Chapman's Tax Service
Bookkeeping and Tax Preparation Tips - 2021

Tax Changes & Updates for 2021 & 2022

Recent changes to the tax code could impact your 2021 filing. Schedule your in-person or virtual tax preparation appointment with us to get the largest return possible.


How Tax Changes for 2022 Could Change Your Tax Return

There have been a number of updates that may impact your tax filing for 2021. Be sure to read the important details below and then reach out to our tax experts to discuss how these updates may affect you directly. We are now scheduling in-person and virtual tax preparation meetings. You can also drop off/upload your documents to our portal for us to complete when time permits. Please call our office to discuss which option works best for you.

The American Rescue Plan Act (ARPA)
On March 11, 2021, the President of the United States signed into law the American Rescue Plan Act (ARPA) that authorized a third round of stimulus payments and advanced payment of the Child Tax Credit. The IRS issued notices that provided the amounts you received for these payments. This information is necessary to accurately complete your 2021 individual tax return. It will be used to apply for any of the money that you did not receive during the year. It is not taxable, and you do not have to pay any of it back. Information provided below explains what notice you received and how to obtain the information if you no longer have the notice or have yet to receive a letter.

Stimulus Payment - Economic Impact Payment (EIP) #3
The third round of EIP or stimulus payments began mid-March 2021. Individuals could have received up to $1,400 ($2,800 for married couples filing a joint return). Qualifying dependents may have also received $1,400. Unlike the first two payments, EIP3 was not limited to children under 17. Families may have received the payment based on all of the qualifying dependents claimed on the tax return. Most families received $1,400 per person, meaning, a single person with no dependents may have received $1,400 while a family of four may have received $5,600.

Notice 1444-C was sent following the payments and Letter 6475 will be issued in January 2022 with a combined total. If you no longer have Notice 1444-C, or have not received Letter 6475, log in to your IRS Online Account to get the accurate amount of EIP3 received.
1. Go to irs.gov/payments/your-online-account.
2. Select “Sign in to your Online Account" and follow the prompts.
3. Click On “Tax Records”.
4. Expand 2021 Window.
5. Print Screen.

Advance Child Tax Credit Payments
Under ARPA, the maximum amount for the Child Tax Credit (CTC) was increased from $2,000 to $3,600 for each child 5 years old and under. For children ages 6 - 17, the maximum increased to $3,000. In July 2021, eligible families that did not opt out began receiving advanced CTC payments up to $300 per month for each child age 5 and under and up to $250 for each child between the age of 6 and 17. IRS will issue Letter 6419 to provide the amount received per taxpayer and how many children were taken into account to determine the amount received.

If you no longer have Letter 6419, or have not yet received it, follow the directions above to log in to your online account to access the Child Tax Credit Update Portal or log directly into the portal using the instructions below. For married couples filing a joint return, the taxpayer and spouse will both need to log in to get the amount apportioned to each taxpayer.
1. Go to irs.gov/payments/your-online-account.
2. Select “Sign in to your Online Account" and follow the prompts.
3. Click On “Tax Records”.
4. Expand 2021 Window.
5. Print Screen.

Charitable contributions
You can now deduct monetary charitable contributions (not clothing) even if you do not itemize deductions. While this took effect for 2020, the limit was $300 per return. For 2021 the limit is now $300 per taxpayer. So, a married joint couple can now deduct $600, instead of being limited to $300. Please keep in mind, if you itemize your deductions (because the itemized deductions exceed your standard deduction) you can go deduct charity in excess of the $300/$600 limit. This is also not an automatic deduction; you need to have actually made the contribution.

Dependent Care Credit – Also called the Daycare credit
The maximum expense for the credit is now $8,000 per child (previously only $3,000) and $16,000 for two or more children (previously $6,000). Please make sure that you have all of the daycare providers information. We will need name, address, tax identification number, and $ amount. Daycare can include preschool and even day camps. For example, it can include sports camps, horseback riding camps, etc. It cannot include any overnight camps.

Business Meals (for people with businesses)
For 2021 and 2022, you can deduct 100% of the cost of a business meal that was purchased from a restaurant. A restaurant is a business that prepares and sells food or beverages to retail customers for immediate consumption. A restaurant does not include a business that primarily sells pre-packaged food or beverages not for immediate consumption, such as a grocery or convenience store. The meal does not have to be consumed in the establishment, so “carry out” and even delivery counts. This deduction used to be limited to 50%. The 50% limit still applies to meals that were not provided by a restaurant. For example, if you pick up a couple of sandwiches at Wawa or the grocery store to bring to the office or job site for your staff, that would be limited to 50%. Yes, this is a very tough distinction…donuts from Wawa 50%...donuts from Dunkin 100%. You need to be able to provide me 2 numbers when we are working on your return.

Real Estate Taxes / SALT tax
As many of you are aware, there was a $10,000 cap imposed on the deduction for State and Local Taxes (SALT), in 2018. This is the section on the itemized deductions that included your real estate taxes, the income taxes you paid to the state(s), and the income taxes you paid to your local jurisdiction (through Berkheimer of Keystone Collections). This coupled with the higher standard deductions, forced many people to take the standard deduction. While there has been no change to this yet, many Democrats are pushing to increase or eliminate that cap for 2021. I am suggesting that you bring in all of your real estate tax information, even if you know you hit the $10,000. If you bring it all in, we can run the numbers to see if the cap was removed, would you be able to itemize, or would you still take the standard deduction. This way we can determine if we should wait to see what happens in congress, or to just finish and file the return if it has no impact.


Top Five Bookkeeping Mistakes Made by Small Businesses


Starting your own business is an exciting endeavor. You’re working hard to get things off the ground and putting the right systems in place to ensure your company’s success. Unfortunately, this is also the time that bad bookkeeping habits start to take hold that in the long run, can cost you time, money, and unnecessary stress. Making sure your bookkeeping is set up the right way is crucial to ensuring your company’s future success. Being aware of common pitfalls to avoid helps you better navigate your finances and protect your business for the long-term.

Top Five Bookkeeping Mistakes

Here are top bookkeeping mistakes made by small businesses:

Failing to track reimbursable expenses.
Neglecting to keep track of your reimbursable expenses is simply leaving money on the table. You may very well be missing out on deductions that directly impact your bottom line. It's important to create a system that allows you to track expenses as you go along otherwise, it will most likely get pushed back to the last minute and eligible reimbursements may get missed.

Recording large ticket items as immediate expenses instead of assets.
Choosing to expense an item rather than depreciate it as an asset may help your immediate cash flow but it might also prevent you from receiving a more valuable benefit down the road. Expensing it right away means you won't be able to expense it later when your profits most likely have increased and you're paying a higher tax rate on your income. It's important to make a decision that takes future expectations into account.

Sole proprietors putting themselves on the payroll.
Small business owners have personal expenses just like everyone else but that doesn't necessarily mean they receive a company paycheck. Depending on how your business is set up, putting yourself on the payroll may be illegal. The IRS has specific rules on how you should pay yourself based on the structure of your business. It is important that your bookkeeping is set up the right way to make sure your payment procedures are in line with the law.

Not backing up your data.
Technology saves us both time and money but in the case of an IRS audit, it could be a liability if you're financial systems are not set up correctly. It is important to have an effective organizational system in place so you can access information quickly and avoid a major disruption in the case of a technological compromise or mishap.

Not giving your bookkeeping the attention it deserves.
Your main role as a business owner is to oversee your company's core business. When it comes to bookkeeping, even including setting up your QuickBooks, you should be working with an experienced professional who has the training and knowledge to keep your business's financial health in check while you focus on managing your company's overall performance.

Set your business up for success by learning how we can maximize your bookkeeping services. Call us at 610-565-8009 or fill out our contact form.


Tax Changes and Updates for 2020 and 2021

Tax Changes & Updates for 2020 & 2021

Important information regarding tax changes and other items that you should know before filing your 2020 tax return.


Virtual Tax Preparation
Due to COVID-19, we are offering Virtual Tax Preparation Services this year in addition to in-person appointments. Virtual services are easy, convenient and secure for those who prefer this option.

Stimulus
The stimulus payment that you received in the spring/summer of 2020 and the payment you may have received in the first week of January 2021 will need to be reconciled on this year's tax return. Why? Because for some people, circumstances may have changed in 2020 entitling them to MORE stimulus. For example, if you had a baby in 2020, you could receive additional stimulus. Also, in some cases, you may not have received the full stimulus due to your income being too high in 2019 however; if your income fell in 2020, you may now be entitled to more. If it is determined through the reconciliation process that you received “too much” stimulus, the law states that you will not have to pay any of the stimulus back.

It is important to note that you will need to know the exact dollar amount of both payments and bring that information with you to your tax preparation appointment.

Unemployment
All unemployment is taxable. It doesn’t matter if it was state unemployment, federal unemployment, Pandemic Unemployment Assistance, etc., it is all taxable. (Note: congress could decide to make a portion of it non-taxable, as it has done previously.) If you received unemployment, you should receive a 1099-G form. If you did not receive it, you may have to download it from the unemployment website.

Business Grants and Assistance
If your business received grants from the state or county (for example the Delco Strong Grant, or the PA Neighbors Grant), that income must be included in your business's taxable income.

If your business received loan funds through the Paycheck Protection Program (PPP), these funds are EXCLUDED from income even if you met the requirements and the loan is forgiven. You are also still allowed to deduct the expenses that were paid with these funds.

If your business received an Economic Injury Disaster Loan (EIDL), the EIDL advance, which does not have to be repaid, is not included in taxable income. The remaining EIDL money is a loan and, by definition, is not income since you will have to repay it.

Charity
While previous tax law changes have made it harder to itemize deductions, a change this year allows you to take a deduction for charity on top of your standard deduction. This "additional charitable" deduction is limited to $300 and is for money donations only. So even if you have only been taking the standard deduction for years, you can add up to $300 for charity. For this tax year, the $300 limit is per return, so it is $300 whether you are single or filing a joint tax return.

Home Office
With many people working from home this year, we have received a lot of calls about deducting the costs of their home office. Under the current law, as of the time of this writing, there is NO DEDUCTION for home office for taxpayers that are employees. For taxpayers that have their own business or are working as independent contractors, they still have the ability to deduct home office expenses. Even if you do not currently qualify for the home office deduction, DO NOT throw away your receipts. Congress could, as it has in the past, make changes to the IRS tax code in the middle of a tax season and back date to January of the previous year. We are not saying that it will happen, but there were members of congress who proposed bills to bring the home office deductions back for employees.

Employees are also not permitted to deduct any expenses that their employers did not reimburse them for. You cannot deduct office supplies, travel, cell phone, printers, ink, cables, etc.

Union Dues (for Pennsylvania residents)
Just a reminder that union dues are still deductible on the Pennsylvania state tax return. In order to make the deduction, PA requires that support be attached to the tax return. This support can be a copy of a statement from the union hall (preferred) or a copy of the last paystub of the year (from each employer if more than one) that clearly identifies the year-to-date union dues. Please make sure you have this at the time of your appointment. If needed, you can have the union hall fax the statements to us at 610-627-0932.

Parents of College Students
Many parents of college student are unaware that there are education tax credits that can be claimed on their tax return. These credits could be worth up to $2,500. Your college student will receive a form 1098-T from the college. While this form is in the name and social security number of the student, it is most often reported on the parents’ tax return where it will generate the biggest credit. Most schools make them available on the student portal for the students to print out.

While we would prefer to prepare your college student's tax return (in order to run the numbers and maximize the tax credit), we understand that your college "kids" are now "adults" and may want to take responsibility in handling their own taxes. In that case, please tell your student not to file their return until we have determined if you will be claiming them. This past year, as a result of the college students wanting to get their hands on the $1,200 stimulus payment, we had over two dozen parent tax returns rejected by the IRS because the students claimed they were independent. In some cases, this cost parents $3,000 on their tax return (the $2,500 education credit and the $500 dependent credit). In two cases, it cost single parents almost $5,000 because they now had to file as single instead of head of household. This clearly did not maximize the refund for the family as a whole. We also had to point out to every one of those clients that their college student signed a tax return under the penalties of perjury, stating that they were independent and provided more than half of their support (not a great way to start off being an "adult").


Learn about how our Bookkeeping Services can help your business.