Marcum 2021 Year-End Tax Guide

Planning Opportunities:

For donations made during the year, be sure to get acknowledgement letters from the qualified charities for both cash and property donations (including stock donations) over $250. If you are not certain if a particular charity is qualified, you can consult the IRS website at https://apps.irs. gov/app/eos/ and search for the organization in question.

• Since individuals generally use cash basis accounting, medical expenses must be paid in the year incurred in order to be deductible. Credit card payments are deductible in the year charged, rather than paid. Be aware, however, that prepayment of medical services in advance of the year services are actually rendered may not accelerate the deduction. • If time permits, consider bunching elective medical procedures into 2021 (for services and purchases) if doing so will exceed the 7.5% floor and satisfy other itemized deduction limitations. The threshold will likely to be increased to 10% of AGI for 2022. MORTGAGE INTEREST For tax years 2018-2025, the TCJA reduces the limit on interest deductions pertaining to outstanding mortgage debt incurred after December 15, 2017, from $1 million to $750,000. Interest on debt incurred prior to December 15, 2017, but refinanced later is deductible to the extent the new debt does not exceed the original debt. Furthermore, the TCJA suspended the prior provision that allowed up to $100,000 of interest on home equity debt to be treated as deductible qualified residence interest. • Keep track of how and when loan proceeds are spent. For example, portions of mortgage debt utilized to acquire business assets are deductible as trade or business interest or as investment interest expense. CHARITABLE DONATIONS The incentives for charitable giving enacted by the CARES Act have been extended through the end of 2021. Cash donations to public charities other than a supporting organization or a donor-advised fund are fully deductible up to 100% of adjusted gross income (AGI) (unchanged from 2020), and gifts of appreciated property or gifts for use by public charities are deductible up to 30% of AGI (also unchanged). For C-corporations, up to 25% of taxable income may be deducted (up from 10% of taxable income in 2020). Taxpayers who do not itemize can claim up to $600 of cash contributions for married filing jointly ($300 for all others, increased from $300 per tax return in 2020). This deduction is not available to taxpayers who itemize deductions. Planning Opportunity:

Planning Opportunities:

• Consider bunching donations in 2021 to take advantage of the more generous tax deduction limits. The regular tax deduction limits are expected to return after 2021. • Donate appreciated stock to charity to avoid paying

capital gains tax and receive a fair market value deduction for stocks held for more than one year.

• Sell depreciated stock and donate the cash proceeds to charity. You will receive a charitable deduction as well as a capital loss benefit on the sale of stock. Capital losses offset capital gains, and the maximum net capital loss in any tax year is $3,000 for a married filing joint taxpayer ($1,500 for all other taxpayers). Any unused capital losses are rolled over to future years. 401K AND SEP CONTRIBUTIONS Contributions to a traditional employer-sponsored defined contribution plan are typically pre-tax, therefore reducing taxable income. Maximize 401K plan contributions to boost retirement savings and reduce current year taxes. The maximum contribution to a 401K plan remains at $19,500 in 2021 (unchanged from 2020). Employees age 50 or older can make an additional “catch-up” contribution of up to $6,500 (also unchanged from 2020). For those who are self-employed, consider setting up a self-employed retirement plan (SEP) or some other type of retirement plan in order to maximize the allowable contribution each year. Coronavirus-related withdrawals from IRAs, pension plan, or 401K plan during 2020 can be re-contributed back into a qualified retirement plan at any time during the following three-year period to eliminate otherwise reportable taxable income. FLEXIBLE SPENDING ACCOUNT (FSA) Amounts contributed to a healthcare Flexible Spending Account (FSA) are not subject to federal income, Social Security or Medicare taxes. For 2021, the maximum contribution is limited to $2,750 (unchanged from 2020).

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