|By Ada Cartright, Tax Director at Exencial Wealth Advisors|
Over the last few years we’ve experienced several moving parts as it relates to markets and tax strategy. Tax deadlines were pushed, unprecedented government packages were passed and the nation’s “quit rate” saw a 20-year high last fall.1
In this commentary, we outline key considerations to factor in this tax season with these many changes in mind.
Last-minute filing considerations
Deadline. This year, 2021 taxes are due Monday, April 18, 2022 — slightly delayed due to the Emancipation Day holiday in Washington D.C.2 If you haven’t filed yet, it is important to communicate with your advisor or tax consultant as soon as possible, particularly if you traditionally owe taxes or if you’ve experienced major changes in 2021 such as a significant change in wages or a large sale that would require the payment of capital gains tax.
Your tax specialist might recommend filing an extension if you haven’t filed your return yet. Extensions push the filing due date to October 15, 20223, and are beneficial for individuals awaiting missing tax documents or accounting for complex data. Filing this form does not result in penalties or increase the possibility of an audit, however, you are still required to pay back any estimated taxes by the original deadline.
Estimated tax payments. You might also consider preparing the first quarterly estimated tax (ES) payment4 for 2022. ES payments apply to people who fall into one of two categories: those with income outside of their employment or those who are completely self-employed. Examples of workers with supplemental income include individuals who run a side business or receive a 1099-Misc or K-1 on oil and gas royalties. There are two calculation methods. The payment can be based on the prior year (commonly referred to as the safe harbor calculation) or individuals can calculate a more precise estimate to avoid overpayment.
Advance Child Tax Credit payments. This program was designed for taxpayers with children under 17 and has ended this year.5 For 2021 filing purposes, you’ll need to compare the amount received to what you were entitled. From there, the IRS will either issue additional funds or require a payment. Keep an eye out for Letter 6419 from the IRS which provides all necessary information related to the credit.
If you did not receive one, you can create an account through this link and look up the payments you received.
IRA contributions. There is still time to maximize 2021 IRA contributions for those that haven’t already. This year, all contributions must be made by April 18, 2022.6
What we are watching in 2022
There are several factors that can alter your tax strategy to monitor for this year.
Legislation. The Build Back Better Bill7 remains in limbo with little progress made since last fall. As such, we are continuing to monitor the government’s plan as well as any additional Covid-19 relief, though it seems unlikely.
As tax professionals, we prefer to keep a balance between staying aware of the potential changes our clients may see and preparing to implement necessary tax strategies, while also avoiding knee-jerk reactions to laws that haven’t passed.
New K-2 and K-3 forms. New K-2 and K-3 forms have been introduced for 2021 which will impact pass-through entities.8 Per guidance from the IRS, taxpayers who make a good faith effort to follow this new guidance will not be penalized, and certain domestic partnerships and S Corporations are not required to file these forms.
As a general rule, our strategy here has been to file extensions for entity returns (e.g., partnerships, corporations and S Corporations) since we have the option to submit a superseding return. We do expect additional direction from the IRS, however, it is unclear when.
There’s no question that the last two years have altered the tax landscape. If you’re in the process of filing or simply have questions about your strategy in 2022, don’t hesitate to contact your Exencial advisor or tax specialist.
- Pew Research Center (3/9/22) – Majority of workers who quit a job in 2021 cite low pay, no opportunities for advancement, feeling disrespected
- Internal Revenue Service (1/10/22) – 2022 tax filing season begins Jan. 24; IRS outlines refund timing and what to expect in advance of April 18 tax deadline
- American Institute of Certified Public Accountants (data as of 3/23/22) – My CPA says, ‘extend.’ What does that mean to me?
- Bankrate (10/4/22) – Estimated tax payments: How they work and when to pay them
- Internal Revenue Service (data as of 3/22/22) – Advance Child Tax Credit payments in 2021
- Internal Revenue Service (data as of 3/22/22) – IRA year- end reminders
- The White House (data as of 3/22/22) – The Build Back Better framework
- Internal Revenue Service (data as of 3/24/22) – Schedules K-2 and K-3 frequently asked questions (forms 1065, 1120S, and 8865)
|PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RETURNS. Information and opinions provided herein reflect the views of the author as of the publication date of this article. Such views and opinions are subject to change at any point and without notice. Some of the information provided herein was obtained from third-party sources believed to be reliable but such information is not guaranteed to be accurate. In addition, the links provided within are for convenience only and the provision of the links does not imply any sponsorship, endorsement, or approval of any of the content. We do not guarantee the content or its accuracy and completeness. The content is being provided for informational purposes only, and nothing within is, or is intended to constitute, investment, tax, or legal advice or a recommendation to buy or sell any types of securities or investments. The author has not taken into account the investment objectives, financial situation, or particular needs of any individual investor. Any forward-looking statements or forecasts are based on assumptions only, and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Any assumptions and projections displayed are estimates, hypothetical in nature, and meant to serve solely as a guideline. No investment decision should be made based solely on any information provided herein and the author is not responsible for the consequences of any decisions or actions taken as a result of information provided in this book. There is a risk of loss from an investment in securities, including the risk of total loss of principal, which an investor will need to be prepared to bear. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor’s financial situation or risk tolerance. Exencial Wealth Advisors, LLC (“EWA”) is an investment adviser registered with the Securities & Exchange Commission (SEC). However, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. EWA may only transact business in those states in which it is registered, notice filed, or qualifies for an exemption or exclusion from registration or notice filing requirements. Complete information about our services and fees is contained in our Form ADV Part 2A (Disclosure Brochure), a copy of which can be obtained at www.adviserinfo.sec.gov or by calling us at 888-478-1971|