Late Breaking Tax Update

Late Breaking Tax Update

Marylanders now have until July 15, 2022, to file and pay 2021 state individual income taxes, Comptroller Peter Franchot announced Wednesday.

Comptroller  Franchot said the extended deadline is meant to assist taxpayers facing financial difficulties due to the COVID-19 pandemic. The extension waives penalties and interest on outstanding liabilities.

“Many people are still struggling to stay above water, so giving taxpayers more time to file and pay will hopefully ease their financial pressure,” Franchot said in a statement. “As we approach the two-year mark of the onset of COVID-19, my agency remains as committed as ever to helping Marylanders who still are feeling the pandemic’s impact.”

The Internal Revenue Service, which already has warned of processing delays for the 2022 tax season due to COVID-19, has not indicated any plans to extend the federal income tax filing and payment deadline beyond April 18.

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Get Ready for Taxes

Get Ready for Taxes

Get ready for taxes: Here’s what’s new and what to consider when filing in 2022

The IRS encourages taxpayers to get informed about topics related to filing their federal tax returns in 2022. These topics include special steps related to charitable contributions, economic impact payments and advance child tax credit payments. Taxpayers can visit IRS.gov/getready for online tools, publications and other helpful resources for the filing season.

Here are some key items for taxpayers to know before they file next year.

Changes to the charitable contribution deduction

Taxpayers who don’t itemize deductions may qualify to take a deduction of up to $600 for married taxpayers filing joint returns and up to $300 for all other filers for cash contributions made in 2021 to qualifying organizations.

Check on advance child tax credit payments

Families who received advance payments will need to compare the advance child tax credit payments that they received in 2021 with the amount of the child tax credit that they can properly claim on their 2021 tax return.

  • Taxpayers who received less than the amount for which they’re eligible will claim a credit for the remaining amount of child tax credit on their 2021 tax return.
  • Eligible families who did not get monthly advance payments in 2021 can still get a lump-sum payment by claiming the child tax credit when they file a 2021 federal income tax return next year. This includes families who don’t normally need to file a return.

In January 2022, the IRS will send Letter 6419 with the total amount of advance child tax credit payments taxpayers received in 2021. People should keep this and any other IRS letters about advance child tax credit payments with their tax records. Individuals can also create or log in to IRS.gov online account to securely access their child tax credit payment amounts.

Economic impact payments and claiming the recovery rebate credit

Individuals who didn’t qualify for the third economic impact payment or did not receive the full amount may be eligible for the recovery rebate credit based on their 2021 tax information. They’ll need to file a 2021 tax return, even if they don’t usually file, to claim the credit.

Individuals will need the amount of their third economic impact payment and any plus-up payments received to calculate their correct 2021 recovery rebate credit amount when they file their tax return.

In early 2022, the IRS will send Letter 6475 that contains the total amount of the third economic impact payment and any plus-up payments received. People should keep this and any other IRS letters about their stimulus payments with other tax records. Individuals can also create or log in to IRS.gov online account to securely access their economic impact payment amounts.

More information:
Reconciling Your Advance Child Tax Credit Payments on Your 2021 Tax Return

IRS issues information letters to Advance Child Tax Credit recipients

IRS issues information letters to Advance Child Tax Credit recipients

IRS issues information letters to Advance Child Tax Credit recipients and recipients of the third round of Economic Impact Payments; taxpayers should hold onto letters to help the 2022 Filing Season experience

The Internal Revenue Service announced on 12-22-2021 that it will issue information letters to Advance Child Tax Credit recipients starting in December and to recipients of the third round of the Economic Impact Payments at the end of January. Using this information when preparing a tax return can reduce errors and delays in processing.

The IRS urged people receiving these letters to make sure they hold onto them to assist them in preparing their 2021 federal tax returns in 2022.

Watch for advance Child Tax Credit letter

To help taxpayers reconcile and receive all of the Child Tax Credits to which they are entitled, the IRS will send Letter 6419, 2021 advance CTC, starting late December, 2021 and continuing into January. The letter will include the total amount of advance Child Tax Credit payments taxpayers received in 2021 and the number of qualifying children used to calculate the advance payments. People should keep this and any other IRS letters about advance Child Tax Credit payments with their tax records.

Families who received advance payments will need to file a 2021 tax return and compare the advance Child Tax Credit payments they received in 2021 with the amount of the Child Tax Credit they can properly claim on their 2021 tax return.

The letter contains important information that can make preparing their tax returns easier. People who received the advance CTC payments can also check the amount of their payments by using the CTC Update Portal available on IRS.gov.

Eligible families who did not receive any advance Child Tax Credit payments can claim the full amount of the Child Tax Credit on their 2021 federal tax return, filed in 2022. This includes families who don’t normally need to file a tax return.

Economic Impact Payment letter can help with the Recovery Rebate Credit

The IRS will begin issuing Letter 6475, Your Third Economic Impact Payment, to EIP recipients in late January. This letter will help Economic Impact Payment recipients determine if they are entitled to and should claim the Recovery Rebate Credit on their tax year 2021 tax returns that they file in 2022.

Letter 6475 only applies to the third round of Economic Impact Payments that was issued starting in March 2021 and continued through December 2021. The third round of Economic Impact Payments, including the “plus-up” payments, were advance payments of the 2021 Recovery Rebate Credit that would be claimed on a 2021 tax return. Plus-up payments were additional payments the IRS sent to people who received a third Economic Impact Payment based on a 2019 tax return or information received from SSA, RRB or VA; or to people who may be eligible for a larger amount based on their 2020 tax return.

Most eligible people already received the payments. However, people who are missing stimulus payments should review the information to determine their eligibility and whether they need to claim a Recovery Rebate Credit for tax year 2020 or 2021.

Like the advance CTC letter, the Economic Impact Payment letters include important information that can help people quickly and accurately file their tax return.

More information about the Advance Child Tax Credit, Economic Impact Payments and other COVID-19-related tax relief may be found at IRS.gov.

As the 2022 tax filing season approaches, the IRS urges people to make sure an accurate tax return and use electronic filing with direct deposit to avoid delays.

Most retirees must take required minimum distributions by Dec. 31

Most retirees must take required minimum distributions by Dec. 31

WASHINGTON — The Internal Revenue Service today reminded retirement plan participants and individual retirement account owners that payments, called required minimum distributions, must usually be taken by Dec. 31.

Required minimum distributions (RMDs) generally are minimum amounts that retirement plan account owners must withdraw annually starting with the year they reach 72 or, if later, the year they retire. However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the account holder is age 72, even if they’re still working. RMD amounts not timely withdrawn from accounts may be subject to penalties.

Individuals who reached 70 ½ in 2019, (70th birthday was June 30, 2019 or earlier) did not have an RMD due for 2020, but will have to take one by Dec. 31, 2021.

Individuals who reach 72 in 2021 (and their 70th birthday was July 1, 2019 or later) have their first RMD due by April 1, 2022.

The required distribution rules apply to:

  • Owners of traditional Individual Retirement Arrangements (IRAs)
  • Owners of traditional Simplified Employee Pension (SEP) IRAs
  • Owners of Savings Incentive Match Plans for Employees (SIMPLE) IRAs
  • Participants in various workplace retirement plans, including 401(k), Roth 401(k), 403(b) and 457(b) plans

Roth IRAs do not require distributions while the original owner is alive.

An IRA trustee, or plan administrator, must report the amount of the RMD to the IRA owner. An IRA owner, or trustee, must calculate the RMD separately for each IRA owned. However, they can choose to withdraw the total amount from one or more of the IRAs. In contrast, RMDs required from workplace retirement plans must be taken separately from each plan. Not taking a required distribution, or not withdrawing enough, could mean a 50% excise tax on the amount not distributed.

The RMD is based on the taxpayer’s life expectancy and their account balance. Often, a trustee will use Form 5498, IRA Contribution Information, to report the RMD to the recipient. For most taxpayers, life expectancy used to calculate the RMD is based on Uniform Lifetime Table III in Publication 590-B, Distributions from IRAs. Individuals can use online worksheets on IRS.gov to figure the RMD.

2020 RMDs
An IRA owner or beneficiary who received an RMD in 2020 had the option of returning it to their account or other qualified plan to avoid paying taxes on that distribution. A 2020 RMD that qualified as a coronavirus-related distribution may be repaid over a 3-year period or have the taxes due on the distribution spread over three years. A 2020 withdrawal from an inherited IRA could not be repaid to the inherited IRA but may be spread over three years for income inclusion.

IRS online tools and publications can help
Taxpayers can find frequently asked questions, forms and instructions and easy-to-use tools at IRS.gov.

Tax Year End Prep

Tax Year End Prep

Some important things all taxpayers should do before the tax year ends

The IRS reminds taxpayers there are things they should do before the current tax year ends on Dec.31.

Donate to charity
Taxpayers may be able to deduct donations to tax-exempt organizations on their tax return. As people are deciding where to make their donations, the IRS has a tool that may help. Tax Exempt Organization Search on IRS.gov allows users to search for charities. It provides information about an organization’s federal tax status and filings.

The law now permits taxpayers to claim a limited deduction on their 2021 federal income tax returns for cash contributions they made to certain qualifying charitable organizations even if they don’t itemize their deductions. Taxpayers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021. The maximum deduction is $600 for married individuals filing joint returns.

Most cash donations made to charity qualify for the deduction. However, there are some exceptions. Cash contributions include those made by check, credit card or debit card as well as unreimbursed out-of-pocket expenses in connection with volunteer services to a qualifying charitable organization.

Check Individual Taxpayer Identification Number
An ITIN only needs to be renewed if it has expired and is needed on a U.S. federal tax return.

If an Individual Taxpayer Identification Number was not included on a U.S. federal tax return at least once for tax years 2018, 2019 and 2020, the ITIN will expire on Dec. 31, 2021.

As a reminder, ITINs with middle digits 70 through 88 have expired. In addition, ITINs with middle digits 90 through 99, if assigned before 2013, have expired. Individuals who previously submitted a renewal application that was approved, do not need to renew again.

Find information about retirement plans
IRS.gov has end-of-year tax information about retirement plans. This includes resources for individuals about retirement planning, contributions and withdrawals.

Contribute salary deferral
Taxpayers can make a salary deferral to a retirement plan. This helps maximize the tax credit available for eligible contributions. Taxpayers should make sure their total salary deferral contributions do not exceed the
$19,500 limit for 2021.

Get banked and set up direct deposit
Direct deposit gives taxpayers access to their refund faster than a paper check. Those without a bank account can learn how to open an account at an FDIC-Insured bank or through the National Credit Union Locator Tool.

Veterans should see the Veterans Benefits Banking Program for access to financial services at participating banks.

Connect with the IRS
Taxpayers can use social media to get the latest tax and filing tips from the IRS. The IRS shares information on things like tax changes, scam alerts, initiatives, tax products and taxpayer services. These social media tools are available in different languages, including English, Spanish and American Sign Language.

Think about tax refunds
Taxpayers should be careful not to expect getting a refund by a certain date. This is especially true for those who plan to use their refund to make major purchases or pay bills. Just as each tax return is unique to the individual, so is each taxpayer’s refund. Taxpayers can take steps now to Get Ready to file their federal tax return in 2022.

Year-end giving reminder

Year-end giving reminder

Year-end giving reminder: Special tax deduction helps most people give up to $600 to charity, even if they don’t itemize

WASHINGTON – The Internal Revenue Service today reminded taxpayers that a special tax provision will allow more Americans to easily deduct up to $600 in donations to qualifying charities on their 2021 federal income tax return.

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 returns 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, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions made to qualifying charities during 2021. The maximum deduction is increased to $600 for married individuals filing joint returns.

Included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in March 2020, a more limited version of this temporary tax benefit originally only applied to tax-year 2020. The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted last December, generally extended it through the end of 2021.

Cash contributions include those made by check, credit card or debit card as well as amounts incurred by an individual for unreimbursed out-of-pocket expenses in connection with their volunteer services to a qualifying charitable organization. Cash contributions don’t include the value of volunteer services, securities, household items or other property.

The IRS reminds taxpayers to make sure they’re donating to a recognized charity. To receive a deduction, taxpayers must donate to a qualified charity. To check the status of a charity, they can use the IRS Tax Exempt Organization Search tool.

Cash contributions to most charitable organizations qualify. But contributions made either to supporting organizations or to establish or maintain a donor advised fund do not. Contributions carried forward from prior years do not qualify, nor do contributions to most private foundations and most cash contributions to charitable remainder trusts.

In general, a donor-advised fund is a fund or account maintained by a charity in which a donor can, because of being a donor, advise the fund on how to distribute or invest amounts contributed by the donor and held in the fund. A supporting organization is a charity that carries out its exempt purposes by supporting other exempt organizations, usually other public charities.

Keep good records Special recordkeeping rules apply to any taxpayer claiming a charitable contribution deduction. Usually, this includes obtaining an acknowledgment letter from the charity before filing a return and retaining a cancelled check or credit card receipt for contributions of cash. For details on the recordkeeping rules for substa