Well, to begin by stating the obvious, no one is sad to see 2020 fade and a new year begin. All our lives have seen disruption—loved ones died, businesses closed, children are still not in school.  I remember thinking back in March when the lockdowns first began how walking around the city seemed like immersive storytelling in a dystopian video game. Signs on businesses read “No food No TP.” Convenience stores started putting up plexiglass barriers. Restaurants shut down except for carryout. Everyone looked at you in horror if you coughed. I was hunkered down in tax season and hadn’t yet processed the new regular, just knowing that we needed “15 days to stop the spread” or something.

Speaking of tax season, what a mess! A huge tax law dropping in March affecting 2018, 2019, and 2020 tax returns is not ideal. The tax return due date was delayed by tweet! I’ve been so busy navigating changing the tax environment I haven’t had much time for anything else. I’m placing about 50/50 odds on this year’s tax deadline being delayed as well, but we shall see.

But enough about 2020. It’s a new year, and new adventures await. Now is the time to take a closer look at your current tax and financial planning strategies to make sure they are still relevant. I don’t think the roller coaster is ending soon, so I’m planning to stay nimble. Keeping options open is the mantra for 2021.

I don’t give market prognostications because I have no idea what markets will do, and I don’t pretend. Don’t’ ask me where the price of Bitcoin is going! Tax, financial, and estate planning have more positive impact on outcomes than attempting to time or beat the stock market, so that’s where I play. Many people run into problems by getting too cute with their investment portfolios. Just keep saving and keep investing—the turtle wins the race.

The one prediction I will make is that taxes will go up. Maybe not in 2021 or 2022, but rates will eventually have to increase—for everyone. It’s just not possible to provide that amount of relief to keep the economy afloat through debt added to the nation’s balance sheet without a tax increase. So now is the time to plan.

A few major tax bills have been passed in the last 13 months— below is a bit of a refresher of what’s new—

SECURE (Setting Every Community Up for Retirement Enhancement) Act

This law was enacted in December 2019 and changed the age for required minimum distributions (RMDs) from 70 ½ to 72. Also, there are no longer any age limitations on IRA contributions (as long as you have earned income). Most significantly, the Act ending the “stretch” IRA, which was the ability for beneficiaries to take distributions from an inherited IRA over their life expectancy. The SECURE Act requires a 10-year distribution unless the beneficiary is a surviving spouse, minor child, disabled individual, or individual who is not more than 10 years younger than the deceased account owner.

CARES (Coronavirus Aid, Relief, and Economic Security) Act

This $2.2 trillion relief bill was passed on March 27, 2020. Major provisions for individuals include the temporary suspension of all required minimum distributions for 2020, a $300 deductible charitable contribution (if paid in cash) for those who don’t itemize, economic impact (stimulus) payments, and the ability to take a $100,000 coronavirus-related distribution from a retirement account without a 10% penalty. It also created the Paycheck Protection Program (PPP), which allowed businesses to receive forgivable loans to help with payroll expenses.

New Stimulus in the Consolidated Appropriates Act, 2021

This law was signed on December 27, 2020 and includes additional stimulus payments to qualifying individuals and extends the $300 charitable deduction to 2021 (and allows for $600 for married couples filing jointly.) The law also provides for 100% deductibility of certain business meal expenses through 2022 and clarifies the deductibility of PPP funded expenses, while also allowing for a second draw of PPP loans. Also, individuals can deduct medical expenses that exceed 7.5% of Adjusted Gross Income permanently.

Coming up — new tax law changes and more relief?

President-Elect Joe Biden’s proposed tax plan would make significant changes to the tax code, but it is unlikely all of his proposals will be enacted into law. Though, I do believe tax rates for high income individuals will increase in the foreseeable future. Some of the ideas floating around the incoming Biden administration include:

1) Corporate income tax rate increase to 28% (from 21%)

2) Top individual rate increase to 39.6% (from 37%)

3) 1031 exchanges ineligible for taxpayers with income over $400,000

4) reduce the benefit of itemized deductions to no more than 28%

5) Capital gains taxed as ordinary income for taxpayers with over $1 million in income

6) Additional Social Security taxes on wages or self-employment income over $400,000

7) Reduction in the federal estate tax exemption and the elimination of step-up in basis at death

Additionally, in 2021, we could see more stimulus or relief packages. The economy may need it.

So, that’s a brief refresher of what’s new. The beginning of the year is also a good time to take stock of where you are at and if your retirement planning needs adjusting. Here are a few things you can do now:

A ) Review your spending today and plan on how much you need and want to spend in retirement. Are your savings enough?

B) Review your retirement plan and make sure that the plan is aligned with your goals and fits you. Are you more risk-adverse and want guaranteed income in retirement, or are you willing to accept some variability and/or risk in your spending through retirement? Do you need to rebalance your portfolio or purchase reliable income?

C) Review your beneficiary designations on your retirement accounts and review your will and estate plan

Hopefully, 2021 will be a better year. I’m confident it will be, though I don’t think tax season will be any easier. I might not be able to stick my head out of the office until May!

Here’s to a prosperous new year!


Originally published 01.05.2021

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