Learning Center for Tax and Financial Insights

December 1 - Time for Year-End Tax PlanningDecember is the month to take final actions that can affect your tax result for 2021. Taxpayers with substantial increases or decreases in income, changes in marital status or dependent status, and those who sold property during 2021 should call for a tax planning consultation appointment.December 10 - Report Tips to EmployerIf you are an employee who works for tips and received more than $20 in tips during November, you are required to report them to your employer on IRS Form 4070 no later than December 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

December 1 - EmployersDuring December, ask employees whose withholding allowances will be different in 2022 to fill out a new Form W4 or Form W4(SP). December 15 - Social Security, Medicare and Withheld Income TaxIf the monthly deposit rule applies, deposit the tax for payments in November.December 15 - Nonpayroll WithholdingIf the monthly deposit rule applies, deposit the tax for payments in November.December 15 - CorporationsThe fourth installment of estimated tax for 2021 calendar year corporations is due.December 31 - Delayed Payment of Employer Payroll Taxes from 2020If you as an employer delayed paying 2020 payroll taxes under the CARES Act provision, 50% of your share of the 2020 Social Security tax is due by December 31, 2021, and the remainder is due by December 31, 2022. Any payments or deposits you make before December 31, 2021, are first applied against your payment due on December 31, 2021, and then applied against your payment due on December 31, 2022.

Article Highlights: Electric Car CreditSolar Electric CreditCollege Student SuppliesWork EquipmentCharitable GiftsEmployee GiftsSome holiday gifts you provide to members of your family, employees and others may also yield tax benefits—think of it as Santa Claus meets Uncle Sam. Here are some examples:Electric Car Credit* – If you purchase a new electric car as a holiday gift for your spouse or even yourself, you will find that most come not only with a big red bow but also with a tax credit of up to $7,500. To qualify to claim the credit on your 2021 tax return, the vehicle will have to be “placed in service” by December 31, 2021. So merely ordering the vehicle, even if you pay for it when the order is placed, won’t be enough—you will need to receive the car and start using it before New Year’s Day. But if the vehicle is backordered and doesn’t arrive until next year, you would be able to claim the credit on your 2022 tax return. This credit is nonrefundable, meaning it can only offset your actual tax liability and that any excess credit over your tax liability will be lost. There is, however, an exception when the electric vehicle is used partially for business, in which case the portion of the credit allocated to business use will become a general business credit that is carried back one year and then carried forward. Solar Electric Credit* – If you and your spouse or other resident of the home decide to make a gift of a home solar system to each other, you will qualify for a nonrefundable tax credit equal to 26% of the cost of the home’s solar property. If your tax liability is less than the credit, the excess credit can be carried over to a future year. The solar credit is available to any resident of the home who purchases the solar system, even if they do not have an ownership interest in the home. Example: A mother and son live together in a home owned by the mother. The son purchases a solar system for their home; as a result, the son gets the tax credit, since he resides in the home. Caution: To claim a credit for the system’s costs on your 2021 return, the installation must be completed by December 31, 2021.* Both the electric car credit and the home solar electric credit are included in the Build Back Better Act pending in Congress, which will alter these two credits by providing increased tax benefits. Therefore, it could be appropriate to delay the purchases until 2022. Please call this office in advance of purchasing either for further guidance. College Student Supplies – If you have a spouse or child attending college, the costs of certain course materials qualify for the American Opportunity Tax Credit (AOTC) if the course materials are needed as a condition of enrollment and attendance. Even if too large to be a holiday stocking-stuffer, a computer that is needed as a condition of enrollment and attendance at college would likely be appreciated by the student, and the computer’s cost would qualify for the AOTC of the individual who claims the student as a dependent. Other requirements apply to claim the AOTC; check with this office for details.Work Equipment – If your spouse is self-employed and you purchase tools or electronics used in the spouse’s business, the costs of these items will qualify as a business tax deduction on the return for the year the equipment is put into service.

Exploring ways to save up for your kid's higher education? The federal tax code provides two beneficial saving plans that allow tax-free withdrawals for qualified education expenses. Watch the video for details.

Article Highlights: Lifetime ExclusionAnnual ExclusionMedical ExceptionEducation ExceptionGifting TechniquesIf you are fortunate enough to have an estate large enough to be subject to the estate tax upon your death, you might be considering ways to give away some of your wealth to your family and loved ones now, thereby reducing the estate tax when you pass on. This tax strategy may be more important this year than it has been in the last few years, because legislation being considered by Congress would reduce the lifetime gift and estate tax exclusion by about half while retaining the annual gifting exclusion. Frequently, taxpayers think that gifts of cash, securities or other assets they give to other individuals are tax-deductible; in turn, the gift recipient sometimes thinks income tax must be paid on the gift received. Nothing can be further from the truth. To fully understand the ramifications of gifting, one needs to realize that gift tax laws are interrelated with estate tax laws, and Uncle Sam does not want you giving away your wealth before you pass away to avoid the estate tax. For individuals who die in 2021, federal law allows $11.7 million (lifetime estate tax exclusion) to pass to your heirs estate-tax free, and any excess amount is subject to an estate tax as high as 40%. If passed, the legislation referenced above would lower the exclusion to $5 million, adjusted for inflation. Amounts you gift in excess of the annual gift tax exclusion amount prior to your death reduce the lifetime estate tax exclusion and will therefore subject more of your estate to taxation. Example: Jeff gives his daughter $100,000 in 2021. This is $85,000 more than the $15,000 annual gift tax exclusion. Jeff will need to file a gift tax return reporting the gift. The $85,000 excess (and any additional excess amounts from other years) will reduce his estate tax exclusion, whatever amount it may be, in the year he dies.The law does provide exceptions where gifts can be made without reducing the lifetime exclusion, including the following:Annual gift exclusion available each year to any number of individuals. The amount is periodically adjusted for inflation, and the amount for 2021 is $15,000 (projected to be $16,000 for 2022). The recipient does not have to be a relative or an audult. Unlimited amounts can be gifted to a U.S. citizen’s spouse. Gifts can be cash or the transfer of real or personal property.Directly pay medical expenses. This applies to amounts paid by one individual on behalf of another individual directly to a medical care provider as payment for that medical care. Payments for medical insurance qualify for this exclusion.Directly pay education expenses. This applies to amounts paid by one individual on behalf of another individual directly to a qualifying educational organization as tuition for that other individual. The tuition can be for any level of schooling—elementary, secondary or post-secondary. Costs of room and board, books, supplies or other similar expenses aren’t eligible as direct payments, nor are contributions to qualified tuition programs (also known as Sec. 529 plans), which have their own gifting rules not covered in this article.If the gift giver is married and both spouses agree, gifts to recipients made during a calendar year can be treated as split between the husband and wife, even if only one of them made the cash or property gift. Thus, by using this technique, a married couple can give $30,000 in 2021 to each recipient under the annual limitation discussed previously.

You may be giving out lots of gifts this holiday season, but do you know thoughtful holiday gift-givers can receive tax perks? Watch this video to see how holiday giftings can bring tax benefits to you.