Bob Carlson
Senior Contributor
I research/write about all facets of retirement/retirement planning.
Oct 14, 2022,07:30am EDT

Congress has been making it harder and harder to deduct charitable contributions. Know the latest rules so the IRS won’t be able to deny tax breaks for your charitable donations.

The increase in the standard deduction in the 2017 tax law means you have to give more to receive a tax break. You deduct charitable contributions only if you itemize expenses on Schedule A. To do that, all your itemized expenses must exceed the standard deduction. A minority of taxpayers itemize expenses now.

In addition, the IRS denies a lot of charitable contribution deductions when taxpayers don’t follow all documentation rules. The requirements have been increased over the years, and many taxpayers don’t know the details. They learn the details when the IRS asks to see their substantiation.

It doesn’t matter if you can prove you made the charitable contributions. The IRS and the Tax Court now regularly deny charitable contribution deductions while acknowledging the contributions really were made. If you don’t have the right paperwork, you don’t deduct the contribution.

Here are the key rules:

Ÿ To deduct a cash gift of $250 or less, you must have in hand a “bank record” with the name of the charity and the date and amount of the gift. Acceptable records include a canceled check, a bank copy of a canceled check, or a bank or credit card statement that clearly shows the payment. For payroll deduction donations, a paycheck stub, W-2, or pledge card will suffice.

Ÿ A single contribution of more than $250, whether of cash or property, can be deducted only if you have a written acknowledgement of the gift from the charity in hand before filing the tax return.

Ÿ If you received anything of value in return for the contribution, such as a gift or promotional item, you deduct only the difference between what you contributed and the value of what you received. When you make a single payment to a charity exceeding $75 and receive goods or services in return, the charity must provide a written disclosure of the value of the goods or services you received.

Ÿ You can deduct unreimbursed expenses incurred on behalf of a charity, such as the cost of traveling to a location to perform volunteer services. But if a single contribution of this type is $250 or more, you must have a written acknowledgement from the charity with a description of the services you provided, the value of the services, and a statement of whether or not the charity provided goods or services to you in return. You must keep adequate records of the expenses you deduct. You deduct only the costs you incurred, not the value of your services.

Donations of property have additional and tougher rules.

Ÿ Used household property must be in “good used condition or better” when donated to be deductible. Household property includes furniture, furnishings, electronics, appliances, linens, clothing, and similar items. Not included in the definition are food, antiques, works of art, and jewelry.

Some charities give receipts verifying the condition of property donations, though most won’t put a value on the property. Many charities acknowledge only receipt of items and won’t list a condition or value. Some tax advisors recommend keeping photographs or videos of donated property.

Ÿ An item of property worth more than $500 and less than $5,000 can be deducted regardless of its condition but only if you complete Form 8283, Section A and attach it to your income tax return.

Ÿ When any type of property worth $5,000 or more is donated, you must obtain a qualified appraisal, complete Section B of Form 8283, and attach it to your tax return.

Ÿ When the deduction claimed for a donation of property is more than $500,000, both the qualified appraisal and Form 8283 with Section B completed must be attached to the return.

When property isn’t valuable enough for an appraisal to be required or justified, you have to estimate its value. Any reasonable method can be used to make the estimate.

When property is donated to a public charity, you generally deduct the current fair market value. That applies whether the property has appreciated or depreciated while you owned it. A public charity is one that qualifies as a 501(c)(3) tax-exempt organization. When you donate to a non-public charity, such as a private foundation, the deduction might be for less than fair market value. There’s also a lower deduction when business inventory is donated. Check IRS Publications 526 and 561 for detailed rules.

For contributions of a car, boat, or plane for which a deduction greater than $500 is claimed, the allowed deduction is the lower of (1) the gross proceeds of the vehicle’s sale by the organization or (2) the fair market value on the date of the contribution. A caveat: If the vehicle’s fair market value is more than your cost or other tax basis, the deduction might be reduced to your cost or basis. That’s unlikely to be the case for a personal use vehicle.

There are two exceptions to the vehicle deduction limit. One exception is when the vehicle was used or improved by the charitable organization. The other exception is when the organization gives or sells the vehicle to a needy individual. In either case, the fair market value on the date of the contribution generally is deducted.

There are special rules for donations of appreciated tangible personal property, which usually means art and antiques. When you’re considering such a donation, talk with a tax advisor about the best way to make the donation and how to maximize the amount you can deduct.

After meeting these rules, keep in mind the longstanding annual limits on charitable contribution deductions. For individuals, total deductions for most contributions to public charities are limited to 60% of adjusted gross income (AGI) for the year. Gifts to private foundations, of long-term capital gains property, and in other situations have lower limits. For example, gifts of long-term capital gain property can’t exceed 30% of AGI when made to public charities and are limited to the lesser of 20% of AGI or 50% of AGI minus the charitable contributions when made to nonpublic charities (such as private foundations).

Contributions above the percentage limits can be carried forward and deducted in future years.

Before the 2017 tax law, higher income individuals had their charitable contributions reduced by the itemized deduction limitation. The 2017 law suspended that provision, so you receive the full benefit of all the charitable contributions for which you qualify.

Follow me on Twitter. Check out my website or some of my other work here. 
 

Original article: https://www.cpapracticeadvisor.com/2022/08/22/which-vehicles-qualify-for-new-7500-electric-vehicle-tax-credit/69745/

The Inflation Reduction Act only offers tax credits on electric vehicles assembled in North America.
By Erik Bascome, Staten Island Advance, N.Y. (TNS)

Those looking to purchase an electric vehicle could be eligible for a $7,500 tax credit from the federal government, but because of language in the recently signed Inflation Reduction Act, only certain vehicles qualify.

The new law hopes to encourage electric vehicle production in the United States, and in an effort to do so, only offers tax credits on electric vehicles assembled in North America.

The Department of Energy’s Alternative Fuels Data Center has released the full list of electric vehicles that currently qualify for the credit.

However, some manufacturers have already reached the 200,000 vehicle-cap for this year’s credit, meaning those vehicles won’t qualify for the tax credit again until Jan. 1, 2023.

Additionally, starting next year, the credit will only be available to individuals earning less than $150,000 per year, or married couples earning less than $300,000, and will only be offered on electric cars costing less than $55,000 and electric trucks and SUVs costing less than $80,000.

Here’s a look at the vehicles that currently qualify for the new $7,500 electric vehicle credit.
—2022 Audi Q5
—2022 BMW 3-series Plug-In
—2022 BMW X5
—2022 Chevrolet Bolt EUV — Manufacturer sales cap met
—2022 Chevrolet Bolt EV — Manufacturer sales cap met
—2022 Chrysler Pacifica PHEV
—2022 Ford Escape PHEV
—2022 Ford F Series
—2022 Ford Mustang MACH E
—2022 Ford Transit Van
—2022 GMC Hummer Pickup — Manufacturer sales cap met
—2022 GMC Hummer SUV — Manufacturer sales cap met
—2022 Jeep Grand Cherokee PHEV
—2022 Jeep Wrangler PHEV
—2022 Lincoln Aviator PHEV
—2022 Lincoln Corsair Plug-in
—2022 Lucid Air
—2022 Nissan Leaf
—2022 Rivian EDV
—2022 Rivian R1S
—2022 Rivian R1T
—2022 Tesla Model 3 — Manufacturer sales cap met
—2022 Tesla Model S — Manufacturer sales cap met
—2022 Tesla Model X — Manufacturer sales cap met
—2022 Tesla Model Y — Manufacturer sales cap met
—2022 Volvo S60
—2023 BMW 3-series Plug-In
—2023 Bolt EV — Manufacturer sales cap met
—2023 Cadillac Lyriq — Manufacturer sales cap met
—2023 Mercedes EQS SUV
—2023 Nissan Leaf

Recent high gas prices have been driving many consumers to consider a switch to electric vehicles, with a recent survey finding that 25% of respondents were likely to buy a fully electric car for their next vehicle purchase, and 77% of those intending to switch cited saving on fuel as the primary reason for their decision.

Millennials were the most likely of any age group to say they would purchase a fully electric vehicle at 30%.
​
“The increase in gas prices over the last six months has pushed consumers to consider going electric, especially for younger generations,” said Greg Brannon, AAA’s director of Automotive Engineering and Industry Relations. “They are looking for ways to save, and automakers continue to incorporate cool styling and the latest cutting-edge technology into electric vehicles, which appeal to this group.”

Original article here: https://www.cpapracticeadvisor.com/2022/08/15/irs-changes-amount-teachers-can-deduct-for-classroom-expenses/69520/

IRS Changes Amount Teachers Can Deduct for Classroom Expenses
​For 2022, the amount increased to a maximum of $300 and will increase in $50 increments in future years based on inflation.
By Leada Gore, al.com (TNS)

The Internal Revenue Service has changed the amount teachers can deduct for out-of-pocket classroom expenses.
For tax years 2012 through 2021, the limit teachers could deduct for out-of-pocket classroom expenses for things like books, materials and other educational supplies was $250 per year. For 2022, that amount has been raised to a maximum of $300 and will increase in $50 increments in future years based on inflation.
Eligible educators will be able to deduct up to $300 on qualifying expenses. Married couples where both are eligible educators can claim up to $600 but the $300 per spouse limit remains.
Educators can claim up to $300 even if they take the standard deduction, the IRS said. Eligible educators include anyone who is a kindergarten through grade 12 teacher, instructor, counselor, principal or aide in a school for at least 900 hours during the school year. Both public and private school educators qualify.
What’s deductible?
Educators can deduct the unreimbursed costs for:

• Books, supplies and other materials used in the classroom.
• Equipment, including computer equipment, software and services.
• COVID-19 protective items to stop the spread of the disease in the classroom. This includes face masks, disinfectant for use against COVID-19, hand soap, hand sanitizer, disposable gloves, tape, paint or chalk to guide social distancing, physical barriers, such as clear plexiglass, air purifiers and other items recommended by the Centers for Disease Control and Prevention.
• Professional development courses related to the curriculum they teach or the students they teach. But the IRS cautions that, for these expenses, it may be more beneficial to claim another educational tax benefit, especially the lifetime learning credit. You can see more here.
• Qualified expenses don’t include the cost of homeschooling or nonathletic supplies for courses in health or physical education. The IRS also reminds educators to keep good records, including receipts, cancelled checks and other documentation.

Link to original article: ​https://www.cpajournal.com/2022/08/10/rental-activity-and-self-employment-tax/

By  Robert S. Barnett, JD, CPA
 May/June 2022, Featured, Taxation |  
August 2022

Tax planning for real estate activities often involves a myriad of tax considerations. For example, if the real estate produces a loss, a determination must be made whether the loss is limited by insufficient basis or by the at-risk or passive activity loss rules which arise under IRC sections 465 and 469. When income is generated, other questions arise, including whether such income will qualify for the IRC section 199A deduction introduced by the Tax Cuts and Jobs Act (TCJA) of 2017, whether the income may be subject to the net investment income tax surcharge of 3.8% under IRC section 1411, and whether the rental income will be subject to self-employment tax. This article discusses the intersection of rental real estate and the self-employment tax.

In a Chief Counsel Advice issued on December 23, 2021, CCA 202151005, the IRS discussed various rules relating to the application of self-employment tax by describing two general fact patterns. The CCA involved limited issues, but provides a good starting point for understanding how the IRS classifies real estate rentals for self-employment tax purposes. Both fact patterns involve the application of IRC sections 469(c) and 1402(a)(1) to short-term residential rentals from real estate. IRC section 469 describes the rules related to passive activities, and IRC section 1402 discusses net earnings from self-employment (NESE).

CCA 202151005In the first example, the individual taxpayer provided various services and accommodations with respect to a vacation property rented via an online rental marketplace. The taxpayer provided the following services: Linens, kitchen utensils, all items making the property fully habitable, daily maid services, delivery of individual-use toiletries and other sundries (not described), Wi-Fi service, beach access, recreational equipment, and prepaid ride-share vouches between the property and the nearest business district.

In the second fact pattern, the individual landlord rented a fully furnished room and bathroom without access to most common household areas such as the kitchen or laundry room. Cleaning was only provided between each occupant’s stay, and the example included no discussion of any other items furnished to the occupants.

In both examples, the individual taxpayer was not a real estate dealer. Surprisingly, and without discussion, both examples also stated that the rental activity occurred in the course of a trade or business. Because average customer use was less than eight days, both activities were not considered a rental activity for IRC section 469 purposes [Treasury Regulations section 1.469-1T(e)(3)(ii)(A)]. The examples also included a statement that taxpayers materially participated in the activity for purposes of the passive activity rules, but they did not describe how the required tests were met.

The CCA concluded that the determination of whether the activity constitutes a rental activity under the passive activity rules is not determinative for self-employment tax purposes. In addition to income taxes, IRC section 1401 imposes tax of 12.4% on the self-employment income of individuals. IRC section 1402(b) defines self-employment income as NESE, which is described in section 1402(a) as the income derived by individuals from any trade or business carried on by such individual, less the deductions allowed that are attributable to such trade or business, plus the distributive share of partnership income. However, IRC section 1402(a)(1) excludes net rental income from NESE unless the amounts are received in the course of a trade or business as a real estate dealer. In both fact patterns, the taxpayer provided short-term residential rentals and was not a real estate dealer. Treasury regulations provide that rentals from living quarters are not considered NESE and are considered rentals from real estate when no services are rendered for the occupants [Treasury Regulations section 1.1402(a)-4(c)(1)]. The CCA discussed two examples that addressed the level of services provided to the occupants.

With respect to the services rendered to occupants, the two fact patterns present a stark contrast. In the first situation, net rental income was not excluded from NESE due to the substantial services provided; in the second, the income was excluded from NESE as residential rental income. These were predictable outcomes: What about situations not as blatant as the first fact pattern, but perhaps not as starkly bare as the second? In describing services, the CCA states that “services are considered rendered to the occupant if they are primarily for his convenience and are other than those usually or customarily rendered in connection with rental of rooms or other space for occupancy only.” For example, the IRC section 1402(a)(1) exclusion from NESE did not apply to the rental of a vacation beach dwelling that included services such as maid services, swimming and fishing instruction, mail delivery, furnishing of bus schedules, and information about local churches [Revenue Ruling 57-108, 1957-1 C.B. 273].

The Treasury Regulations provide some bright line tests which indicate that the following do not constitute rentals from real estate: Rentals in hotels, boarding houses, tourist camps or tourist homes, parking lots, warehouses, or storage garages [Treasury Regulations section 1.1402(a)-4(c)(2)]. The regulation describes tainted services as those rendered to the occupant for the occupant’s convenience other than those “usually or customarily rendered in connection with the rental of rooms or other space for occupancy only.” For example, the furnishing of heat and light, cleaning of public areas, and the collection of trash are not considered as services rendered to the occupant; the supplying of maid services, however, is. In cases where multiple rentals are involved and some include services for the convenience of the tenants and others do not, the regulations clarify that the rentals must be viewed independently for calculation of the portion attributable in determining NESE.

Unfortunately, there is no bright-line test, and all facts of any particular case must be carefully evaluated. A fundamental question relates to services that maintain the property in condition for occupancy; such services are not considered rendered for the tenant. If services are rendered for the tenant, the next inquiry is whether tenant’s services are substantial.

In BoBo v. Commissioner [70 T.C. 706 (1978), acq.], the taxpayers owned a 46-unit mobile home park in California. Because the park grounds were paved, no landscaping or maintenance was required. The taxpayer’s resident manager periodically cleaned leaves and other debris. Each home space was furnished with gas, water, a sewer, and a separately metered electrical connection. Tenants’ garbage was collected by a local company. An independent concession provided two coin-operated washers and dryers at the premises with connected water, electricity, and sewer. Machine repair was the responsibility of the concessionaire who also collected the deposited money. The taxpayer received a commission from the operator. No recreational facilities were provided. Rent was collected and general operations were performed by the resident manager.

The central issue was whether the mobile park earnings were subject to self-employment tax. Because the IRS asserted that self-employment tax applied and relied on the fact that the mobile park rendered services to its tenants, the earnings were not excludable earnings and did not constitute “rentals from real estate” under the statute and regulations. The court noted that because the taxpayer provided cleaning, ground maintenance, sewage and electrical connections, laundry, bath, and toilet facilities, and roadway maintenance, he provided services other than those “usually or customarily provided in connection with the rental of space only for occupancy.” The ruling clarified that many of the provided services, such as furnishing of heat, light, the cleaning of public areas, collection of trash and others, are not considered as services rendered to the occupant under Treasury Regulations section 1.1402(a)-4(c)(2). The court viewed most of the provided services as those required to maintain the premises for occupancy. Although providing laundry services does not meet that exception, such services were provided by the concessionaire and the court found that this service was not sufficiently substantial and did not constitute a material part of the rental payments made by the tenant. The court viewed the laundry as an incidental or minor service to the occupant who “pays rent primarily for his space and the services necessary to maintain it.” The court stressed that the determination is based upon all facts and circumstances, including the materiality of the nonexempt services, and that each situation needs to be carefully evaluated before a position is maintained.

Commercial Rentals
A common question arises as to whether 1) a rental real estate trade or business, or 2) a taxpayer that qualifies as a real estate professional, is required to pay self-employment tax on net rental income. CCA 202151005 stated that the rental in the second example occurred in the course of a trade or business and was excluded from NESE, but the activity seemed quite limited. In Blythe, et ux. v. Commissioner (TCM 1999-11), the taxpayer owned 10 parcels of residential real property. One of the central issues in the case was whether self-employment tax was required to be paid on the net rental income. Because the taxpayers claimed that they were not real estate dealers, the net rental earnings were not earnings from self-employment. The IRS maintained that the rentals constituted a trade or business; therefore, the income was required to be included in NESE. The court found that the taxpayer acquired the parcels for the purpose of producing rental income and was not holding title for the purpose of selling real estate to customers. The taxpayers did not offer any of the parcels for sale during the year under audit or at any other time. The court found that because the taxpayers were not real estate dealers, the net rental income was not subject to self-employment tax.

Limited Guidance
​Net earnings from self-employment are subject to self-employment tax. There is a statutory exclusion for rentals from real estate and personal property leased with the real estate. CCA 202151005 helps to guide taxpayers with respect to the structure of residential rentals. In some situations, the services provided will resemble either one of the two fact patterns in the memorandum, but the analysis will often be more difficult. Tax preparers will have to review and assess the significance and materiality of all services provided to residential tenants.

IRS Tax Tip 2022-114 
​Scammers often pose as the IRS to steal taxpayers' personal information. They may reach out through fraudulent phone calls, emails, texts or social media messages. It's important for taxpayers to understand how the IRS contacts people, so they don't fall victim to identity thieves.
Generally, the IRS will mail a notice or letter to a taxpayer first.

• Taxpayers can search IRS notices by visiting Understanding Your IRS Notice or Letter. However, not all IRS notices are searchable on the site.
• Be aware that fraudsters sometimes claim they already notified the taxpayer by mail or reference an IRS notice to make their scam seem legitimate.
• Taxpayers may check their secured online account or contact the IRS to confirm legitimacy of a notice.
• Debt relief firms often send unsolicited tax debt relief offers through the mail.

The IRS may send taxpayers a notice about filing past due tax returns. They should send their past due return to the address provided in the notice. Taxpayers can use the prior year forms, instructions and publications on IRS.gov to file past due returns or they can work with a tax professional.
After mailing a notice or letter, the IRS may call a taxpayer.

• IRS revenue agents or tax compliance officers may call a taxpayer or tax professional after mailing a notice to confirm an appointment or to discuss items for a scheduled audit. The IRS encourages taxpayers to review, How to Know it's Really the IRS Calling or Knocking on Your Door: Collection.
• The IRS does not leave pre-recorded, urgent or threatening messages. In many phone scams, victims are told if they do not call back, a warrant will be issued for their arrest. 
• Private debt collectors, contracted by the IRS, can call taxpayers to collect certain outstanding inactive tax liabilities, but only after the taxpayer and their representative have received written notice.
• Private debt collection shouldn't be confused with debt relief firms who will call, send lien notices or email taxpayers with debt relief offers.

The IRS doesn't initiate contact with taxpayers by email to request personal or financial information.

• Taxpayers shouldn't reply to a phishing email from someone who claims to be from the IRS, because the email address could be spoofed or fake. Emails from IRS employees will end in IRS.gov.

The IRS doesn't send text messages or contact people through social media.

• Other than IRS Secure Access, the IRS does not use text messages to discuss personal tax issues, such as those involving bills or refunds. The IRS also will not send taxpayers messages via social media platforms.
• Scammers may text a taxpayer with a phony message about COVID-19 or "stimulus payments." These messages often contain bogus links claiming to be IRS websites or other online tools.
• Fraudsters also will impersonate legitimate government agents and agencies on social media and try to initiate contact with taxpayers.

IRS revenue officers and agents may make in-person visits.

• IRS revenue officers and agents routinely make unannounced visits to a taxpayer's home or place of business to discuss taxes owed, delinquent tax returns or a business falling behind on payroll tax deposits.
• IRS revenue officers will request payment of taxes owed by the taxpayer. However, taxpayers should remember that payment will never be requested to a source other than the U.S. Treasury.
• When visited by someone from the IRS, taxpayers should always ask for credentials. IRS representatives can always provide two forms of official credentials: a pocket commission and a Personal Identity Verification Credential.

More information:

• Secure tax payment options
• Consumer alerts
• Report phishing and online scams

Subscribe to IRS Tax Tips

IRS Tax Tip 2021-179, December 3, 2021
Cybercrime is a constant concern in the online world which means everyone must be mindful of risks when they share devices, shop online and interact on social media. While this may seem overwhelming, it doesn't have to be. A few small security measures can lower the risk of exposure to online safety threats.
Beware of sharing personal informationNo one should reveal too much information about themselves. People can keep data secure by only providing what is necessary. This reduces online exposure to criminals. For example, birthdays, addresses, age and especially Social Security numbers are some things that should not be shared freely. In fact, people should not routinely carry a Social Security card in their wallet or purse. Taxpayers should only share government issued ID after first verifying the nature of the request by contacting the agency or visiting the agency's website. If someone calls requesting personal or financial information, verify their request separately, otherwise hang up and report the contact.
Protect personal dataAdults should advise young users to shop at reputable online retailers. They should treat personal information like cash and shouldn't leave it lying around.
Use security softwarePeople should make sure their security software such as anti-virus, and firewalls is always turned on and can automatically update. They should regularly backup and encrypt sensitive files stored on computers. Sensitive files include things like tax records, school transcripts and college applications. They should use strong, unique passwords for each account and enable two-factor or multi-factor authentication for online accounts where possible. They should also be sure all family members have comprehensive anti-virus protection for their devices, particularly on shared devices.
Know the risk of public Wi-FiConnection to public Wi-Fi is convenient and often free, but it may not be safe. Criminals can easily steal personal information from these networks. Always use a virtual private network when connecting to public Wi-Fi.
Learn to recognize and avoid scamsEveryone should be aware of common scams. Criminals use phishing emails, threatening phone calls and texts to pose as IRS employees or other legitimate government or law enforcement agencies. People should remember to never click on links or download attachments from unknown or suspicious emails.
Be aware of compromised accountsSuspicious contact may appear to come from someone the user knows who has had their online accounts such as email, or social media, compromised by a criminal; meaning the account is theirs, but they didn't send the request.
More Information

• Publication 4524, Security Awareness for Taxpayers

Originally posted at https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021

​Important changes to the Child Tax Credit will help many families get advance payments of the credit starting this summer. The IRS will pay half the total credit amount in advance monthly payments beginning July 15. You will claim the other half when you file your 2021 income tax return. These changes apply to tax year 2021 only.

To qualify for advance Child Tax Credit payments, you — and your spouse, if you filed a joint return — must have:

• Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return; or
• Given us your information in 2020 to receive the Economic Impact Payment using the Non-Filers: Enter Payment Info Here tool; and
• A main home in the United States for more than half the year (the 50 states and the District of Columbia) or file a joint return with a spouse who has a main home in the United States for more than half the year; and
• A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number; and
• Made less than certain income limits.

We’ll use information you provided earlier to determine if you qualify and automatically enroll you for advance payments. You do not need to take any additional action to get advance payments.

Unenroll From Advance Payments
Unenroll if you don’t want to get advance payments or check if you’re enrolled to receive payments, use this link: Unenroll From Advance Payments

Non-Filers: Submit Your Information
If you aren’t required to file a tax return and haven’t given us your information already, you will need to give us some basic information for the Child Tax Credit. You can do so here: Enter Your Information

Additional Information

• Questions and Answers About the Advance Child Tax Credit Payments
• 2021 Child Tax Credit and Advance Child Tax Credit Payments: Resources and Guidance
• Check if you may be eligible for the advance child tax credit payments

Originally published at https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021

Important changes to the Child Tax Credit will help many families get advance payments of the credit starting this summer. The IRS will pay half the total credit amount in advance monthly payments beginning July 15. You will claim the other half when you file your 2021 income tax return. These changes apply to tax year 2021 only.
To qualify for advance Child Tax Credit payments, you — and your spouse, if you filed a joint return — must have:

• Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return; or
• Given us your information in 2020 to receive the Economic Impact Payment using the Non-Filers: Enter Payment Info Here tool; and
• A main home in the United States for more than half the year (the 50 states and the District of Columbia) or file a joint return with a spouse who has a main home in the United States for more than half the year; and
• A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number; and
• Made less than certain income limits.

We’ll use information you provided earlier to determine if you qualify and automatically enroll you for advance payments. You do not need to take any additional action to get advance payments.
Check back later for tools to help you check your eligibility and manage and unenroll from payments.


Non-Filers: Submit Your Information
If you aren’t required to file a tax return and haven’t given us your information already, you will need to give us some basic information for the Child Tax Credit.

Enter Your Information HERE

The U.S. Senate and House of Representatives overwhelmingly passed a $900 billion COVID-19 relief bill Monday night that provides $600 stimulus payments to individuals, adds $300 to extended weekly unemployment benefits, and provides more than $300 billion in aid for small businesses.
The legislation, the Consolidated Appropriations Act, 2021, also ensures tax deductibility for business expenses paid with forgiven Paycheck Protection Program (PPP) loans, provides fresh PPP funding, makes Sec. 501(c)(6) not-for-profit organizations eligible for loans for the first time, and offers businesses facing severe revenue reductions the opportunity to apply for a second loan.
The Senate approved the bill with a 92-6 vote at about 11:45 p.m. Monday, just a couple of hours after the House approved it 359-53. The measure now goes to President Donald Trump, who is expected to sign it into law.
The COVID-19 relief package is tied to a $1.4 trillion resolution to fund the government through September 2021.
Key provisions in the bill include:

• $325 billion in aid for small businesses struggling after nine months of pandemic-induced economic hardships. The bill provides more than $284 billion to the U.S. Small Business Association (SBA) for first and second PPP forgivable small business loans and allocates $20 billion to provide Economic Injury Disaster Loan (EIDL) Grants to businesses in low-income communities. In addition, shuttered live venues, independent movie theaters, and cultural institutions will have access to $15 billion in dedicated funding while $12 billion will be set aside to help business in low-income and minority communities.
• $166 billion for economic impact payments of $600 for individuals making up to $75,000 per year and $1,200 for married couples making up to $150,000 per year, as well as a $600 payment for each child dependent.
• $120 billion to provide workers receiving unemployment benefits a $300 per week supplement from Dec. 26 until March 14, 2021. This bill also extends the Pandemic Unemployment Assistance (PUA) program, with expanded coverage to the self-employed, gig workers, and others in nontraditional employment, and the Pandemic Emergency Unemployment Compensation (PEUC) program, which provides additional weeks of federally funded unemployment benefits to individuals who exhaust their regular state benefits.
• $25 billion in emergency rental aid and an extension of the national eviction moratorium through Jan. 31, 2021.
• $45 billion in transportation funding, including $16 billion for airlines, $14 billion for transit systems, $10 billion for state highways, $2 billion each for airports and intercity buses, and $1 billion for Amtrak.
• $82 billion in funding for colleges and schools, including support for HVAC repair and replacement to mitigate virus transmission, and $10 billion in child care assistance.  
• $22 billion for health-related expenses incurred by state, local, Tribal, and territorial governments.
• $13 billion for emergency food assistance, including a 15% increase for six months in Supplemental Nutrition Assistance Program benefits.
• $7 billion for broadband expansion.

The bill also extends the employee retention tax credit and several expiring tax provisions and temporarily allows a 100% business expense deduction for meals (rather than the current 50%) as long as the expense is for food or beverages provided by a restaurant. This provision is effective for expenses incurred after Dec. 31, 2020, and expires at the end of 2022.
Breaking down the PPP provisionsThe return of the PPP is of particular interest to accountants, who played a significant role in helping millions of small businesses acquire $525 billion in forgivable loans during the five months the program was accepting applications, according to SBA reporting. The new round of PPP, or PPP2 as some are calling it, contains many similarities to the first round of the PPP but also has several important differences. The following is a high-level view of the PPP provisions.
Who is eligible to applyPPP2 loans will be available to first-time qualified borrowers and, for the first time, to businesses that previously received a PPP loan. Specifically, previous PPP recipients may apply for another loan of up to $2 million, provided they:

• Have 300 or fewer employees.
• Have used or will use the full amount of their first PPP loan.
• Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.

PPP2 also makes the forgivable loans available to Sec. 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc., and “destination marketing organizations” (as defined in the act), provided they have 300 or fewer employees and do not receive more than 15% of receipts from lobbying. The lobbying activities must comprise no more than 15% of the organization’s total activities and have cost no more than $1 million during the most recent tax year that ended prior to Feb. 15, 2020.  
PPP2 will also permit first-time borrowers from the following groups:

• Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
• Sole proprietors, independent contractors, and eligible self-employed individuals.
• Not-for-profits, including churches.
• Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location.

The bill allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available to them.
PPP loan termsAs with PPP1, the costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest, and utilities. PPP2 also makes the following potentially forgivable: 

• Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
• Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
• Covered operating costs such as software and cloud computing services and accounting needs.

To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks — the same parameters PPP1 had when it stopped accepting applications in August.
PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, the same as with PPP1, but the maximum loan amount has been cut from $10 million in the first round to the previously mentioned $2 million maximum. PPP borrowers with NAICS codes starting with 72 (hotels and restaurants) can get up to 3.5 times their average monthly payroll costs, again subject to a $2 million maximum.
Simplified application and other terms of noteThe new COVID-19 relief bill also:

• Creates a simplified forgiveness application process for loans of $150,000 or less. Specifically, a borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The SBA must create the simplified application form within 24 days of the bill’s enactment and may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.
• Repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount.
• Includes set-asides to support first- and second-time PPP borrowers with 10 or fewer employees, first-time PPP borrowers that have recently been made eligible, and for loans made by community lenders.

Tax deductibility for PPP expensesThe bill also specifies that business expenses paid with forgiven PPP loans are tax-deductible. This supersedes IRS guidance that such expenses could not be deducted and brings the policy in line with what the AICPA and hundreds of other business associations have argued was Congress’s intent when it created the original PPP as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136 (see the Dec. 3 letter from the AICPA and state societies to congressional leaders).
The COVID-19 relief bill clarifies that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided” by Section 1106 of the CARES Act (which has been redesignated as Section 7A of the Small Business Act). This provision applies to loans under both the original PPP and subsequent PPP loans.
While the CARES Act excluded PPP loan forgiveness from gross income, it did not specifically address whether the expenses used to achieve that loan forgiveness would continue to be deductible, even though they would otherwise be deductible. In April, the IRS issued Notice 2020-32, which stated that no deduction would be allowed under the Internal Revenue Code for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a PPP loan because the income associated with the forgiveness is excluded from gross income for purposes of the Code under CARES Act Section 1106(i).
In November, the IRS then expanded on this position by issuing Rev. Rul. 2020-27, which held that a taxpayer computing taxable income on the basis of a calendar year could not deduct eligible expenses in its 2020 tax year if, at the end of the tax year, the taxpayer had a reasonable expectation of reimbursement in the form of loan forgiveness on the basis of eligible expenses paid or incurred during the covered period. Treasury Secretary Steven Mnuchin also argued against businesses being able to deduct business expenses paid with forgiven, tax-free PPP funds, calling it an unwarranted double benefit for businesses.  
The AICPA disputed this interpretation of the CARES Act loan forgiveness rules, arguing that it was not Congress’s intent to disallow the deduction of otherwise deductible expenses. Congress has now agreed with that position.