Travis Hole, CPA

The recent clarification from the IRS regarding unemployment is resulting in refunds between $800 and $2,400 for most of our clients. If you received unemployment of more than $10,200, are married, and filed your return before last week, there is a high likelihood your return is incorrect and can be amended.

If you live in California, are married, and only one of you collected unemployment in 2020, a recent change will likely allow you to amend your return and get more money back. For clients of mine, I’ll be in touch if I haven’t reached out already.

Many of you with children received letters from the IRS explaining the new child tax credit, but here's a recap if there's any confusion: -If your income is under $150,000 for MFJ, $75,000 for single, or $112,500 for head of household, you will get a credit for your children that are 0-5 of $3,600, and children ages 6-17 are $3,000 -If you make over the limits above, you will receive a credit of $2,000 for your children ages 0-17 if your income is under the qualifying level f...or the credit -Starting in July, the credit will now be paid monthly based off of your child tax credit the IRS believes you should receive based on your 2020 tax return. For instance, if you have 2 kids who are ages 2 and 4, and you make under $150,000, you will receive $600 per month from July-December ($3,600+$3,600 divided by 12). You will receive the other $3,600 you're owed as a credit on your tax return -If you receive the higher tax credit due to lower income in 2020, but then have higher income in 2021 where you are over the threshold, you will have to pay back any excess credit received -You can opt out of receiving the monthly payments if you prefer to receive it all on your tax return for a bigger refund. The IRS has not released the opt out form as of now.

I often get asked if making extra payments towards your mortgage is a good idea to "save on interest", and the answer, as most things in finance, depends on your own situation. However, if you're a younger person who (in theory) has a longer investment horizon, I believe paying off your home early is a mistake. We live in an era where it's easy to get a 30 year mortgage at a rate in the low 3's. While historical returns don't guarantee future returns, the S&P 500 has averaged... 8% for the last 60 years. Here's an example: -You just took out a home loan for $500,000 at 3.25% interest and your monthly P&I (principal and interest) is $2,176.03. -You have an extra $500 a month that you're considering paying on top of your normal mortgage payment. If you start doing this from your first payment, instead of it taking 30 years to pay off your loan, you'll pay off your loan in roughly 22 years and "save" about $85,500 in interest payments. -If you would have invested that $500 into a low cost index on a monthly basis at an 8% return, you would have just under $360,000 (your loan balance would still be roughly $188,000) The above does not even factor in that having liquid assets that can help you deal with an emergency, such as a job loss due to a global pandemic, will help you weather the storm. If you lost your job and income is $0, you probably won't qualify for a refinance or equity line to take cash out of your house I know which decision I would choose Note: The above is a very simple example and ignores certain things like taxes. If you pay off your loan early, you won't have as much interest to write off, so that will hurt you on taxes. However, if you invest that money, you'll also take a tax hit on dividends and capital gain distributions.

Extensions are extensions to file, not extensions to pay. If you owe money, pay in what you can today.

Reminder for everyone planning on filing an extension, the extension is an extension to file, not an extension to pay. If you owe money and do not pay by May 17, it will accrue interest and penalties.

The "Problem Solvers Caucus", which is the bipartisan group who got together to help pass the last stimulus deal, has come forward with their proposal. Here's what they are recommending: -$1,000 checks vs $1,400 -Checks will begin to phase out at $40,000 for single and $80,000 for MFJ (married filing joint) vs $75,000 for single and $150,000 for MFJ... If passed, these direct relief payments would go to far fewer families than the previous rounds of payments. We'll see how their meeting with President Biden goes...

President Biden signed a large stack of Executive Orders today, but there's one in particular which is relevant for some of you: -Student loan payments and interest relief is extended through September 30th. It was previously set to expire on January 31st.

I have been surprised to talk to so many small business owners/side hustlers/etc. who didn't realize they qualified for PPP (Paycheck Protection Program) funds months ago. While you may have missed the first round, you can apply right now for Round 2. If you had one quarter in 2020 that you brought in revenue of 25% less than the same quarter in 2019, you will qualify. For instance, if you brought in $5,000 driving Uber from April-June of 2019, but only brought $1,000 from Ap...ril-June of 2020, you qualify. Here are some industries that often qualify based on the requirements: -Dentists -Hair dressers/nail salons/beauty/etc. -Uber/Lyft drivers -Restaurants -Gyms/personal training/etc. -Agriculture -Auto repair shops -Real Estate This is just a few off the top of my head, but if you are a business owner and met the 25% requirement above, you likely qualify. Feel free to reach out with any questions

One thing that slipped under the radar in 2020 for many is that there is a requirement to have health insurance once again. Once the federal government dropped the requirement, the State of CA jumped right in and required having health insurance as of January 1, 2020 for CA residents. For your taxes this year, you will need to provide proof of insurance to your tax preparers. If you are on a Covered California plan and receive a subsidy, you will need to give the health care form to your tax preparer so that they can reconcile the subsidy received with how much you should have gotten. There's a chance your refund could increase if you made less than projected, but you could also owe money if you made more than you put down when filing for insurance.

Biden's stimulus plan update (calling it the American Rescue Plan): -Nearly $2 trillion in total -Wants to raise minimum wage to $15 an hour. This would also change the rules for restaurants who would be required to pay employees $15 an hour and can't use tips to meet the minimum (this seems like a huge change to the restaurant industry, we'll see if this goes through)... -$1,400 stimulus checks, per person. This is big for those of you with kids. I am still waiting to find if the income phase outs have changed on this from previous payouts -Increase of the child tax credit: Currently the child tax credit is $2,000 per dependent under 17 for those of you who qualify. They'd like to increase this to at least $3,000 per dependent. I have seen the possibility of a potential $3,600 credit for children under six, but we'll see what officially comes through. They'd also like to make a larger portion of this refundable. -Increase in dependent care credit: For those of you who work and pay someone to watch your children, they'd like to increase the credit up to $4,000 for one child or $8,000 for two or more -$400 billion towards covid response and vaccines -$400 a week in additional unemployment -Over $100 billion to schools to get kids back in school -I am not seeing anything about the forgiveness of student loan debt which had been discussed -I do not believe these increased credits will be for 2020 tax returns I will be updating this post as more information is released.

President-Elect Biden is finalizing his proposed relief plan and details should be released in the next few days. Here are some expected items: -$2,000 stimulus payments. It's not clear whether these will be $2,000 each, or $1,400 (which added to the previous payment is $2,000) -Extension of enhanced unemployment benefits -Money for vaccine distribution... -Money for state and local governments See more