Tax Preparation, Calculation May Be More Difficult

This year, navigating tax season may feel like navigating a minefield because of the dramatic changes that many businesses and individuals were forced to implement as a result of the COVID-19 pandemic.
According to Bryan Cannon, CFP®, a seasoned stock market analyst, navigating tax season always requires paying special attention to the ways in which business practices and tax laws may have changed from the prior year.
Here are some tips to make it easier and safer for small business leaders as tax season approaches:
Gathering and organizing documents: For the most part, the documents that are needed to complete tax fillings have not changed from recent years. For individuals, the list includes W-2 forms and 1099 forms, tax deduction documents such as Mortgage Interest Statements (Form 1098), and receipts for expenses such as medical bills. For businesses, the list includes business reports related to income and expenses, information on assets and loans, and payroll data.
Documenting advance child tax credit payments: For parents who opted to receive advance child tax credit payments that were made available under the American Rescue Plan, it will be important to hold on to Letter 6419, which the IRS began mailing out in late December 2021. Letter 6419 has information that filers must use to claim their remaining child tax credit money.
Claiming recovery rebate credits: Economic impact payments, also known as stimulus payments, were distributed to individuals in 2020 and 2021. Letter 6475, which the IRS will begin sending out in late January 2022, documents the amount of money individuals received from stimulus payments during 2021. Those who did not receive the full amount of stimulus payments available may be able to claim the recovery rebate credit, but will need the information provided on Letter 6475.
Reporting unemployment income: Under the American Rescue Plan Act, up to $10,200 in unemployment income was exempt from 2020 income taxes. The exemption does not apply to 2021 unemployment income. The form that documents unemployment benefits is Form 1099-G, which should be provided by the state in which unemployment was claimed.
Determining home office deductions: While many employees have shifted to working from home during the pandemic, tax law does not permit individuals to claim deductions for a home office unless they are self-employed. Full-time W-2 employees who are working from home are not eligible for a home office deduction.
Claiming employee retention credits: Employee retention credits were extended to certain businesses affected by COVID-19 under the CARES Act. The Infrastructure Investment and Job Act stipulates that employers cannot claim employee retention credits on any wages paid after September 30, 2021. As a result, the maximum amount that can be claimed per employee for 2021 is $21,000.

Bryan Cannon, CFP®, is a seasoned stock market technical analyst with over 25 years of investment and financial planning experience who closely follows overall market trends, market conditions, and specific equities. He serves as the host of Markets ‘N5, a bi-weekly video series focused on analyzing market trends based on technical analysis.