For many people, the end of the year is a time to review charitable gifts that have already been made during the year and to consider making additional charitable gifts before the tax year ends. If you are one of these people, we have a few reminders that you might find helpful.

Expanded tax benefits for those who don’t itemize

The law now permits you to claim a limited deduction on your 2021 federal income tax return for cash contributions made to qualifying charitable organizations even if you don’t itemize your deductions. Individuals can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021, and married individuals filing joint returns can claim up to $600.

Qualified charitable distributions

If you are age 70 ½ or older, you can make a qualified charitable distribution (or “QCD”) of up to $100,000, directly from your IRA to a qualified charitable organization. A QCD is generally a nontaxable distribution made by the IRA trustee directly to a charitable organization. A qualifying deduction may also count toward the taxpayers required minimum distribution requirement for the year.

Cash donations

Most cash donations made to charity qualify for the deduction. However, there are some exceptions. Cash contributions that are not tax deductible include those:

• Made to a supporting organization
• Intended to help establish or maintain a donor advised fund
• Carried forward from prior years
• Made to most private foundations
• Made to charitable remainder trusts

These exceptions also apply to taxpayers who itemize their deductions.

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. Cash contributions don’t include the value of volunteer services, securities, household items or other property.

The IRS announced in November increases to retirement plan limits for 2022. The 2022 contribution limit for 401(k) plans will increase to $20,500, which means that next year you can put an extra $1,000 into your 401(k) plan. The IRS also announced cost‑of‑living adjustments that may affect pension plan and other retirement-related savings in the coming year.

Highlights of changes for 2022

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $20,500 in 2022. Limits on contributions to traditional and Roth IRAs remains unchanged at $6,000.

You can also deduct contributions to a traditional IRA if they meet certain conditions. If neither you nor your spouse is covered by a retirement plan at work, your full contribution to a traditional IRA is deductible. If you or your spouse is covered by a retirement plan at work, the deduction may be reduced or eliminated. The amount of the deduction depends on your filing status and your income.

Traditional IRA income phase-out ranges for 2022

• $68,000 to $78,000 – Single taxpayers covered by a workplace retirement plan
• $109,000 to $129,000 – Married couples filing jointly. This applies when the spouse making the IRA contribution is covered by a workplace retirement plan.
• $204,000 to $214,000 – A taxpayer not covered by a workplace retirement plan married to someone who’s covered.
• $0 to $10,000 – Married filing a separate return. This applies to taxpayers covered by a workplace retirement plan

Roth IRA contributions income phase-out ranges for 2022

• $129,000 to $144,000 – Single taxpayers and heads of household
• $204,000 to $214,000- Married, filing jointly
• $0 to $10,000 – Married, filing separately

Saver’s Credit income phase-out ranges for 2022

• $41,000 to $68,000 – Married, filing jointly.
• $30,750 to $51,000 – Head of household.
• $20,500 to $34,000 – Singles and married individuals filing separately.

The amount individuals can contribute to SIMPLE retirement accounts also increases to $14,000 in 2022.

It was announced by the Social Security Administration (SSA) in October that the maximum amount of an individual’s taxable earnings in 2022 subject to Social Security tax will be $147,000, up from $142,800 for 2021. The wage base limit applies to earnings subject to the tax, known officially as the old age, survivors, and disability insurance (OASDI) tax. Because the OASDI tax rate is 6.2%, an employee with total wages from an employer at or above the maximum in 2022 will pay $9,114 in tax, with the employer paying an equal amount.

The Medicare hospital insurance tax of 1.45% each for employees and employers has no wage limit and is unchanged for 2022.

Individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly and $125,000 for married taxpayers filing separately) are required to pay an additional hospital insurance tax of 0.9% of wages with respect to employment (also unchanged).

Self-employed individuals pay self-employment tax equal to the combined OASDI and Medicare taxes for both employees and employers, i.e., 15.3%, up to the OASDI wage base and 2.9% in Medicare taxes on net self-employment income above it, with an offsetting above-the-line income tax deduction of half of the OASDI-equivalent component of self-employment tax.

Approximately 70 million Americans will see a 5.9% increase in their Social Security benefits and Supplemental Security Income (SSI) payments in 2022. Federal benefit rates increase when the cost-of-living rises, as measured by the Department of Labor’s Consumer Price Index (CPI-W).

The CPI-W rises when inflation increases, leading to a higher cost-of-living. This change means prices for goods and services, on average, are a little more expensive, so the cost-of-living adjustment (COLA) helps to offset these costs.

The Social Security Administration will mail COLA notices throughout the month of December to retirement, survivors, and disability beneficiaries, SSI recipients, and representative payees. But, if you want to know your new benefit amount sooner, you can securely obtain your Social Security COLA notice online using the Message Center in your my Social Security account. You can access this information in early December prior to the mailed notice. If you don’t have an account yet, you must create one by November 17, 2021, to receive the 2022 COLA notice online.

The U.S. Small Business Administration (SBA) announced major modifications to the COVID-19 Economic Injury Disaster Loans (EIDL) program, including raising the loan cap from $500,000 to $2 million and adding business debt payments to the list of ways businesses can use the loan proceeds.

In a news release issued on September 9, 2021, the SBA said it was implementing the changes to make it easier for the small business communities still feeling the effects of the pandemic, especially hard-hit sectors such as restaurants, gyms, and hotels, to access the more than $150 billion in funding available for loans.

The following key changes were announced. All are effective immediately:

• Increasing the COVID-19 EIDL cap from $500,000 to $2 million. Loan proceeds can be used for any normal operating expenses and working capital, including meeting payroll, purchasing equipment, and paying debt. COVID-19 EIDL funds are now also eligible to prepay commercial debt and make payments on federal business debt.
• Implementation of a deferred payment period. The SBA said small business owners will not have to begin COVID-19 EIDL repayments until two years after loan origination. Payments are deferred for the first two years (during which interest will accrue), and payments of principal and interest are made over the remaining 28 years. The agency previously had implemented an 18-month deferment period for loans made during 2021.
• Establishment of a 30-day exclusivity window. To ensure “main street” businesses have additional time to access these funds, the SBA said it is implementing a 30-day exclusivity window of approving and disbursing funds for loans of $500,000 or less. Approval and disbursement of loans over $500,000 will begin after the 30-day period.
• Simplification of affiliation requirements. To ease the COVID-19 EIDL application process for small businesses, the SBA established more simplified affiliation requirements to mimic those of the Restaurant Revitalization Fund.

The COVID-19 EIDL program, which runs through December 31, offers 30-year loans with fixed interest rates of 3.75% for small businesses, including sole proprietors and independent contractors, and 2.75% for not-for-profits. If you would like more information about this program, including determining if it might benefit your business, please contact our office.

The IRS recently issued its annual update of special per-diem rates for substantiating ordinary and necessary business expenses incurred while traveling away from home. The new rates are in effect from October 1, 2021, to September 30, 2022. Specifically, the per-diem rates issued include the transportation industry meal and incidental expenses rates; the rate for the incidental-expenses-only deduction; and the rates and list of high-cost localities for purposes of the high-low substantiation method.

High-low substantiation method

For purposes of the high-low substantiation method, the per-diem rates are $296 for travel to any high-cost locality and $202 for travel to any other locality within the continental United States, both slightly higher than last year.

The amount of these rates that is treated as paid for meals is $74 for travel to a high-cost locality and $64 for travel to any other locality within continental United States, both also slightly higher than last year.

The notice contains a list of the localities that are high-cost localities (localities that have a federal per-diem rate of $249 or more, $4 higher than last year) for all or part of the calendar year.

Incidental expenses

Since 2012, incidental expenses have included only fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. The per-diem rate for the incidental-expenses-only deduction remains unchanged at $5 per day for any locality of travel.

Transportation industry

The special meals and incidental expenses rates for taxpayers in the transportation industry are $69 for any locality of travel within continental United States and $74 for any locality of travel outside continental United States, both $3 more than last year.

Recent legislation includes several provisions to help individuals and businesses who give to charity. The new law generally extends four temporary tax changes through the end of 2021. Here’s an overview of these changes.

Deduction for individuals who don’t itemize

Taxpayers who take the standard deduction usually can’t deduct their charitable contributions. 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.

These 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.

100% limit on eligible cash contributions made by taxpayers who itemize deductions in 2021

Taxpayers who itemize can generally claim a deduction for charitable contributions to qualifying organizations. The deduction is typically limited to 20% to 60% of their adjusted gross income and varies depending on the type of contribution and the type of charity.

The law now allows taxpayers to apply up to 100% of their AGI, for calendar-year 2021 qualified contributions. Qualified contributions are cash contributions to qualifying charitable organizations.

The 100% limit is not automatic, however. The taxpayer must choose to take the new limit for any qualified cash contribution. Otherwise, the usual limit applies. The taxpayer’s other allowed charitable contribution deductions reduce the maximum amount allowed under this election.

Corporate limit increased to 25% of taxable income

The law now permits C corporations to apply an increased corporate limit of 25% of taxable income for charitable cash contributions made to eligible charities during calendar year 2021. The increased limit is not automatic. C corporations must the choose the increased corporate limit on a contribution-by-contribution basis.

Increased limits on amounts deductible by businesses for certain donated food inventory

Businesses donating food inventory that are eligible for the existing enhanced deduction may qualify for increased deduction limits. For contributions made in 2021, the limit is increased to 25%. For C corporations, the 25% limit is based on their taxable income. For other businesses, including sole proprietorships, partnerships, and S corporations, the limit is based on their total net income for the year. A special method for computing the enhanced deduction continues to apply, as do food quality standards and other requirements.

The Paycheck Protection Program (PPP) provided more than 11.7 million forgivable loans totaling nearly $800 billion to small businesses and other eligible entities hurt by the economic impacts of the COVID-19 pandemic. Almost $400 billion has been forgiven. According to the Small Business Administration (SBA), loans of $150,000 or less account for 93% of outstanding PPP loans.

Despite earlier moves to streamline the forgiveness process for those loans, many smaller PPP lenders have informed the SBA that they lack the technology and manpower to develop efficient electronic loan forgiveness platforms to process forgiveness applications.

In addition, the SBA said it has heard concerns from PPP lenders of all sizes that the requirement for borrowers to submit and lenders to review revenue reduction documentation at the time of forgiveness is delaying the forgiveness process for second-draw PPP loans of $150,000 or less.

To address these problems and ease the forgiveness bottleneck, the SBA is making two significant changes.

1. Introduction of a COVID Revenue Reduction Score

To streamline forgiveness of second-draw PPP Loans of $150,000 or less where the borrower did not submit documentation of revenue reduction at the time of the loan application, the SBA will offer an alternative form of revenue reduction confirmation.

Each second-draw PPP loan of $150,000 or less will be assigned a COVID Revenue Reduction Score created by an independent, third-party SBA contractor, based on a variety of inputs, including industry, geography, and business size, and current economic data on the economic recovery and return of businesses to operational status.

The score will be maintained in the SBA’s loan forgiveness platform and will be visible to lenders to use as an alternative to document revenue reduction. Additionally, the score will be visible to those borrowers that submit their loan forgiveness applications through the platform using the direct borrower forgiveness process described in the next section.

When the score meets or exceeds the value required for validation of the borrower’s revenue reduction, use of the score will satisfy the requirement for the borrower to document revenue reduction. When the score does not meet the value required for validation of the borrower’s revenue reduction, and if the borrower has not already provided documentation to the lender that validates the borrower’s revenue reduction, the borrower will have to provide documentation either directly to the lender (for those lenders that do not opt in to the direct borrower forgiveness process) or provide documentation to the lender by uploading it to the platform.

2. Launch of a direct borrower forgiveness process

On August 4, 2021, the SBA launched a new direct forgiveness process that provides PPP lenders with an optional technology solution that essentially will allow their borrowers to apply for loan forgiveness directly to the SBA through a new portal.

When a PPP lender opts in to the direct borrower forgiveness process, the new portal will provide a single secure location that integrates with the SBA’s PPP platform and allows borrowers with loans of $150,000 or less to apply for loan forgiveness using an electronic equivalent of SBA Form 3508S. Upon receipt of notice that a borrower has applied for forgiveness through the platform, lenders will review the loan forgiveness application and issue a forgiveness decision to the SBA inside the platform.

Despite the launch of this new portal, borrowers should continue to submit loan forgiveness applications to their lenders, rather than through the platform, under the following circumstances:

• The PPP lender does not opt in to use the direct borrower forgiveness process;
• The borrower’s PPP loan amount is greater than $150,000;
• The borrower does not agree with the data as provided by the SBA system of record, or cannot validate their identity in the platform (for example, if there is an unreported change of ownership); or
• For any other reason where the platform rejects the borrower’s submission.

Whether their business has one company car or a fleet of vehicles, many business owners find company-owned passenger vehicles to be an indispensible tool for running their businesses. Purchasing or leasing a vehicle can be a large expense, but this expense can be somewhat mitigated by depreciating the vehicle over the first several years that it is in service. The limits for how much of this expense can be depreciated each year is dictated by the government and revised annually for inflation.

As expected, the IRS recently issued its annual inflation-adjusted update of depreciation limitations for passenger automobiles (including passenger vans and trucks) placed in service in 2021. They also updated income inclusion amounts by lessees of passenger automobiles for vehicles with lease terms beginning in 2021.

For passenger automobiles to which the bonus first-year depreciation deduction applies and that are acquired after September 27, 2017, and placed in service during calendar year 2021, the depreciation limit is $18,200 for the first tax year (an increase of $100 from 2020); $16,400 for the second tax year (an increase of $300); $9,800 for the third tax year (an increase of $100); and $5,860 for each succeeding year (an increase of $100).

If bonus first-year depreciation does not apply, the depreciation limit for passenger automobiles is $10,200 for the first tax year; $16,400 for the second tax year; $9,800 for the third tax year; and $5,860 for each succeeding year.

The IRS limits deductions for the cost of leasing automobiles, expressed as an income inclusion amount. This limitation is intended to be substantially equivalent to the depreciation limitation. If your business is affected by this income inclusion amount, please refer to table 3 of Rev. Proc. 2021-31 which provides income inclusion dollar amounts for lessees of passenger automobiles with a lease term beginning 2021.

In an effort to capture income from household employees, the tax code requires you to obtain employee information, pay the related state and federal taxes, and withhold taxes for anyone you employ around the house. The requirement for this “nanny tax” comes into play if you pay any one individual $2,300 or more (in 2021). You must then submit a W-2 for each of these household employees.

Who is covered?

The household workers typically covered by this law include:

• babysitters
• caretakers
• house cleaners
• domestic workers
• drivers
• health aides
• housekeepers
• maids
• nannies
• private nurses
• yard workers

Employee or Not an Employee

Before you get too worried that the nanny tax might affect you, first determine whether your help is an employee or not. If in the eyes of the tax code, your help is not an employee the nanny tax rules do not apply. What does the IRS look for?

• Who controls how the work is done? If the worker clearly does, then the person is self-employed and not your employee.
• Whose tools are used? If the worker’s tools are used then they are more likely self-employed and not your household employee.
• Work exclusively for you? If the worker has a number of customers then they are less likely to be your household employee.
• Does an agency supply the worker? If an agency supplies the worker and controls what work is done and how it is done, the worker is not your employee.
• Daycare services at an offsite location. If your childcare is conducted in the worker’s home, that worker is generally not your employee.

Some Suggestions

Have your help become incorporated. The reporting rule only applies to hired individuals. If your household help is in a LLC or S-Corporation, it is up to that company to employ the worker and pay their employment taxes.

Be aware of the annual limit. Make sure your total payments do not exceed the reporting threshold each year.

Determine if the hired help are truly employees or self-employed.

Rotate services. If you have help with yard work consider employing a number of helpers to make sure no one person is paid above the reporting threshold.