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Key Tax Provisions Impacting 2021 and 2022 Returns

Due Dates: Partnership and S-Corp returns are due on 3/15, and Personal, Trust and C-Corp returns are due on 4/18 (due to Emancipation Day). The due dates are not expected to be extended this year.

Economic Impact Payment: There were three rounds of "Economic Impact Payments" over the course of the pandemic, including a $1,400 payment last spring. These payments were made available based on 2019 or 2020 tax info (single filers earning under $75,000 and families earning under $150,000). If you did not receive the third payment, or received less than the full amount, you may be eligible for a credit on your 2021 return. For example, families with new children born in 2021 may be able to claim an additional $1,400 credit on their return. It is also important to remember that these payments are not taxable, and do not need to be repaid if your income increased in 2021.

Charitable Deduction: $300 (for cash donations) for single taxpayers who do not itemize and $600 for married couples filing jointly. Itemized filers can deduct up to 100% of their AGI in 2021.

Child Tax Credit: increased from $2,000 to $3,000 per child for children over the age of six and from $2,000 to $3,600 for children under the age of six. The age limit was also raised from 16 to 17. All working families will get the full credit if they make up to $150,000 on a joint return or $112,500 for Head of Household filers. Typically, households claim the entire credit at tax filing season, but this past year, families received up to half of their child tax credit in advance (reported on IRS letter 6419).

Dependent Care Credit: The tax credit for child and dependent care has been increased for 2021. It is now worth up to 50% of child-care costs up to $8,000 for one child and $16,000 for two or more children. Additionally, the credit is refundable for 2021.

Unemployment Benefits: the $10,200 exclusion available in 2020 was not extended for 2021 returns. Unemployment benefits are taxed as ordinary income on the federal return (exempt on Calif. returns).

Retirement Distributions and Loans: penalty-free early distributions, up to $100,000, from a qualified retirement plan or IRA if you live in a qualified disaster area. The $100,000 loan provision from the CARES Act has been extended through 2021 if you reside in a qualified disaster area.

Mortgage Insurance Premium: this deduction is available for 2021 but has not been extended for 2022.

Business Meals: 100% business expense deduction for meals (rather than the prior 50%) if the expense is for food or beverages provided by a restaurant. This provision is effective for 2021 and 2022.

Educator Expenses for Protective Equipment: the cost of personal protective equipment and other supplies used for the prevention of the spread of COVID-19 is treated as an eligible expense for purposes of the educator expense deduction (currently $250).

Education Expenses: the deduction for qualified tuition and related expenses has been repealed, but in its place, the phaseout limit on the lifetime learning credit has been increased.

Health and Dependent Care FSA: unused amounts in health and dependent care flexible spending arrangements from 2020 can be rolled over to 2021 and from 2021 to 2022.

Paycheck Protection Program: any amount received from a PPP loan that is forgiven is not considered income for tax purposes. Deductions are also allowed for otherwise deductible expenses paid with the proceeds of a forgiven PPP loan. State rules may vary.

R&D Expenses: starting in 2022, businesses will be required to amortize R&D costs over five years.

Solar Tax Credit: 26% credit for residential solar projects commencing construction in 2021 or 2022, 22% for systems commencing construction in 2023, and 10% for systems commencing in 2024 or later.

Backdoor Roth IRA Contributions: still allowed (as of now) but may be eliminated in 2022.

Virtual Currency Question: the IRS has included a yes or no question on page 1 of Form 1040 – “At any time during 2021, did you receive, sell, or otherwise acquire any financial interest in any virtual currency?" If your only transactions involving virtual currency during 2021 were purchases of virtual currency with real currency, you are not required to answer yes to the Form 1040 question. Purchases using virtual currency and all sales are taxable events and reportable.

Virtual Currency Reporting: check with your platform for tax documents. For example, Coinbase will allow US users to see their taxable activity relating to cryptocurrency in their “tax center.” The company will also send 1099-MISC forms to users who earned at least $600 from staking rewards, interest, forks and airdrops in 2021. Reporting will be required by all brokers starting in 2023.

Student Loans: student loan payments, accrual of interest, and delinquency collections are paused through May 1, 2022. Starting in 2021, loan cancellation for post-secondary education is no longer considered taxable income. Employer provided student loan assistance is excludable up to $5,250.

Required Minimum Distributions: The CARES Act paused these forced withdrawals for 2020, but RMDs are back for 2021. Seniors who turned 72 years old in 2021 have until April 1, 2022 to take the first distribution. The IRS will assess a 50% excise tax on undistributed RMDs.

1099-K for Online Business Payments: starting in 2022, the IRS requires aggregate payment transactions of $600 or greater via apps such as Venmo, PayPal, Stripe and Square to be reported on Form 1099-K. The previous threshold (in 2021 and prior years) was $20,000 or 200 transactions. This only applies to payments for sales of goods and services, and not to friends and family payments.

Earned Income Tax Credit: the maximum credit for childless workers was increased from $538 to about $1,500 and expanded to include workers as young as 19 and working seniors over 65. You can also choose to use your 2019 income to calculate your EIC if your 2019 earned income is larger than your 2021 earned income and provides a larger credit. These changes are only in place for 2021 taxes.

Gift Exclusion: increased from $15,000 to $16,000 per gift for gifts made in 2022 and future years.

Paid Leave Credit: small and midsize employers can claim a refundable tax credit to reimburse the cost of providing paid sick and family leave to their employees due to COVID-19, including leave taken by employees to receive or recover from COVID-19 vaccinations.

Employee Retention Credit: eligible employers can claim a refundable tax credit for qualified wages (including health plan expenses), paid after March 12, 2020 and before September 30, 2021. Eligible employers are those businesses with operations that have been partially or fully suspended due to governmental orders due to COVID-19, that have a significant decline in gross receipts vs. 2019.

Sick and Family Leave Credit: businesses can take dollar-for-dollar tax credits equal to qualified sick leave wages of up to $5,110 or qualified family leave wages of up to $12,000 if they offer paid leave to employees who are unable to work or telework due to COVID-19. Paid leave credits are available for periods of leave through September 2021. Facial Recognition: starting this summer, the IRS will require an account to access your tax information online through the IRS website. The sign-up process includes submitting a selfie (for facial recognition purposes) to

Expanded EV Credit: this is still pending, but the EV credit may increase in 2022 from $7,500 to $12,500 and expand to include credits for expired car makers (i.e. GM and Tesla).

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