Marcum 2021 Year-End Tax Guide

2021 Year-End Tax Planning Strategies for Individuals The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 was passed by Congress to provide critical financial respite from the ravages of the COVID-19 pandemic, for both businesses and individuals. This included the Pandemic Emergency Unemployment Compensation (PEUC) program extending unemployment benefits by up to 13 weeks. The American Rescue Plan Act (ARP) of 2021 provided additional relief for individuals and employers, including recovery rebate credits (commonly known as stimulus payments), an increase in child tax credits, and the extension of several tax measures introduced during 2020. As the IRS continues to release guidance and update tax forms to reflect changes recently enacted, it is important to stay up-to-date with the latest information for year-end tax planning. The following summarizes some of the significant planning opportunities now available to minimize individual tax obligations. RECOVERY REBATE CREDIT In addition to the first two rounds of stimulus payments provided by the CARES Act in 2020, the Consolidated Appropriations Act (CAA) distributed an additional $600 recovery credit to eligible individuals during 2021. Phase- out applies when adjusted gross income exceeds $150,000 (married filing joint), $112,500 (head of household) or $75,000 (others). Eligible taxpayers who did not receive the payments will be able to claim them as a credit on their 2021 tax returns filed in 2022. CHILD TAX CREDIT For 2021, ARP increases the child tax credit to $3,000 per qualifying child age 6 or older and $3,600 per qualifying child under 6 (up from $2,000 in 2020). The credit will be fully refundable (increased from a $1,400 credit during 2020). The maximum age for qualifying children is now 17 (raised from 16). Phase-out applies when modified adjusted gross income (MAGI) exceeds $150,000 (married filing joint), $112,500 (head of household) or $75,000 (others). The IRS will automatically disburse advance payments for 50 percent of the credit from July 1 through December 31. Individuals do not have to take any action to receive these payments, but may check enrollment or opt out

of receiving advance payments at https://www.irs.gov/ childtaxcredit2021. While the Biden Administration proposes to keep the higher amounts of this child tax credit, it is currently set only for 2021. CAPITAL GAINS Income from the sale of an investment held for more than one year is generally taxed at preferential capital gains rates. For 2021, the long-term capital gain and qualified dividend rates remain unchanged at 0%, 15% and 20%, based on statutory income brackets and adjusted for inflation. For example, the 20% rate applies when taxable income exceeds $501,600 (married filing joint), $473,750 (head of household) or $445,850 (others). • Consider holding capital assets for at least 12 months, as short-term capital gains are taxed at ordinary income rates, which are higher. • Consider gifting appreciated stock or mutual fund shares to relatives in a lower income tax bracket (such as children or grandchildren), who may pay less or no tax on the long-term capital gains when the shares are sold. • Consider selling unrealized loss positions in your investment portfolio to offset capital gains recognized earlier in the year. • It is worth noting that Congress is working on applying wash sale rules to digital assets including cryptocurrency. If the bill passes, the rules will go into effect in 2022. NET INVESTMENT INCOME TAX (NIIT) In addition to income tax, individual taxpayers with MAGI of more than $200,000 per year ($250,000 if married filing joint; $125,000 if married filing separately) may be subject to net investment income tax. NIIT equals 3.8% of the lesser of (a) net investment income or (b) the amount by which MAGI exceeds the applicable threshold. Net investment income includes interest, dividends, capital gains, rental income (unless derived from ordinary business activities) and passive activities, less deductions properly allocated to net investment income. Planning Opportunities:

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