Q: What is the new child credit for 2021?
A: Each child will receive a $3,600 credit if under age 6 and $3,000 if age 6 to 17. Families will get advance credits in their bank accounts starting July 15th at a rate of $300 per month if the child is under age 6 or $250 per month if age 6 or older. The advance payments will total 1/2 of the child credit and the other 1/2 will be refunded from the 2021 tax return. Higher income taxpayers will receive a smaller credit and some taxpayers will not receive any credit if their adjusted gross income (AGI) is greater than $240,000 (single) or $440,000 (joint).
Q: I prefer to receive my child credit at my tax filing date and I want to opt out of receiving the advanced child credit. How do I make this happen?
A: You need to go to the internet site, IRS.GOV, and update your choices through the portal, Child Tax Credit Update.
Q: My mother gifted $15,000 to her four children for the last three years. Recently, she entered a nursing home and will not be able to afford the monthly expense by the end of the year. If my mom applies for Medicaid does she have to list the gifts that qualified for the annual gift exclusion?
A: Yes, your mom has to include all gifts including the gifts that qualify for the annual gift exclusion.
Q: Can I deduct cash charitable contributions on my 1040 form for 2021 tax year without using Schedule A for itemized deductions?
A: Yes, you can but it is limited to $300 (single) or $600 (joint).
Q: What is the five year rule to avoid penalties on the distribution of principal from a conversion of a traditional IRA to a ROTH IRA?
A: The five year rule for ROTH conversions uses a calendar year. If you converted a traditional IRA to a Roth IRA in November 2020, your five-year period begins Jan. 1, 2020. But if you did it in February 2021, the five-year period begins Jan. 1, 2021. Each conversion has its own five-year period. For instance, if you converted your traditional IRA to a ROTH IRA in 2018, the five-year period for those converted assets began Jan. 1, 2018. If you later convert other traditional IRA assets to a ROTH IRA in 2019, the five-year period for those assets begins Jan. 1, 2019.
Q: Has the gift rule changed in 2021? I am considering giving $7,000 to my brother. Do I get a deduction for my gift?
A: In 2021, the amount that you can gift-give is $15,000 annually to any person without triggering a gift tax. If you are married and your spouse is in agreement, you can double the annual gift to $30,000. You do not get a tax deduction and the recipient does not declare the gift as taxable income.
Q: I operate a small business as a sole-proprietorship. Does my sole-proprietorship qualify for the 20% exclusion for income earned by “pass-through” businesses in 2021?
A: Yes, you can exclude 20% of your income earned from your sole-proprietorship. The new law gives a 20% exclusion to “pass-through” businesses, sole-proprietorships, partnerships, S corporations, limited liability partnerships(LLPs) and limited liability corporations(LLCs). The tax break is based on the ownership interest and is calculated per entity. Individuals with taxable income of less than $164,900 and married couples filing jointly with taxable income less than $329,900 get the full 20% exclusion. Limits on the exclusion come into play if the taxable income is above those thresholds. No exclusion is allowed if the taxable income is greater than $214,900 (single) or $429,800 (joint).
Q: What threshold must a taxpayer exceed for medical expense deductions in 2021?
A: For 2021, the medical expense deduction has a threshold of 7.5% of adjusted gross income (AGI). A taxpayer must use schedule A to list medical expenses.
Q: My dad is 64 years old, when does he qualify for Medicare coverage?
A: The normal age is 65, however you can qualify earlier if you have been receiving Social Security Disability Insurance (SSDI) for at least 24 months. If you have end-stage renal disease and are getting dialysis treatments you can get Medicare earlier. If you have Amyotrophic Lateral Disease (ALS) you will automatically be enrolled in Medicare when you receive your first monthly check from SSDI.
Helpful telephone numbers for any tax concerns:
• IRS Help (800)829-1040 • MI Help (517)636-4486
• IRS Forms (800)829-3676 • MI Forms (517)636-4486
• IRS Refund Info. (800)829-4477 • MI Refund Info. (517)636-4486
Submit your tax and finance questions to Richard Rysiewski, Certified Financial Planner, at Richard Rysiewski, Financial Doctor, 3001 Hartford Lane, Shelby Twp., MI 48316 or call (248)651-7710.