sba.gov or through an SBA-recognized Point of Sale (POS) vendor. POS vendors include Square, Toast, Clover NCR Corporation (Aloha), and Oracle. View a sample of the application to assist with application preparation here.

For complete details and updates regarding the RRF, including a list of required documentation for application, visit the SBA website.

Posted 5/3/2021

Understanding Interest Rates

From a mortgage to credit cards, interest rates affect nearly everyone’s budget. Understanding how interest rates are set and how your credit score affects the rate you receive can show you ways to potentially pay less.

HOW RATES ARE SET

The twelve Fed members of the Federal Open Market Committee set the federal funds rate. The prime interest rate is actually set by individual banks. The federal funds rate is the amount banks charge each other for short-term loans and the starting point to set the prime rate for consumers. So, there is not just one prime interest rate. The prime rate you see published is usually an average of several large banks’ prime rates for that day. However, the most used prime rate is the one that the Wall Street Journal publishes daily.

Alternatively, some international banks or large banks with many international customers use the London Interbank Offer Rate (LIBOR) instead of the federal funds rate as their starting point.

CREDITWORTHINESS COUNTS

Banks generally charge their most creditworthy customers the prime rate. If you have less than an excellent credit score, you will pay a higher rate.

Variable interest rate loans, like adjustable-rate mortgages and credit cards, are impacted by the prime rate. For example, when the prime rate rises, the rate on your credit card will likely rise. Personal and auto loans have a fixed rate, which will not fluctuate with interest rates.

YOUR CREDIT SCORE

Depending on which model is used, credit scores range from fair to excellent. The interest rate you receive is influenced by your credit score, which you can improve over time, if necessary. The following responsible credit behaviors impact your credit score:

  • Consistently pay bills on time
  • Keep credit card balances low—the ratio between balance and credit limit is important
  • Apply for credit only when absolutely necessary
  • Pay off debt—the ratio between debt and income is important
  • Check your credit reports regularly.

source: https://e.clientlinenewsletter.com/mcmillcpasandadvisors

WEBINAR – 4/7/2021 Market Update: Lessons Learned from the Past Year in the Market

It’s been about a year since the market bottomed in 2020, and stocks around the world have rebounded strongly from their pandemic lows. What lessons can investors draw from the past year as they look toward what’s ahead through 2021 and beyond? Apollo Lupescu, PhD and Jared Faltys, CPA/PFS will provide insight into recent market events, examine the speed at which the direction of the market can change, dissect the performance of value stocks, and review key investment principles for the economic recovery.

Recorded 4/7/2021

Reminder of Special Tax Breaks

The December 2020 stimulus package provided a few noteworthy tax breaks for companies.

A temporary tax break for 2021 and 2022 allows businesses to deduct 100% of business meals eaten at a restaurant, up from the usual 50%.

For businesses hard hit by the COVID-19 pandemic, the Employee Retention Tax Credit is available for the first half of 2021. Eligible businesses that were either shut down by the government or incurred at least a 20% reduction in gross receipts for one of the first two quarters of 2021 may qualify for this credit of up to $14,000 per employee. Claim this credit when you file quarterly form 941.

The Work Opportunity Tax Credit and the Family Medical Leave Tax Credit were extended to December 31, 2025.

Employers who pay qualified education expenses, including student loan payments, for employees can deduct up to $5,250 per employee through 2025.

source: https://e.clientlinenewsletter.com/mcmillcpasandadvisors

Tax Benefits for Education

The IRS provides numerous tax breaks for higher education expenses. Tax credits and tax-deferred savings plans take some of the sting out of paying for college.

TAX CREDITS

The American Opportunity Tax Credit is available to students in the first four years of higher education. Using this credit can offset up to $2,500 of qualified education expenses per year. Students pursuing a degree or other education credential who are enrolled at least half time for one academic period are eligible. Although there are additional requirements to claim this credit, including income limitations, up to $1,000 of this credit is refundable.

The Lifetime Learning Credit (LLC) is another educational tax credit. It’s available to undergraduate and graduate students enrolled for at least one academic period in the year. The LLC isn’t limited to degree-seekers. Costs related to acquiring or improving job skills qualify. While this credit isn’t refundable, there is no limit to the number of years you can claim it.

TAX-DEFERRED SAVINGS PLANS

Qualified tuition plans, commonly known as 529 plans, come in two forms: prepaid tuition plans and education savings plans. Tuition plans allow savers to buy tuition credits at participating universities at current prices, while education savings plans use investment accounts to save cash for future education expenses.

Education savings plans are the more versatile of the two types of 529 plans. They can be used at any university and up to $10,000 per year can be used for elementary and secondary school tuition.

Coverdell Education Savings Accounts allow savers to put away up to $2,000 for each beneficiary per year that can be used for college, secondary, or elementary school expenses and qualified distributions are tax-free.

You can only claim one of the tax credits each year per student but the credit can be used together with savings plans, as long as there is no double-dipping.

source: https://e.clientlinenewsletter.com/mcmillcpasandadvisors

Tax Deadline Updates!

Details on the extensions issued by the IRS:

• There has been a 30 day extension (to May 17th, 2021) to file your federal income tax return and to pay your balance due for the 2020 tax year.
• There has been a 30 day extension (to May 17th, 2021) to file your Nebraska state income tax return and to pay your balance due for the 2020 tax year.
• The first quarter estimated 2021 federal and Nebraska state tax payments have not been extended and remain due on April 15th, 2021.

Please call our office if you have questions on any of these deadlines. McMill CPAs & Advisors will issue additional communication if any of these deadlines change.

Updated 3/19/21

American Rescue Plan Act signed—a quick look

President Biden signed the American Rescue Plan Act today, March 11th, 2021.

Among the act’s many provisions there are several tax related items to pass along.

Here is a look at the key tax provisions that may affect you:

Unemployment benefits

The act makes the first $10,200 in unemployment benefits tax-free in 2020 for taxpayers making less than $150,000 per year.

Recovery rebates

The act creates a new round of economic impact payments to be sent to qualifying individuals. These are similar to the prior ones as they are set up as advance payments of a recovery rebate credit. The act provides individuals with a $1,400 recovery rebate credit ($2,800 for married taxpayers filing jointly) plus $1,400 for each dependent for 2021, including college students and qualifying relatives who are claimed as dependents. As with last year’s economic impact payments, the IRS will send out the advance payments of the credit.

For single taxpayers, the credit and corresponding payment will begin to phase out at an adjusted gross income (AGI) of $75,000, and the credit will be completely phased out for single taxpayers with an AGI over $80,000. For married taxpayers who file jointly, the phaseout will begin at an AGI of $150,000 and end at AGI of $160,000. And for heads of household, the phaseout will begin at an AGI of $112,500 and be complete at AGI of $120,000.

The act uses 2019 AGI to determine eligibility, unless the taxpayer has already filed a 2020 return. 

Child tax credit

The act expands the child tax credit in several ways and provides that taxpayers can receive the credit in advance of filing a return. The act makes the credit fully refundable for 2021 and makes 17-year-olds eligible as qualifying children.

The act increases the amount of the credit to $3,000 per child ($3,600 for children under 6). The increased credit amount phases out for taxpayers with incomes over $150,000 for married taxpayers filing jointly, $112,500 for heads of household, and $75,000 for others, reducing the expanded portion of the credit by $50 for each $1,000 of income over those limits.

The IRS is directed to estimate taxpayers’ child tax credit amounts and pay monthly in advance one-twelfth of the annual estimated amount. Payments will run from July through December 2021.

The IRS must set up an online portal to allow taxpayers to opt out of advance payments or provide information that would be relevant to modifying the amount.

The taxpayer in general will have to reconcile the advance payment amount with the actual credit amount on next year’s return and increase taxable income by the excess of the advance payment amount over the actual credit allowed. But taxpayers whose modified AGI for the tax year does not exceed 200% of the applicable income threshold ($60,000 for married taxpayers filing jointly) will have the increase for an excess advance payment reduced by a safe harbor amount of $2,000 per child.

Earned income tax credit

The act also makes several changes to the earned income tax credit. It introduces special rules for individuals with no children: For 2021, the applicable minimum age is decreased to 19, except for students (24) and qualified former foster youth or homeless youth (18). The maximum age is eliminated.

The threshold for disqualifying investment income would be raised from $2,200 to $10,000.

Temporarily, taxpayers would be allowed to use their 2019 income instead of 2021 income in figuring the credit amount.

Child and dependent care credit

The act makes various changes to the child and dependent care credit, effective for 2021 only, including making it refundable. The credit will be worth 50% of eligible expenses, up to a limit based on income, making the credit worth up to $4,000 for one qualifying individual and up to $8,000 for two or more. Credit reduction will start at household income levels over $125,000. For households with income over $400,000, the credit can be reduced below 20%.

The act also increases the exclusion for employer-provided dependent care assistance to $10,500 for 2021.

Family and sick leave credits

The credits are extended to Sept. 30, 2021. These fully refundable credits against payroll taxes compensate employers and self-employed people for coronavirus-related paid sick leave and family and medical leave.

The act increases the limit on the credit for paid family leave to $12,000.

The number of days a self-employed individual can take into account in calculating the qualified family leave equivalent amount for self-employed individuals increases from 50 to 60.

The paid leave credits will be allowed for leave that is due to a COVID-19 vaccination.

The limitation on the overall number of days taken into account for paid sick leave will reset after March 31, 2021.

Employee retention credit

The act extends this credit through the end of 2021. The employee retention credit was originally enacted in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and it allows eligible employers to claim a credit for paying qualified wages to employees.

Under the act, the employee retention credit would be allowed against the Sec. 3111(b) Medicare tax.  We will be readdressing this credit with employers later this spring. 

Premium tax credit

The act expands the premium tax credit for 2021 and 2022 by changing the applicable percentage amounts.  Taxpayers who received too much in advance premium tax credits in 2020 will not have to repay the excess amount. A special rule is added that treats a taxpayer who has received, or has been approved to receive, unemployment compensation for any week beginning during 2021 as an applicable taxpayer.  We will need to watch for further information related to this.

Student loans

The act amends Sec. 108(f) to specify that gross income does not include any amount that would otherwise be included in income due to the discharge of any student loan after Dec. 31, 2020, and before Jan. 1, 2026.

SBA/EIDL Grants

The act provides that targeted Economic Injury Disaster Loan (EIDL) grants received from the U.S. Small Business Administration (SBA) are not included in gross income and that this exclusion from gross income will not result in a denial of a deduction, reduction of tax attributes, or denial of basis increase. Similar treatment is afforded SBA restaurant revitalization grants.

As you can see, there are many changes to the tax rules of which not only affect the future but some retroactive to the year of 2020. We will monitor these developments as they are released. Don’t worry if you have already filed your 2020 tax return, they can be amended to take advantage of any changes that are applicable to you. There will be many changes from Congress and we will maintain a constant eye on them for you. Don’t hesitate to call if questions, but in the meantime we will analyze this new tax act and see how it applies to you.