Mesa Money Minute

The IRS will be sending out two letters to certain individuals with information needed to file their 2021 tax returns. People who received the Advanced Child Tax Credit will receive Letter 6419 sometime between late December and mid January, which will include the total amount of the credit and the number of qualifying children. People who received the third Economic Impact Payment (stimulus payment) will receive letter 6475, which will help people determine if they are entitled to and should claim the Recovery Rebate Credit. This letter should be received in late January. Save both these letters if you receive them with your other important tax documents; you will need them to file your return.

The IRS has announced that it will provide tax deadline relief to taxpayers affected by the Colorado wildfires which began on December 30. People who lived or had a business in the affected area will have until May 16, 2022, to file and pay taxes that are due between January 1 and April 18. This includes the fourth quarter estimate payment due on January 18, business tax returns due on March 18, individual tax returns and payment dues on April 18, and IRA contribution due on April 18. Quarterly payroll and excise tax returns due on January 31 and May 2 are now due on May 16. Go to IRS.gov and search for disaster relief for more information and to view eligible areas.

President Biden signed HR 3684 the Infrastructure Investment and Jobs Act into law on November 15. While this legislation doesn't contain as many tax provisions as the other bill currently on the hill, the Build Back Better Act, there are some important changes to be aware of. The Employee Retention Tax Credit or ERTC was ended early. Wages paid after September 30 do not qualify, however there is still time to apply for the credit for 2020 and the first three quarters of 2021. There is a new reporting requirement for cryptocurrency transactions. This should not impact taxpayers who have already been reporting their crypto transactions correctly, but may help IRS catch fraudsters who aren't reporting income from their crypto holdings. Stay tuned for an update on tax law changes that may come if the Build Back Better Act is passed.

December is a time for giving! Many individuals make most of their charitable contributions in December. Ordinarily, people who choose to take the standard deduction cannot claim a deduction for their charitable contributions. But a temporary law change now permits them to claim a limited deduction on their 2021 federal income tax return for cash contributions made to qualifying charitable organizations. Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify. Under this provision, individual tax filers, can claim a deduction of up to $300 for cash contributions made to qualifying charities in 2021. The maximum deduction is $600 for married individuals filing joint returns. Remember, these need to be cash contributions, not donations of items. You must complete the donation by December 31st to qualify!

Link to IRS News Release

This week is the 6th annual National Tax Security Awareness Week. The IRS, state tax agencies and the nation's tax industry – working together as the Security Summit - are warning taxpayers to be aware of a dangerous combination of events that can increase their exposure to tax scams and identity theft. The combination of the holiday shopping season, the upcoming tax season and the pandemic create additional opportunities for criminals to steal sensitive personal or financial information. Take extra care while shopping online or viewing emails and texts. Follow @IRSnews and #TaxSecurity on social media for tips and more information on National Tax Security Awareness Week.

Link to IRS News Release

It's tax planning season! As the end of the year approaches, one of the most popular questions my clients ask is, do I need to do anything before the end of the year to minimize my taxes? One popular strategy is harvesting capital gains or losses. What this means is that if you have an investment portfolio, you may have what are called unrealized gains or losses. This simply means the change in your investments' value since you bought it. "Harvesting" means selling that asset so that you can claim the gain or loss on your taxes. If you had another transaction this year that resulted in a big capital gain, for example the sale of a rental property, it might make sense to check and see if you have any unrealized losses in your portfolio that you could use to offset some of that gain. On the other hand, if your income is lower this year than usual, or if you have a large capital loss passing through from a business you own, you may want to harvest some capital gains to pay taxes on them at your lower rate. This is a complicated strategy that you will want to discuss with both your CPA and financial advisor.

The Internal Revenue Code states that all income, "from whatever source derived", is taxable. It provides for a few exceptions to this rule, and one of the exceptions is state and local municipal bond interest. What this means is that if you buy a bond from a state or local government; for example, to build a new high school, the interest you earn on that bond is not taxable to you for federal purposes. Holding Municipal bonds, and funds that contain municipal bonds, is a popular investment strategy to limit your taxable investment income. Bear in mind that muni bond interest may still be taxable for state purposes. The State of Colorado, for example, taxes bond interest from other states.  While muni bonds have a place in a well-balanced portfolio, make sure you are evaluating investments on an after-tax basis. You may end up with a higher after-tax return on a taxable bond, because of a better interest rate. Your CPA or investment advisor can help you calculate the after-tax return on your investments.

2021 is rapidly coming to a close! The last couple of months of the year are an excellent time to revisit your tax plan and make any last-minute adjustments. It's a good time to estimate your 2021 tax liability based on how you've done in the year so far, to be prepared for any extra payments that may be needed. There are online tools to do this such as the one on efile.com, or get with your CPA. Review your charitable goals and make any additional gifts by December 31. If you haven't completed a W-4 at your job since 2019 when the form was updated, request a new one and complete it using the calculator at irs.gov. Also do so if you have any life changes, such as getting married or having a child. Designate a safe place, such as a bin or a folder to put your tax documents as they start coming in. Determine if you can or should make any additional contributions to your 401k. Contact your CPA if you have planning issues beyond what you can handle on your own!

 | Today on Mesa Money Minute "Gifting Limits"  I'm Donna Morrall, a Certified Financial Planner with Clear Waters Financial Network.