Summer’s almost over. School is beginning. Vacations are winding down. Pools are closing. And we’re getting lots of questions on taxes.
Is forgiven student debt taxable? No…
At least through 2025. As a general rule, debt cancellation income is taxable. But a 2021 law provides that most student loans forgiven from 2021 through 2025 are tax-free. President Biden’s plan to forgive up to $10,000 in student loans ($20,000 for Pell Grant recipients) for single filers with incomes below $125,000…$250,000 for others…is tax-free. Watch out for state taxes. Though many states follow federal law, some don’t.
What is the income threshold based on for Biden’s student debt forgiveness?
Likely adjusted gross income from your 2020 or 2021 federal tax return. For borrowers claimed as a dependent on their parents’ federal income tax return, we expect the income threshold will be based on the AGI shown on the parents’ 1040.
Will Congress revive the charitable write-off for non-itemizers? Perhaps…
But it’s too soon to know. On 2020 and 2021 returns, people who gave cash to charity and didn’t file Schedule A could deduct up to $300 of their donations ($600 for joint filers for 2021) on page 1 of the 1040. This easing was temporary, aimed to stimulate COVID-related donations, and it expired at the end of last year. If lawmakers do address this, it will be at year-end, with other extenders.
Will Congress retroactively delay a narrowing of the R&D tax break?
Odds are good, but timing is uncertain. Before 2022, companies could choose to fully expense their research & development costs in the year they incurred them. The 2017 tax law changed this rule for amounts paid or incurred in taxable years beginning after Dec. 31, 2021. Starting this year, firms must amortize their R&D costs over five years…or over 15 years for research that is conducted outside the U.S. Businesses lobbied lawmakers hard to include relief in the Inflation Reduction Act, but to no avail. Firms now hope Congress will grant them a year-end holiday wish.
Note this rule for employers who claimed the employee retention tax credit…
the refundable payroll tax break that ended after Sept. 30, 2021, and was available to businesses financially hurt by the pandemic that kept paying wages to employees: The credit reduces the wages-paid deduction on the firm’s income tax return. What happens if a firm receives ERTC funds after filing its income tax return? This is a very common situation, given the fact that IRS had a whole bunch of Forms 941-X claiming payroll tax refunds for ERTCs from prior calendar quarters. IRS’s processing delays of these forms create a quandary for employers who paid wages in 2021, filed the 941-X in 2021 and got ERTC refunds this year. These businesses must reduce their deduction for wages paid on their 2021 income tax returns by the ERTC credit amount. If they have already filed for 2021, they’ll have to amend.