Category: Newsletters

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.

The Roberts family hired a live-in au pair to help care for their children while the parents work. One of their co-workers mentioned something about a “Nanny Tax,” and the Roberts aren’t sure if it applies to their situation.

In the IRS’s eyes, au pairs and nannies fall into the category of household employees. With a few exceptions, if your au pair is considered an employee because you control when and how they work, you’ll need to withhold and pay Social Security and Medicare taxes if they earn at least $2,300 in 2021. You may also need to pay federal unemployment tax if they earn more than $1,000 in a calendar quarter. This is on top of any state employment taxes you may be required to withhold or pay.

And while you’re not required to withhold federal income tax, your employee may ask you to. You would need to get a Form W-4 from them. If you withhold any taxes from your employees, you’ll need to provide a W-2 each January. Incorrectly classifying your au pair as an independent contractor to avoid paying payroll taxes can have harsh consequences.

_{Client Profile is based on a hypothetical situation. The solutions we discuss may or may not be appropriate for you.}

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.

Valuing Your Business – creating an accurate valuation is part of an ongoing business strategy.

Professional Financial Designations – knowing the differences between the various professional designations will help.

Understanding Your Business Insurance Binder – your insurance agent will provide a binder that can serve as your temporary proof of insurance before an insurance policy is issued.

May 2021 Client Profile

Big Changes to Child Tax Credit – the American Rescue Plan Act, March 2021, made significant changes to the child tax credit for 2021 only.

Defining Company Culture – worker satisfaction is highest when employees’ personal view are in sync with a clearly defined company culture.

May 2021 Questions and Answers

May 2021 Short Bits

PRESIDENTIAL SALARIES

U.S. Presidents earn $400,000 per year as the commander in chief. On top of that, they receive a $50,000 expense account annually for things like dry cleaning and food. After leaving office, former Presidents receive an annual pension for life along with permanent Secret Service protection.

401(k) CONTRIBUTIONS

According to a recent study, for the 12-month period ending in September 2020, the average 401(k) participant saved $7,270 while earning another $4,010 in employer contributions. Based on participants’ average income, this amounts to a 13.5% combined contribution, which is slightly less than the financial expert’s recommended savings rate of 15%.

DECLINE AND RECOVERY

Recovering from the economic impacts from the COVID-19 pandemic will take some time. According to the Brookings Institute, it will take until 2023 for the average American to spend the same amount as they did in 2019. While the off-premise food and beverage (i.e. grocery stores) sector saw an increase of $84 billion in consumer spending in 2020, health care spending dropped by $148 billion as many Americans delayed or skipped visits to health care professionals.

IRS BACKLOG

Some taxpayers have waited six months or longer to have their 2019 federal tax returns processed. As of December 31, 2020, the IRS website indicated there were still 7.1 million unprocessed 2019 individual returns. Office closings due to COVID-19 and 20% fewer employees since 2010 levels are to blame. With approximately 26% of its employees eligible to retire in 2021, the IRS is asking for more funding to hire customer service representatives.

Unfortunately, personal finance is rarely taught in schools, so unless kids learn about money at home, they often learn hard lessons as adults. That’s why it is so important for parents to put this task on the list of things to teach their children, starting at a very young age.

SHARE EXPERIENCES

As you deal with finances on a daily basis, involve your children, keeping in mind the child’s age. For example, grocery shopping can become a lesson about budgets and decision making. Simply allow a younger child to choose only one item. Older children can learn about budgeting and sales tax while shopping for school clothes. A wellness check at the doctor’s office presents the perfect opportunity to explain a bit about health insurance.

TEACH BY EXAMPLE

Let your kids see you working on planning finances. Tell them how you are saving up to buy something special for the family or putting money away for college and retirement. An older child could also learn the concept of time and money. At tax time, explain to them why you are paying income or property taxes.

LEARN BY DOING

Chores are a great way to teach kids to earn money. You can further help them learn about saving by putting their earnings into two clear jars. For every dollar earned put a quarter into one jar for savings and 75 cents into another, for spending. Encourage them to watch their money accumulate and add any birthday money they may receive. You could open a savings account for older children.