TaxBrief

Keeping you informed      November 2021

C. Kelly Accounting, Inc
26741 Portola Pkwy,
Ste 1E, # 803
Foothill Ranch, CA 92610

Tel: 678-822-5910/678-253-8589
Fax: 1-877-518-2804

Email: info@ckellyaccounting.com
www.ckellyaccounting.com

As 2021 comes to a close, we’ve highlighted a few key issues to watch for as you get ready to have your 2021 tax return prepared.

Required minimum distributions

Required minimum distribution (RMDs) were
waived for tax year 2020 only, so don’t forget to
take your RMD for 2021 by Dec. 31, 2021.
If you turn 70½ after 2019, you must begin taking
RMDs from your traditional IRA by April 1 of
the year following the year you reach age 72. For
example, if you turned 72 in September 2021, you
can either take your 2021 RMD in 2021 or you can
wait until April 1, 2022. However, you must take
your 2022 RMD by Dec. 31, 2022, which means
you’ll have two RMDs to report on your 2022
return if you wait.
If you fail to take your RMD, you’re subject to
a 50% excise tax on the amount not distributed.
Don’t panic though. You can ask the IRS to waive
the tax due to reasonable error if you take steps to
explain what needs to be done and prepare the
necessary paperwork.

Charitable contributions

Ordinarily, if you choose to claim the standard
deduction, you cannot deduct your charitable con-
tributions. Good news though, if you don’t itemize
deductions for 2021, you may deduct up to $300
($600 if MFJ) on your 2021 tax return for cash con-
tributions made to most charitable organizations.
If it’s better for you to itemize deductions, you can
elect to apply a 100%-of-AGI deduction limit for
cash contributions made to most charitable orga-
nizations during 2021. Without this election, the
usual percentage limit applies (normally 60%), and
years. We can discuss which AGI limit is best for
Remember to obtain an acknowledgment letter
retain a canceled check or credit card receipt for
contributions of cash.

As 2021 comes to a close, we’ve highlighted a few key issues to watch for as you get ready to have your 2021 tax return prepared.

Required minimum distributions

Required minimum distribution (RMDs) were
waived for tax year 2020 only, so don’t forget to
take your RMD for 2021 by Dec. 31, 2021.
If you turn 70½ after 2019, you must begin taking
RMDs from your traditional IRA by April 1 of
the year following the year you reach age 72. For
example, if you turned 72 in September 2021, you
can either take your 2021 RMD in 2021 or you can
wait until April 1, 2022. However, you must take
your 2022 RMD by Dec. 31, 2022, which means
you’ll have two RMDs to report on your 2022
return if you wait.
If you fail to take your RMD, you’re subject to
a 50% excise tax on the amount not distributed.
Don’t panic though. You can ask the IRS to waive
the tax due to reasonable error if you take steps to
explain what needs to be done and prepare the
necessary paperwork.

Charitable contributions

Ordinarily, if you choose to claim the standard
deduction, you cannot deduct your charitable con-
tributions. Good news though, if you don’t itemize
deductions for 2021, you may deduct up to $300
($600 if MFJ) on your 2021 tax return for cash con-
tributions made to most charitable organizations.
If it’s better for you to itemize deductions, you can
elect to apply a 100%-of-AGI deduction limit for
cash contributions made to most charitable orga-
nizations during 2021. Without this election, the
usual percentage limit applies (normally 60%), and
years. We can discuss which AGI limit is best for
Remember to obtain an acknowledgment letter
retain a canceled check or credit card receipt for
contributions of cash.

Child and dependent care credit

For 2021 only, the child and dependent care credit
if you have no tax liability, so don’t forget to keep
track of your work-related child care expenses.
The dollar limit for eligible expenses is $8,000 for
one child and $16,000 for two or more qualifying
children. If your income is $125,000 or less, you
get the maximum 50% credit rate. Otherwise, if
your income is more than $125,000, the 50% rate
decreases as your income rises. The credit becomes
unavailable when your income exceeds $438,000.

In addition, you may be eligible to exclude up to
$10,500 ($5,250 if MFS) of employer-provided
2021. However, you cannot use any child care
child and dependent care credit.

Child tax credit

For 2021 only, the child tax credit (CTC) increased
from $2,000 to $3,000 for each child under
age 18, or $3,600 for each child under age 6.
Unfortunately, the extra amount ($1,000 or $1,600,
respectively) is reduced when income exceeds
(MFJ) and qualifying widow(er)s (QW), $112,500
for heads of household (HOH) and $75,000 for
single taxpayers. Good news though: the normal
$2,000 credit amount phases out as usual at
$400,000 for MFJ and $200,000 for all others.
Thus, higher income taxpayers may lose some of
the credit but not all of it. It’s also fully refundable
if you have no tax liability.

You also probably noticed that advance CTC
payments were made monthly from July through
December 2021. These payments were estimates
of your 2021 CTC, generally based on your 2020
tax return. If you received advance payments in
excess of the CTC allowed on your 2021 return
due to a change in circumstances, you may have
to repay some or all of the excess amount. For
example, you may have a 2021 repayment in a
shared custody arrangement if you claim your
child only in even-numbered years. There is some
repayment protection depending on your income
level. However, if your income equals or exceeds
$120,000 for MFJ or QW, $100,000 for HOH or

$80,000 for single or MFS, plan on repaying the
entire excess amount as additional income tax on
your 2021 return.
In January 2022, the IRS will send Letter 6419,
which provides the total amount of advance CTC
payments that were disbursed to you during 2021.
Keep this letter to give to us when we prepare your
2021 tax return.

Education tax benefits

For 2021, the tuition and fees deduction is gone,
credit if your income is below $90,000 ($180,000
if MFJ), which matches the income limitations for
the American opportunity tax credit. Furthermore,
the CARES Act are excluded from gross income,
tax-free grants can still be used to claim an
education credit. Bring in your tuition statements
at tax time so we can claim the maximum credit
using all eligible expenses.

There’s also a special rule for student loans dis-
charged in 2021 through 2025. For certain types
of loans, you can exclude the debt discharge
this exclusion.

Qualified principal residence debt exclusion

If the home acquisition debt on your principal
residence was canceled after 2017, you may exclude
up to $2 million ($1 million if MFS) from gross

Child and dependent care credit

For 2021 only, the child and dependent care credit
if you have no tax liability, so don’t forget to keep
track of your work-related child care expenses.
The dollar limit for eligible expenses is $8,000 for
one child and $16,000 for two or more qualifying
children. If your income is $125,000 or less, you
get the maximum 50% credit rate. Otherwise, if
your income is more than $125,000, the 50% rate
decreases as your income rises. The credit becomes
unavailable when your income exceeds $438,000.

In addition, you may be eligible to exclude up to
$10,500 ($5,250 if MFS) of employer-provided
2021. However, you cannot use any child care
child and dependent care credit.

Child tax credit

For 2021 only, the child tax credit (CTC) increased
from $2,000 to $3,000 for each child under
age 18, or $3,600 for each child under age 6.
Unfortunately, the extra amount ($1,000 or $1,600,
respectively) is reduced when income exceeds
(MFJ) and qualifying widow(er)s (QW), $112,500
for heads of household (HOH) and $75,000 for
single taxpayers. Good news though: the normal
$2,000 credit amount phases out as usual at
$400,000 for MFJ and $200,000 for all others.
Thus, higher income taxpayers may lose some of
the credit but not all of it. It’s also fully refundable
if you have no tax liability.

You also probably noticed that advance CTC
payments were made monthly from July through
December 2021. These payments were estimates
of your 2021 CTC, generally based on your 2020
tax return. If you received advance payments in
excess of the CTC allowed on your 2021 return
due to a change in circumstances, you may have
to repay some or all of the excess amount. For
example, you may have a 2021 repayment in a
shared custody arrangement if you claim your
child only in even-numbered years. There is some
repayment protection depending on your income
level. However, if your income equals or exceeds
$120,000 for MFJ or QW, $100,000 for HOH or

$80,000 for single or MFS, plan on repaying the
entire excess amount as additional income tax on
your 2021 return.
In January 2022, the IRS will send Letter 6419,
which provides the total amount of advance CTC
payments that were disbursed to you during 2021.
Keep this letter to give to us when we prepare your
2021 tax return.

Education tax benefits

For 2021, the tuition and fees deduction is gone,
credit if your income is below $90,000 ($180,000
if MFJ), which matches the income limitations for
the American opportunity tax credit. Furthermore,
the CARES Act are excluded from gross income,
tax-free grants can still be used to claim an
education credit. Bring in your tuition statements
at tax time so we can claim the maximum credit
using all eligible expenses.

There’s also a special rule for student loans dis-
charged in 2021 through 2025. For certain types
of loans, you can exclude the debt discharge
this exclusion.

Qualified principal residence debt exclusion

If the home acquisition debt on your principal
residence was canceled after 2017, you may exclude
up to $2 million ($1 million if MFS) from gross

income for tax years 2018 through 2020. This
exclusion was set to expire on Dec. 31, 2017, but
was retroactively extended through Dec. 31, 2020.
Give us a call if your 2018 or 2019 tax return
included forgiven principal residence debt as
15, 2022, so let us know as soon as possible.
This exclusion was extended again through Dec. 31,
2025. However, for discharges after 2020, you can
only exclude up to $750,000 ($375,000 if MFS).

Premium tax credit

In general, if you purchase health insurance
through the Marketplace, you don’t qualify for any
premium assistance when your income is too high.
However, for 2021 and 2022, if your household
income is more than 400% of the federal poverty
line (FPL), you may be eligible to claim the
premium tax credit (PTC) and will not pay more
than 8.5% of your income for coverage.
Also, if you were unemployed and received,
or were approved to receive, unemployment
compensation for any week during 2021, you may
be eligible for the PTC as if your household income
was only 133% of the FPL, which means more
premium assistance regardless of the level of your

household income. If this special rule applies to
you, be prepared to provide self-attestation and
documentation that demonstrates the receipt of
such unemployment compensation or approval

Earned income credit

If your 2019 earned income was more than your
2021 earned income, you can use your 2019 earned
income to determine the earned income credit
from this provision if your income went down after
2019 due to the pandemic, or any other reason for
that matter, and you’re eligible for the EIC. Be pre-
pared to provide the amount of your 2019 earned
income at tax time if we don’t already have it.

Last but not least, for 2021 only, the minimum age
to claim the EIC without any children decreased
from age 25 to age 19 for most taxpayers (age 24
for certain students), and the maximum age limit
was eliminated. Thus, if you’re a recent high school
graduate or retirement age, you might qualify for
the childless EIC for 2021, assuming you meet all
the other requirements.

We hope this year-end newsletter answered some
questions you may have had. As always, please
reach out if you have any additional questions
before your annual appointment. Happy Holidays

income for tax years 2018 through 2020. This
exclusion was set to expire on Dec. 31, 2017, but
was retroactively extended through Dec. 31, 2020.
Give us a call if your 2018 or 2019 tax return
included forgiven principal residence debt as
15, 2022, so let us know as soon as possible.
This exclusion was extended again through Dec. 31,
2025. However, for discharges after 2020, you can
only exclude up to $750,000 ($375,000 if MFS).

Premium tax credit

In general, if you purchase health insurance
through the Marketplace, you don’t qualify for any
premium assistance when your income is too high.
However, for 2021 and 2022, if your household
income is more than 400% of the federal poverty
line (FPL), you may be eligible to claim the
premium tax credit (PTC) and will not pay more
than 8.5% of your income for coverage.
Also, if you were unemployed and received,
or were approved to receive, unemployment
compensation for any week during 2021, you may
be eligible for the PTC as if your household income
was only 133% of the FPL, which means more
premium assistance regardless of the level of your

household income. If this special rule applies to
you, be prepared to provide self-attestation and
documentation that demonstrates the receipt of
such unemployment compensation or approval

Earned income credit

If your 2019 earned income was more than your
2021 earned income, you can use your 2019 earned
income to determine the earned income credit
from this provision if your income went down after
2019 due to the pandemic, or any other reason for
that matter, and you’re eligible for the EIC. Be pre-
pared to provide the amount of your 2019 earned
income at tax time if we don’t already have it.

Last but not least, for 2021 only, the minimum age
to claim the EIC without any children decreased
from age 25 to age 19 for most taxpayers (age 24
for certain students), and the maximum age limit
was eliminated. Thus, if you’re a recent high school
graduate or retirement age, you might qualify for
the childless EIC for 2021, assuming you meet all
the other requirements.

We hope this year-end newsletter answered some
questions you may have had. As always, please
reach out if you have any additional questions
before your annual appointment. Happy Holidays

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