Updated: February 24, 2021
Congratulations! If you are reading this, you survived the infamous year 2020 and have leveled up to 2021. 2020 will bring a whole new meaning to the infamous phrase, “Hindsight is 2020.” We sincerely hope that this New Year proves to be a wonderful and safe year for everyone.
We experienced a continual whirlwind of income tax-related legislation in 2020 right up to the end. While it would be impossible to outline all the changes here, we wanted to give you a few highlights of the changes having a broad impact on many of us. If you have specific questions about any change you have read or heard about, please let us know and we will try to get you the answers you need. Here are some income tax highlights:
- Cash donations directly to charities can now be deducted even if you do not itemize. The maximum deduction is $300 for 2020. For 2021 it is a maximum of $300 for single filers and $600 for joint filers.
- Cash donations directly to qualified charities, for those who do itemize their deductions, can now be deducted up to 100% of Adjusted Gross Income for both 2020 and 2021. For 2022 through 2025 the limit reverts to 60%. Note the 100% allowance does not apply to donations to a donor-advised fund. Those cash donations remain limited to 60% of Adjusted Gross Income. Giving appreciated securities, remember, are at a much lower percentage of 30% and 20%, but you do not pay any taxes on the gains!
- The Required Minimum Distributions from retirement accounts for those age 72 or above were suspended for 2020. They are still required for 2021 at this time.
- If you took a distribution from your retirement account due to COVID, up to $100,000, there is no 10% penalty for early distribution (specific rules apply). You can also choose to spread the taxation of that distribution over three years and can choose to re-contribute those funds back into your retirement account for up to three years.
- If you have a business, you may be able to take a deduction for 100% of qualified business meals in tax years 2021 and 2022. As this was meant to help stimulate business for restaurants, the meal must be purchased from a restaurant.
- If your business received a Paycheck Protection Program (PPP) loan, it is not considered taxable income for your business when it is forgiven. The expenses paid by the proceeds from the loan are deductible business expenses.
- If you qualified for either of the two Economic Impact Payments issued to individuals by the IRS last year but did not receive your payment, you can claim the missed payment amount as a credit on your 2020 tax return. This also applies if your family size increased in 2020 and you were entitled to larger payments than received. The payments are not considered taxable income! There will be a reconciliation on your 2020 tax return if you paid too much or you did not receive enough.
- The above-the-line deduction for tuition expenses is no more after 2020. Lawmakers did not save this deduction, but rather they increased the phaseout limits for the lifetime learning credit to match the American Opportunity Tax Credit.
- The deduction for mortgage insurance premiums was extended through 2021.
- The lifetime estate and gift tax exemption for 2021 jumps to $11,700,000 per taxpayer, however, this is an item on Biden’s tax agenda to potentially rollback.
Other areas that have caught the focused attention of the IRS include a virtual currency (Bitcoin, cryptocurrency, etc.) and the “gig” economy (think Uber, Lyft, Airbnb, and other similar service providers). The IRS continues to focus on new rules and actions that will help them to properly identify income from these activities. This year’s personal tax return Form 1040 asks the taxpayer to actively answer whether they “received, sold, sent, exchanged or otherwise acquired any financial interest in any virtual currency”. When you sign your personal tax return and/ or electronic filing authorization form, you are attesting to the accuracy of this answer.
Interesting facts: The IRS received 100 million phone calls last year. They answered 24 million. No count on how many of those got mysteriously disconnected after answering. At last count, they have approximately 7 million paper-filed returns, received in 2020, that they have not begun to process. We are hoping that the 10s of millions of pieces of incoming mail that sat in trailers at the IRS for months on end during lockdown are beginning to dwindle.
It is not expected that any surprise extensions for tax returns during the 2021 filing season will occur, and, as such, we have listed below the usual Tax Calendar showing filing deadlines for your reference. It is ALWAYS recommended that you do not wait until the last minute to provide your tax professionals with your tax data or you will be extended and/or must pay late payment interest if you owe tax. Gather your tax data and submit it to your tax professional a month in advance of the deadline at the latest. If you need a recommendation for a tax professional this year, contact us, and we will make an introduction to one of our preferred professionals.
If you want a deeper dive into some of the areas above, here are some links to additional tax-related articles on our website. We will continue updating these articles for any changes considered or signed into law by the Biden Administration.
Website Articles of Interest:
- Key Estate and Income Tax Planning Takeaways from the “Blue Wave” Democratic Victories
- Year-End Tax Planning Checklist – 2020
- Secure Act (and the loss of the Lifetime Stretch IRA and Changes in RMDs)
- Qualified Opportunity Zone (Investment Considerations and Tax Benefits)
- Review of Real Estate 1031 Exchanges
- Tax Cuts and Jobs Act (good to know and review if any “repeal”)
- For Individuals
- For Business Owners
Important Tax Filing Deadlines to Remember:
Note that the IRS announced on February 22nd, 2021 that filing deadline relief was provided for taxpayers in the state of Texas affected by the Severe Winter Storm to June 15th, 2021.
|Return Type||Form||Due Date||Extended Due Date|
|“C” Corporation||1120||Thursday, April 15th, 2021||Wednesday, September 15th, 2021|
|“S” Corporation||1120S||Monday, March 15th, 2021||Wednesday, September 15th, 2021|
|Charitable Trusts||5227||Thursday, April 15th, 2021||Friday, October 15th, 2021|
|Trust or Estate Income Tax||1041||Thursday, April 15th, 2021||Thursday, September 30th,2021|
|Partnership||1065||Monday, March 15th, 2021||Wednesday, September 15th, 2021|
|Individual Income Tax||1040||Thursday, April 15th, 2021||Friday, October 15th, 2021|
|Gift Tax Return||709||Thursday, April 15th, 2021||Friday, October 15th, 2021|
|Foreign Bank Account||FBAR – FinCen 114||Thursday, April 15th, 2021||Friday, October 15th, 2021|
|Exempt Organizations||990||Monday, May 17th, 2021||Monday, November 15th, 2021|
|Estimates For||1120 Q1||Thursday, April 15th, 2021|
|Estimates For||1040 Q1||Thursday, April 15th, 2021|
|Estimates For||1041 Q1||Thursday, April 15th, 2021|
2020 Tax Brackets:
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