2021 Personal Tax Guide
March 23, 2021
Introduction: A Beacon of Hope as We Weather the Storm of the Century
2020 proved to be a particularly challenging year, the likes of which we have never seen. COVID-19 has wreaked havoc with our routine lifestyles, much of which we had taken for granted. Many have suffered from the illness and/or lost family and friends. Others have lost their jobs and their homes, and are food insecure. Our thoughts and prayers are with those who have lost so much due to COVID-19.
The pandemic continues into 2021. However, there is much hope for better days ahead. At the time of this writing, there are three vaccines that have been approved for emergency use. The vaccination process is ongoing and, hopefully, we will have “herd immunity” later on this year, and perhaps resume some semblance of pre-pandemic normalcy.
We also, in 2020, were witness to glaring examples of injustice and inequality. Outraged citizens around the country took to the streets in protests and counter-protests.
2020 was also the year of presidential and congressional elections. We saw the Democrats take control of the Executive Office, the House of Representatives and the Senate. We also watched the insurrection at the U.S. Capitol on January 6, 2021, resulting in grave injuries and death of fellow citizens, and demonstrating that we are, unfortunately, a divided nation.
2020 marked the milestone of the first African-American and Asian-American woman elected to Vice-President of the United States.
President Biden has inherited a myriad of crises, with the pandemic and uniting the country amongst his top priorities. President Biden has signed into law on March 11, 2021, the American Rescue Plan Act of 2021 (“ARPA”), a massive $1.9 trillion aid package geared to provide yet more relief to Americans suffering from the pandemic.
ARPA provides certain relief and tax provisions (subject to certain conditions), including:
- Stimulus payments to individual taxpayers of $1,400 per eligible person.
- Additional supplemental unemployment benefits of $300 per week through September 6, 2021. These benefits were scheduled to expire March 14, 2021.
- For tax years beginning in 2020, the first $10,200 of unemployment compensation is tax-free for taxpayers with annual income of less than $150,000.
- Aid to schools, airlines and airports, rural hospitals, restaurants, venue operators, and states and municipalities.
- For 2021, the Child and Dependent Care Tax Credit is made refundable and can be worth up to $4,000 for one qualifying child and $8,000 for two or more children. The credit is subject to reduction based on AGI.
- Child tax credit is made fully refundable for 2021 only and is increased to $3,600 for children under six years old and to $3,000 for children ages 6-17, subject to phase-out provisions.
- The paid sick and paid family leave credits for employees under the Families First Coronavirus Response Act are extended for the period of April 1, 2021 through September 30, 2021.
- The employee retention credit is extended through December 31, 2021 and is extended to certain start-ups.
ARPA is the next piece of major legislation dealing with the devastating effects of COVID-19. Here is a summary of prior acts:
- Families First Coronavirus Response Act was signed into law on March 18, 2020 by President Trump. This act addressed the various impacts of COVID-19 including provisions that:
- Expanded food security initiatives.
- Established a federal emergency paid leave benefits program to provide payments to employees taking unpaid leave due to the pandemic.
- Expanded unemployment benefits and provided grants to states for processing and paying claims.
- Required employers to provide paid sick leave to employees if the employee is not able to work (or telework) due to COVID-19-related reasons.
- Established requirements for providing coronavirus diagnostic testing at no cost.
- Provided new tax credits to offset new costs associated with paid emergency leave and sick leave benefits as well as a credit for health plan expenses associated with emergency and sick leave wages.
- Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law by President Trump on March 27, 2020. This was a massive $2 trillion piece of legislation intended to further address the impact of the pandemic and provided the following relief provisions:
- Low-interest and small business loans that can be partially forgiven (Paycheck Protection Program loans).
- Payments to eligible individual taxpayers of $1,200 for single filers ($2,400 for joint filers), plus a $500 credit per qualifying child.
- Additional unemployment benefits.
- Suspension of certain federal student loan payments:
- CARES provides an income exclusion of up to $5,250 for employees receiving educational repayment assistance from an employer. Educational assistance includes payments made by an employer, to either an employee or to a lender, of principal or interest, on a qualified education loan. An employee cannot deduct interest paid on a student loan.
- Tax relief provisions:
- Waiver of the 10% withdrawal penalty tax on early withdrawals of up to $100,000 from a retirement plan or IRA for an individual who is diagnosed with COVID-19; whose spouse or dependent is diagnosed with the disease; who experienced adverse financial hardship resulting from being quarantined, furloughed, laid off, or having work hours reduced; and is unable to work due to lack of child care and other similar factors.
- Waiver of the required minimum distribution for certain retirement plans for calendar year 2020.
- For calendar year 2020, individuals can take an above-the-line deduction for cash contributions up to $300. For individuals who do elect to itemize, they are able to take a charitable deduction up to 100% of their AGI. In both cases, the donations must be made in cash or check to public charities or private operating foundations.
- A refundable payroll tax credit for 50% of “qualified wages” paid or incurred by eligible employers to employees after March 12, 2020 and before January 1, 2021 (the employee retention credit or “ERC”). The credit is available to employers carrying on a trade or business during calendar year 2020 and whose (i) operations are fully or partially suspended due to a COVID-19-related shutdown order or (ii) gross receipts decline more than 50% as compared to the same calendar quarter in the prior year. Tax-exempt organizations are eligible where their operations are fully or partially suspended due to COVID-19.
- A net operating loss arising in a tax year beginning in 2018, 2019 or 2020 can be carried back for five years, and can fully offset income.
- The suspension, for 2018, 2019, and 2020, of the TCJA provision that limited deductibility of current-year business losses for pass-through businesses and sole proprietorships ($500,000 for joint filers and $250,000 for all other filers)
- The Consolidated Appropriations Act, 2021 was signed into law by President Trump on December 27, 2020. It was a massive $2.3 trillion legislation with $900 billion of relief related to the pandemic. The COVID-19 relief provisions address most aspects of the economy, including:
- Additional 2020 refundable credit for eligible individuals of $600 for single filers ($1,200 for joint filers), plus a $600 credit per qualifying dependent child (under age 17). Rebates are subject to phase-out thresholds beginning at $150,000 of AGI for joint filers, $112,500 for head of household filers and $75,000 for all others.
- Funding for a new round of Paycheck Protection Program loans, and clarity on deductibility of expenses reimbursed by forgiven PPP loans.
- Extension of certain deferred payroll taxes to December 31, 2021, with interest to begin accruing as of January 1, 2022.
- Extension of credits for COVID-19-related paid sick leave and paid family leave, as provided by the Families First Coronavirus Response Act, are extended from December 31, 2020 to March 31, 2021.
- Extension, through June 30, 2021, of the CARES Act-provided refundable payroll credit of 50% of “qualified wages” paid or incurred by eligible employers to employees after March 12, 2020 and before January 1, 2021. The credit percentage is increased from 50% to 70%. Further, the per-employee limitation is increased from $5,000 in total to $7,000 per quarter. There are other enhancements.
- Full deductibility for business meals provided by a restaurant and paid or incurred after December 31, 2020 and before January 1, 2023.
- Extension of the CARES Act charitable contribution provisions for individuals making above-the-line deductions of cash contributions to public charities of up to $600 for joint filers, an increase of $300. Single filers still have the $300 limit. Those individuals electing to itemize deductions can deduct up to 100% of their AGI for cash contributions to public charities. These provisions are extended through December 31, 2021.
- TCJA provided that an electing real property trade or business can elect out of the expense limitation, but must then use the longer alternative depreciation system (“ADS”) lives to depreciate non-residential real property, residential rental property and qualified improvement property. The Act provides that an electing real property trade or business may depreciate residential rental property placed in service prior to 2018 over 30 years instead of 40 years.
- Extension of certain expiring provisions, including:
- Unreimbursed medical expenses are permanently deductible to the extent they exceed 7.5% of AGI. The percentage was scheduled to increase to 10% in 2021.
- Certain credits are extended to December 31, 2025, such as the employer credit for paid family and medical leave, the Work Opportunity Credit, exclusion for certain employer payments of student loans, and special expensing rules for certain film, television, and live theatrical productions.
- A number of energy credits are extended until December 31, 2021.
The international arena continues to be of great concern to many individuals and families. The global threat of terrorism, uncertainty over conflicts around the world, potential trade wars and supply chain disruptions, and global climate change are significant issues that need to be considered.
Many families with wealth continue to be very concerned about their children’s and grandchildren’s future and safety, and what can be done to sustain and grow their wealth in these uncertain times. As many of us have pivoted to working from home, cybersecurity and technology have taken on significant importance. Given the impact of the pandemic, and the current economic and geopolitical landscape, it is extremely important that you pay attention to your financial position so that you can achieve your financial objectives and stay the course. Specific goals such as retirement planning, managing cash flow, and transferring your family’s wealth to the next generation should be top-of-mind in 2021 and beyond.
We have written this guide to help you identify opportunities to minimize tax exposure, accomplish your financial goals and preserve your family’s wealth. This guide includes all major tax law changes through March 11, 2021.The best way to use this guide is to identify areas that may be most pertinent to your unique situation and then discuss the matter with your tax advisor. It is especially important that you check in with your tax advisor before proceeding with any tax planning transactions this year. As always, our tax professionals will be pleased to discuss any opportunities that might apply to your personal situation and help you navigate your way out of the storm.
Stay healthy, stay safe!
Marie Arrigo, MBA, CPA
Tax Partner & Co-Leader Family Office Services
& Leader, Exempt Tax Services
|2021 Personal Tax Guide|
|Chapter||Table of Contents– download by chapter|
|1||Tax Planning Strategies|
|2||Tax Rate Overview|
|3||Estimated Tax Requirements|
|4||Alternative Minimum Tax|
|5||Business Owner Issues and Depreciation Deductions|
|6||Capital Gains and Dividend Income|
|7||Stock Options, Restricted Stock and Deferred Compensation|
|8||Small Business Stock|
|9||Passive and Real Estate Activities|
|10||Principal Residence Sale and Rental|
|14||Estate and Gift Tax Planning|
|17||International Tax Planning and Reporting Requirements|
|18||State Tax Issues|
|Appendix A||2021 Federal Tax Calendar for Individual Taxpayers|
|Appendix B||2020 Federal Tax Rate Schedule|
|Appendix C||2021 Federal Tax Rate Schedule|
|Appendix D||2020 Maximum Effective Rates|
|Appendix E||2021 Maximum Effective Rates|
|Appendix F||2020 Federal and State Tax Returns Due Dates|
Editor-in-Chief: Marie Arrigo
Managing Editors: Daniel Gibson, Tom Hall, Robert Levin, Brent Lipschultz
Co-Editors: Gary Bingel, Charles Brezak, Angela Chen, Christopher Colyer, Denise DeLisser, Jean Jiang, Aaron Lerner, Gerard O’Beirne
Contributors: Peter Alwardt, Amanda Ammermen, Benjamin Aspir, Julia Bennetsen, Paul Bleeg, Lina Chan, Edward Choi, Andrew Cohen, Cindy Feder, William Gentilesco, Matthew Halpern, Joseph Held, Cindy Huang, Sue Huang, Seth Komitzky, Cindy Lai, Marissa Masi, Denise Moderski, Mitchell Novitsky, Alyssa Rausch, Vincent Occhino, David Venanzi, Jeanne-Marie Waldman, Holly Wong
This tax guide highlights tax planning ideas that may help you minimize your tax liability. This guide does not constitute accounting, tax, or legal advice, nor is it intended to convey a thorough treatment of the subject matter. The best way to use this guide is to identify those issues which could impact you, your family, or your business and then discuss them with your tax advisor.
The discussion in this guide is based on the Internal Revenue Code as amended through March 11, 2021. Future legislation, administrative interpretations, and judicial decisions may change the advisability of any course of action. Because of periodic legislation changes, you should always check with your tax advisor before implementing any tax planning ideas.
Any tax advice contained in this publication (including any attachments) is not intended for and cannot be used for the purpose of (i) avoiding penalties imposed by the Internal Revenue Code or (ii) promoting, marketing, or recommending any transaction or matter addressed herein.
© Copyright 2021 by EisnerAmper LLP. All rights reserved. This book, or portions thereof, may not be reproduced in any form without permission of EisnerAmper LLP.