What’s New in Tax for 2021January 13th, 2021 by Jim Allen
As we ring in a new year, we want to remind you of some tax law changes for 2021. While there were several significant pieces of tax legislation last year (primarily because of the COVID pandemic), much of those rules expired at the end of 2020. Here is a brief list of what to expect in 2021:
Required Minimum Distributions (RMDs) Return
The CARES Act that was enacted last year suspended all required minimum distributions from retirement plans for 2020. Unfortunately, that provision was for 2020 only so anyone who has required minimum distributions will have to resume them in 2021. Also, if you are turning 72 in 2021 you will need to start taking RMDs. The only exceptions to the RMD rule are for Roth IRAs and 401(k)s, and if you are a non-owner employee still working after 72 (for that employer retirement plan only).
“Above the Line” Charitable Deductions
Normally, you can only deduct your charitable contributions if you itemize your deductions on Schedule A of your tax return. But, a provision of the CARES Act last year allowed taxpayers to take up to a $300 deduction without itemizing. This “above the line” deduction is taken in a manner similar to an IRA deduction in that it is taken before calculating adjusted gross income. The above the line charitable deduction has been extended for 2021 as part of the recently passed Appropriations Act stimulus package. Besides being extended for 2021, it was increased to $600 for married couples ($300 for single filers). In order to take the deduction, it must be in cash (no property, clothing etc.) and must go to a qualified charity.
2021 IRA & Retirement Plan Contributions
IRAs & Roth IRAs – The 2021 maximum contribution to an IRA (both traditional & Roth) will remain at $6,000. The $1,000 catch up amount for people over age 50 also remains unchanged.
401(k) & similar retirement plans – The maximum amount of salary deferral that you can make to a 401(k), 457 and other types of retirement plans remains unchanged at $19,500. Those over age 50 can also contribute up to another $6,500 as a catch-up contribution.
Important Changes to Anchor Bay’s Tax Services
Since we always place a heavy emphasis on tax as part of our financial planning approach, we have expanded our tax service offerings for 2021. We have added additional tax planning and preparation staff and are pleased to announce that our Director of Financial Planning, Jim Allen has recently obtained Enrolled Agent (EA) status, which is the highest credential the IRS awards. Enrolled Agents are admitted to practice before the IRS and are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can represent clients before.
Our financial planning team includes licensed and credentialed tax professionals, and we can prepare all levels of individual tax returns. We can also prepare gift, estate and trust returns as well as represent you in front of the IRS if needed (separate fees may apply for these services).
Tax Planning Webinar
As we enter the new tax season, we are excited to offer our 2021 Tax Planning webinar – Savvy Tax Planning, on Wed. Jan 27th at 6 pm. Please visit our website for more information and to register for this informational event.
Jim Allen, CFP, ChFC, EA, CDFA is the Director of Financial Planning and a Principal at Anchor Bay Capital. In addition to his 30 years of financial planning experience and his professional credentials, he holds a master’s degree in Financial Planning and is a former instructor in the CFP program at the University of California Irvine. He is also the co-author of the book “The Tools & Techniques of Charitable Planning.” Jim can be reached at [email protected]