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2021 Tax Planning Guide

Introduction

While the pandemic dominated the tax scene in 2020, there were some other noteworthy changes for both individuals and businesses.


Understanding how the recent changes in the tax code could affect your investment, estate, retirement and business strategies is critical to developing and implementing tax-saving strategies and preparing for a financially secure future. Because tax planning has become increasingly complex and each tax situation is unique, we urge you to consult your tax professional who may advise you regarding your personal situation.

Personal Tax Planning

Personal Tax Planning - Notable Changes

Check out these notable changes for the 2021 tax year, which include COVID-related withdrawals, IRA contributions, RMDs, inherited IRAs, Able Accounts, and more!

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Brackets and Rates

Many individuals saw an increase in their take-home pay over the last two years.Tax rates remained the same, but tax brackets increased slightly for inflation effective2021. All federal income tax brackets are based on taxable income.

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Alternative Minimum Tax

The Alternative Minimum Tax (AMT) was designed to limit allowable deductions taken by the highest-income taxpayers to ensure they pay their fair share of taxes. There was a modest increase for inflation for 2021.

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Capital Gains Tax

Remember that you pay long-term capital gains taxes on investments held longer than one year, while you pay ordinary income taxes on short-term investment gains. The capital gains tax brackets are based on taxable income, just like the ordinary income tax brackets.

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Health Savings Accounts

Some limits increased for Health Savings Accounts (HSAs) and their companion High-Deductible Health Plans (HDHPs).

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Deductions and Credits

The standard deduction, which reduces the amount of your taxable income, for 2020 is $24,800 ($25,100 in 2021) for married taxpayers filing jointly, $18,650 ($18,800 in 2021) for those who file as heads of household and $12,400 ($12,550 in 2021) for those who file as single or married filing separately.

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Estate Taxes

The estate, gift and generation-skipping tax exemption increased to $11.7 million for individuals in 2021, up from $11.58 million in 2020. Married couples filing jointly qualify for $23.4 million in 2021, up from $23.16 million in 2020.

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Charitable Contributions

For 2020 and 2021, the CARES Act allows you to deduct qualified charitable contributions of up to 100% of your adjusted gross income, but not for donations made to donor-advised funds or educational institutions for which you receive event seating in return.

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Retirement and Health Savings Plan Contribution Limits

Check out the enclosed chart with the 2020 and 2021 retirement and health savings plan contribution limits.

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Tax Planning and College

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Plan for Retirement

Ask anyone nearing or in retirement and they’ll tell you the future is closer than you think. That’s why the steps you take many years before retirement will shape your financial picture in retirement.

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Personal Tax Considerations

The following checklist includes items to think about and perhaps address with your team of legal, tax and financial professionals.

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Business Tax Planning

The Pandemic Triggers Legislation

The CARES Act and the subsequent COVID-19 Related Tax Relief Act of 2020 provided several changes for businesses. In order to retain employees and help prevent businesses from closing permanently, many incentives were provided to businesses. We’ll discuss the most common ones still available today.

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Paycheck Protection Program

The Paycheck Protection Program (PPP) reopened in January 2021 to new participants. Eligibility requirements generally remain the same as under the CARES Act.

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More Pandemic Related Legislation

Additional notable pandemic related changes, specically to grants, defined benefit plan contributions, Indian employment credit, and the Empowerment Zone Tax Incentive.

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Tax Rates and Business Structures

The corporate tax rate is now a flat 21%. There is also favorable treatment for pass-through entities, including S corporations and limited liability companies (LLCs). Now may be a good time to discuss your corporate structure with your tax and legal professionals.

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Tax Benefits for Rental Real Estate Investors

Certain interests in rental real estate now qualify for the 20% pass-through income deduction. These enterprises are generally defined as owning real estate for purposes of generating rental income. In order to claim the deduction, you’ll need to meet these requirements:

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Noteworthy Considerations

Notable considerations for businesses and tax planning.

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Employee Benefit Plans

It’s important to review employee benefit offerings to ensure you’re receiving maximum tax benefits while providing plans that will attract and retain qualified employees.

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Business Tax Considerations

Whether recovering from losses due to the pandemic, dealing with COVID-related loans or working to grow sales, business owners need to plan ahead. Here’s a checklist of practical considerations.

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We Can Help

Tax regulations are ever-changing and always complex. It has never been more important to work with your tax and financial professionals to learn how to minimize taxes and leverage your savings to invest in your future.

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