Category: Blog

Recently, there were changes made to the child tax credit that will benefit many taxpayers. As part of the American Rescue Plan Act that was enacted in March 2021, the child tax credit:

• Amount has increased for certain taxpayers
• Is fully refundable (meaning you can receive it even if you don’t owe the IRS)
• May be partially received in monthly payments

The new law also raised the age of qualifying children to 17 from 16, meaning some families will be able to take advantage of the credit longer.

The IRS will pay half the credit in the form of advance monthly payments beginning July 15. Taxpayers will then claim the other half when they file their 2021 income tax return.

Though these tax changes are temporary and only apply to the 2021 tax year, they may present important cashflow and financial planning opportunities today. It is also important to note that the monthly advance of the child tax credit is a significant change. The credit is normally part of your income tax return and would reduce your tax liability. The choice to have the child tax credit advanced will affect your refund or amount due when you file your return. To avoid any surprises, please contact our office.

Qualifications and how much to expect

The child tax credit and advance payments are based on several factors, including the age of your children and your income.

• The credit for children ages five and younger is up to $3,600 –– with up to $300 received in monthly payments.
• The credit for children ages six to 17 is up to $3,000 –– with up to $250 received in monthly payments.

To qualify for the child tax credit monthly payments, you (and your spouse if you file a joint tax return) must have:

• Filed a 2019 or 2020 tax return and claimed the child tax credit or given the IRS your information using the non-filer tool
• A main home in the U.S. for more than half the year or file a joint return with a spouse who has a main home in the U.S. for more than half the year
• A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number
• Income less than certain limits

You can take full advantage of the credit if your income (specifically, your modified adjusted gross income) is less than $75,000 for single filers, $150,000 for married filing jointly filers and $112,500 for head of household filers. The credit begins to phase out above those thresholds.

Higher-income families (e.g., married filing jointly couples with $400,000 or less in income or other filers with $200,000 or less in income) will generally get the same credit as prior law (generally $2,000 per qualifying child) but may also choose to receive monthly payments.

Taxpayers generally won’t need to do anything to receive any advance payments as the IRS will use the information it has on file to start issuing the payments.

The IRS should be sending out a letter 6417 within the next few weeks outlining your expected monthly deposit should you choose to stay enrolled in the monthly advance payments. If you are curious what monthly payment you will be receiving, please use this estimator tool in the meantime. 

IRS’s child tax credit update portal

Using the IRS’s child tax credit and update portal, taxpayers can update their information to reflect any new information that might impact their child tax credit amount, such as filing status or number of children. Parents may also use the online portal to elect out of the advance payments or check on the status of payments.

The IRS also has a non-filer portal to use for certain situations.

The IRS has issued various FAQ’s to guide taxpayers through this process.

If you have any questions regarding the updates to the child tax credit, please reach out to your accountant.

Natural and human-made disasters can strike anywhere and anytime. Here are ways your business can be prepared.

• Identify all your risks. Hurricanes, floods and wildfires may be on your list. But consider prolonged power outages and cyber threats.
• Develop an emergency plan, communicate employees’ responsibilities and have alternate locations where you can work.
• Design a process for how to return to normal afterwards. Consider ways to compensate for lost revenue and other damages.
• Store computer files off site and/ or in the Cloud. Draft a detailed IT recovery plan.
• Map out evacuation routes in your building and practice them with your staff. Train employees on what to do should a crisis occur.
• Consider having emergency kits or supplies on hand like batteries, first aid supplies, flashlights, and extra building and office keys.

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

Knowing how much your business is worth can do more than figure out how much money you can get when you sell it. Creating an accurate valuation is part of an ongoing business strategy.

COMPARING AND PROJECTING

Think of a business valuation as an appraisal, which is generally created by analyzing a company’s tangible and intangible assets relative to its liabilities and debts. Some valuation methods will also consider how profitable the company is on an annual basis, and others will compare your business’s financial statements with similar companies. There are numerous valuation methodologies and which one is best for you will depend on your business.

KNOW WHEN

Business valuations are most often completed when a company is being sold. But valuations can also be useful when there are tax disputes with the IRS or when additional owners are brought in, or old partners are cashing out and leaving. And if a business wants to secure a sizable loan or investor funding, a valuation can offer credibility to justify the risk.

Valuations also help owners measure progress, identify hiccups or gaps in company infrastructure, and provide a benchmark as to how your company performs against your peers or industry best practices.

Maybe you weren’t planning to sell. But if the value of your business has increased significantly, selling now might make sense.

MAKE A CHOICE

You can run your own informal valuation at any time. But if you need a third-party valuation, you’ll need an experienced independent appraiser trained to use unbiased methods. And if your company operates in a heavily regulated industry, hiring someone with in-depth regulatory knowledge is a must.

BEYOND VALUATION

Make sure all aspects of your operation are up-to-date. A few examples include: record-keeping, outstanding legal matters, insurance coverage and intellectual property documentation.

If you are in need of a business valuation, please reach out and one of our Certified Valuation Analysts (CVA) would be happy to assist you!

source: https://e.clientlinenewsletter.com/mcmillcpasandadvisors/2021May/Valuing_Your_Business

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

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

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

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

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

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