Top Ten Tax Topics of 2021

It’s April 15, which, in pre-Covid times, was considered “Tax Day” for the majority of American taxpayers. Since it still is “Tax Day” for some filers, I thought I’d share the following federal tax topics which have been circulating in the news during the first few months of 2021:

  1. Deadline Extension. The IRS extended the federal 2020 tax filing and payment deadline to May 17, 2021 for Form 1040 filers. All other returns with an April 15 deadline are not automatically extended. The first quarter federal income tax extension payment remains due on April 15.
  2. Response Times. IRS response times are still delayed due to reduced staff at IRS service centers. E-file remains the best option for efficient processing of returns. A significant number of 2019 paper-filed returns have yet to be processed.
  3. Gift and Estate Tax. Currently, the federal lifetime exemption amount remains at $11,700,000. The Biden Administration has indicated that a proposal may be coming to reduce this amount to $3,500,000. If enacted, this change will subject more estates to estate tax. Strategic planning through lifetime gifting or other techniques can be initiated now to minimize, if not eliminate, estate tax exposure.
  4. RMDs. Required Minimum Distributions from IRAs and other qualified retirement plans are in full force for 2021. For some, the 2020 hiatus demonstrated that drawing from other sources of income was sufficient for maintaining lifestyle demands. Qualified Charitable Distributions remain a viable alternative to realizing income from RMDs.
  5. Charitable Contribution Deductions. Individual taxpayers are permitted to deduct up to $300 for cash donations to public charities without itemizing deductions on Schedule A. Individual donors may continue to deduct up to 100% of their AGI for cash contributions to public charities.
  6. Unemployment Income Exclusion. The American Rescue Plan enacted in early 2021 provides for the exclusion of up to $10,200 of unemployment income for taxpayers who received unemployment income and have a modified adjusted gross income under $150,000.
  7. Recovery Rebate Credit. The Recovery Rebate Credit acts as a “true up” to the stimulus payment program initiated in early 2020. The 2020 stimulus payments were based on income reported in 2019. Taxpayers who would have qualified for a stimulus payment based on income reported in 2020 may be entitled to receive a credit up to the full amount of the first two stimulus payment amounts.
  8. PPP Loan Forgiveness. The CARES Act provided that PPP loans issued to qualifying businesses that are forgiven are not taxable income. Note that expenses paid with forgiven loan amounts are not deductible.
  9. Employee Retention Credit. The employee retention credit initially enacted under the CARES Act remains in place for the first two quarters of 2021. Eligible employers may be able to obtain a refundable tax credit against the employer’s share of Social Security tax up to 70% of the qualified wages paid to employees between January 1, 2021 and June 30, 2021.
  10. Corporate Tax. The corporate tax rate remains at 21%. The Biden Administration proposes to increase this rate to 28%. If enacted, this rate increase may force corporate entities to explore more tax favorable entities or jurisdictions.

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