Tax Tips from Tax & Accounting Plus – Part 4

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Divorced or Separated Parents. A noncustodial parent claiming an exemption for a child can no longer attach pages from a divorce decree or separation agreement instead of Form 8332 if the decree or agreement went into effect after 2008.                                  

Social Security & Medicare Taxes.   The maximum wages subject to social security tax is $142,800 for 2021 and $147,000 for 2022.  All wages are subject to Medicare Tax.

Additional 0.9% Medicare Tax.  For 2021, wages and self-employment income are subject to a 0.9% additional Medicare Tax to the extent they exceed $250,000 (MFJ), $200,000 (Single, HOH, QW) and $125,000 (MFS).

3.8% Net Investment Income (NII) Tax.  In 2021, individuals are subject to a NII tax equal to 3.8% of the lesser of their NII or the excess (if any) of modified AGI over the threshold amounts of $250,000 (MFJ, QW), $200,000 (Single, HOH) and $125,000 (MFS). 

Same-Sex Marriages.  In its 2013 decision in the Windsor case, the Supreme Court held that a key provision of the Defense of Marriage Act is unconstitutional.  In response to this decision, effective September 16, 2013, individuals in a same-sex marriage will be treated as married for all federal tax purposes, including income, gift and estate taxes.  This applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, tax-free employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.  Individuals in registered domestic partnerships, civil unions or similar formal relationships recognized under state law are not considered married for federal tax purposes.

Charitable Giving.  You must have a dated receipt from the charity and a canceled check or credit card statement to prove their deduction.  Also, for non-cash donations such as clothing and household items, make sure you make an inventory list of everything you are giving and attach it to the receipt received from the charity.  A picture of the donated items will also help support your deduction.

Premium Tax Credit.  Individuals with low to moderate income who get health coverage through the Health Insurance Marketplace (also called the Exchange) may be eligible for this refundable credit.  Some individuals may have chosen to have all or some of the estimated credit paid in advance directly to the insurance company.  Advance payments paid during the year are subtracted from the amount of the Premium Tax Credit.  If the advance payments exceed the credit, the difference (up to certain limits) is an additional amount of tax due.  The American Rescue Plan Act of 2021 changes the applicable percentages to increase the affordability of health insurance for tax years 2021 and 2022.

Nanny Tax.  Taxpayers must file Schedule H with their personal tax return if 1) the taxpayer paid a household employee cash wages of $2,300 or more in 2021 or 2) the taxpayer paid cash wages of $1,000 or more in any calendar quarter in 2020 or 2021 to all household employees or 3) the taxpayer withheld federal income tax.

Per Diem Allowance.  The per diem allowance for meals within the United States for 2021:

            Standard Rate – $60     Transportation Workers – $66        Incidentals – $5

Generally, a taxpayer may only deduct 50% of business-related meal expenses.  An exception is for the transportation industry where the taxpayer may deduct 80%.  This can include individuals working on an airline, barge, bus, ship, train, or truck.  Per Diem allowances for specific cities may benefit you.  See your tax preparer for details.  However, for tax years 2021 and 2022 taxpayers may deduct 100% of business-related meal expenses. 

Teachers.  Elementary and secondary school teachers are allowed a $250 deduction for classroom expenses.  Eligible educators include kindergarten through grade 12 teachers, instructors, counselors, principals, or aides in a school for at least 900 hours during a school year. Qualified expenses include books, supplies, equipment (including computer equipment and software), and other materials used in the classroom. Also, as of March 12, 2020 educator expenses include the cost of personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of COVID-19 in the classroom. No deduction is allowed if the expenses are reimbursed by the employer and not included in box 1, W-2.



Believe it or not, the government could be wrong!  Many taxpayers pay these notices without researching the facts first. More than half of these government bills are incorrect!  In most situations, the taxpayer need only send an additional form or supplemental documentation to back up their original return, thereby eliminating the erroneous bill.  If you should receive such a notice or bill, please feel free to call us.  We can help you prepare the required forms or supporting letters and help determine whether or not a liability really exists.

Be Careful When Asking The IRS!  In past seasons, IRS personnel have failed to give the right answer over 40% of the time (if and when you get through).  The questions were asked by auditors from the Treasury Inspector General’s Office who posed as taxpayers seeking help in the IRS Taxpayer Assistance Centers.

Volunteer Preparer Foul-Ups!  Although most of the tax returns prepared by Volunteer Income Tax Assistance (VITA) were basic in nature, according to reports released by the Treasury Inspector General, over 60% of the tax returns prepared by the federal government’s VITA program were inaccurate.               Lesson: You get what you pay for.

How to Avoid Social Security Number Problems.  When changing your name due to marriage, divorce, etc., you must notify the Social Security Administration (SSA).  The name on your tax return must match the name the SSA has on its records for the tax return to be accepted by the IRS.  Newborn infants must also have their Social Security Number (SSN) provided on the tax return.  The IRS will not allow you to file your tax return if the SSNs are not provided.