Axley & Rode, LLP

President Biden’s proposals for individual taxpayers were outlined in an April 28 address to Congress and in an 18-page fact sheet released by the White House. The “American Families Plan” contains tax breaks for low- and middle-income taxpayers and tax increases on those “making over $400,000 per year.” Here’s a summary of some of the proposals. Extended tax breaks Extend the Child Tax Credit (CTC) increases in the American Rescue Plan Act (ARPA) through 2025 and make the credit permanently fully refundable. The ARPA made several changes to the CTC for 2021. For example, it expanded the credit for eligible taxpayers from $2,000 to $3,000 per child ages six and above, and $3,600 per child under age six. It also made 17-year-olds eligible to be qualifying children for the first time and made the credit fully refundable. It also provides for monthly advance payments of the credit that will be paid from July through December 2021. The American Families Plan would make permanent th...

The new American Rescue Plan Act (ARPA) provides eligible families with an enhanced child and dependent care credit for 2021. This is the credit available for expenses a taxpayer pays for the care of qualifying children under the age of 13 so that the taxpayer can be gainfully employed. Note that a credit reduces your tax bill dollar for dollar. Who qualifies? For care to qualify for the credit, the expenses must be “employment-related.” In other words, they must enable you and your spouse to work. In addition, they must be for the care of your child, stepchild, foster child, brother, sister or step-sibling (or a descendant of any of these), who’s under 13, lives in your home for over half the year, and doesn’t provide over half of his or her own support for the year. The expenses can also be for the care of your spouse or dependent who’s handicapped and lives with you for over half the year. The typical expenses that qualify for the credit are payments to a day care center, nanny or n...

Are you thinking about launching a business with some partners and wondering what type of entity to form? An S corporation may be the most suitable form of business for your new venture. Here’s an explanation of the reasons why. The biggest advantage of an S corporation over a partnership is that as S corporation shareholders, you won’t be personally liable for corporate debts. In order to receive this protection, it’s important that the corporation be adequately financed, that the existence of the corporation as a separate entity be maintained and that various formalities required by your state be observed (for example, filing articles of incorporation, adopting by-laws, electing a board of directors and holding organizational meetings). Anticipating losses If you expect that the business will incur losses in its early years, an S corporation is preferable to a C corporation from a tax standpoint. Shareholders in a C corporation generally get no tax benefit from such losses. In contra...

During the COVID-19 pandemic, many people are working from home. If you’re self-employed and run your business from your home or perform certain functions there, you might be able to claim deductions for home office expenses against your business income. There are two methods for claiming this tax break: the actual expenses method and the simplified method. Who qualifies? In general, you qualify for home office deductions if part of your home is used “regularly and exclusively” as your principal place of business. If your home isn’t your principal place of business, you may still be able to deduct home office expenses if 1) you physically meet with patients, clients or customers on your premises, or 2) you use a storage area in your home (or a separate free-standing structure, such as a garage) exclusively and regularly for business. What can you deduct? Many eligible taxpayers deduct actual expenses when they claim home office deductions. Deductible home office expenses may i...

If you’re approaching retirement, you probably want to ensure the money you’ve saved in retirement plans lasts as long as possible. If so, be aware that a law was recently enacted that makes significant changes to retirement accounts. The SECURE Act, which was signed into law in late 2019, made a number of changes of interest to those nearing retirement. You can keep making traditional IRA contributions if you’re still working Before 2020, traditional IRA contributions weren’t allowed once you reached age 70½. But now, an individual of any age can make contributions to a traditional IRA, as long as he or she has compensation, which generally means earned income from wages or self-employment. So if you work part time after retiring, or do some work as an independent contractor, you may be able to continue saving in your IRA if you’re otherwise eligible. The required minimum distribution (RMD) age was raised from 70½ to 72 Before 2020, retirement plan participants and IRA owners were...