Page 23 - Investment Advisor March 2022

when they prepare and file their 2021 tax return.
The child tax credit situation this year is “a mess!” Slott
said. “Some people may end up paying a tax pro more than the
credit!” Others, Slott said, “may still pay a tax pro only to end
up returning money they already received. Advance payments
can always be tricky when it’s time to reconcile.”
The IRS guidance is “a good reference guide for tax advisors
“If advisors lack in-house though,” Slott said. “This will help lots of them figure this out
and do the correct reporting for their clients.”
tax expertise, they should He added: “It’s unreal how many related IRS tax forms can

“connect with their clients’ be involved here, including IRS Letter 6419 which includes
info on funds received for advance child tax credit payments
CPA,” Slott said, especially and qualifying children.”
Forms include, according to Slott: “8812, 3911, 2555, 8379,
if the advisor is “handling 8332, 14039, 1040-PR, 1040-SS.”
One of the FAQs asks if a filer will need to repay the IRS any
what may be your clients’ of the advance child tax credit payments that they received
in 2021.
largest asset, their IRA or The IRS’ answer: “Maybe. The total amount of advance Child
401(k); these accounts Tax Credit payments that you received during 2021 was based
on the IRS’s estimate of the amount of Child Tax Credit that
are loaded with taxes.” you may properly claim on your 2021 tax return. Important: If
the total amount of your advance Child Tax Credit payments
was greater than the Child Tax Credit amount that you may
properly claim on your 2021 tax return, you may have to repay
the excess amount on your 2021 tax return during the 2022 tax
filing season — unless you qualify for repayment protection.”
giving mode, like in December, but they really should be done
early in the year. I always say January is the new December.” The Securing a Strong Retirement Act of 2021,
Remember, “most people since the Tax Cuts and Jobs Act ‘Secure 2.0’
[of 2017] don’t get any tax benefit for the donations they “Keep an eye on this bill” in 2022, Slott advised in a recent
make because most people use the standard deduction now,” ThinkAdvisor blog. “Of all the bills that could be enacted in
Slott explained. 2022, this one has the best chance, having passed out of com-
The QCD “gives people an opportunity to get a great tax bene- mittee unanimously, with full bipartisan support.”
fit for the donations they make if they qualify for QCDs — it’s only Secure 2.0 includes provisions allowing both SIMPLE and
for IRA owners or beneficiaries who are 70 ½ or older,” he said. SEP Roth IRAs, Slott said.
If advisors have a client that’s subject to RMDs, they may “In addition, plan catch-up contributions would be required
want to offset the income by doing a QCD. “I never say give to be made to Roth plan accounts, and plans could allow par-
to charity to reduce your tax bill; I always say, ‘if you’re giving ticipants to have employer matching contributions made as
anyway do it this way to cut your tax bill.’” Roth contributions.”
For example, an advisor has “a client with a $5,000 RMD Other proposed Secure Act 2.0 changes:
this year, but they normally give the $5,000 to charity — do the • Increasing the age at which RMDs begin over time from
QCD early, the first distributions out should be the QCD. If you 72 to 75.
do the QCD early then you don’t even have to take an RMD, it • Indexing $1,000 IRA catch-up contributions for inflation.
completely offsets it. But, if you took the RMD first, then you • Increasing the limit on catch-up contributions to 401(k)s
can’t offset that income because there’s a ‘first dollars out rule.’” and other plans for individuals who have attained age 62,
The first dollars that come out of an IRA “are deemed first 63 or 64.
dollars to satisfy an annual RMD,” Slott explained. • Allowing matching contributions on student loan
payments.
Child Tax Credit Overall, it plans to be an active tax season for advisors and
The IRS issued on Feb. 1 a revised Fact Sheet and frequently their clients, Slott has noted. Advisors need to be aware of
asked questions on the 2021 child tax credit and advance child changes, potential and real, to help clients discern what they
tax credit to help eligible families properly claim the credit can do to reduce their tax bill.

MARCH 2022 INVESTMENT ADVISOR 21