Marcum 2021 Year-End Tax Guide

(partnerships, S-corporations, trusts and estates, etc.). It is intended to provide tax relief to businesses not benefiting from the reduced top corporate rate, lowered from 35% to 21%. The 199A deduction is generally equal to 20% of QBI when taxable income is lower than the applicable threshold. The taxable income thresholds for 2021 are $329,800 for married filing joint, $164,925 for married filing separate, and $164,900 for all others. The deduction is complex and subject to various rules and limitations based on (1) taxable income, (2) type of business(es) (i.e., specified service, trade or business), and (3) a business’ W-2 wages paid and basis at acquisition of qualified property. • Consider making deductible retirement and HSA contributions, deferring income, or accelerating expenses to reduce taxable income. • Review your company personnel to consider if independent contractors should be converted to employees to increase your company’s total W-2 wages. • Consider acquiring qualified business property before year-end. • If you have multiple qualified businesses, consider aggregating certain of them to maximize your 199A deduction. Analyze your various business revenue streams and consult with your tax advisor to determine which aggregated activities are more beneficial. MARCUM RECOMMENDATION There are many potential tax savings opportunities to consider when planning for the end of the year, keeping in mind pandemic benefits and the upcoming tax law changes. Consult your Marcum tax advisor for assistance in determining which opportunities best meet your unique facts and circumstances. Planning Opportunities:

The dependent care contribution limit for 2021 increases to $10,500 (from $5,000 in 2020) for single taxpayers and married couples filing jointly, and to $5,250 (from $2,500 in 2020) for married individuals filing separately. Historically, the “use it or lose it” provision applied to amounts contributed to a flexible spending account. However, for 2021, the CAA allows employers to permit participating employees to roll over all unused funds to 2022. This carryover does not count toward the annual contribution limit. Some employers may offer a grace period to incur eligible medical expenses, generally two-and-a-half months after year-end. HEALTH SAVINGS ACCOUNT (HSA) Individuals covered by a qualified high-deductible health plan can either contribute pre-tax income to an employer- sponsored Health Savings Account (HSA) or make deductible contributions to an HSA. For 2021, the maximum permissible contributions are $3,600 for single taxpayers (increased from $3,550 in 2020) and $7,200 for family coverage (increased from $7,100 in 2020). Taxpayers aged 55 or older as of the end of the tax year can contribute an additional $1,000. (This means HSA holders can contribute and reduce income by $9,200 if both spouses are over 55.) There is no “use it or lose it” provision with HSAs. QUALIFIED CHARITABLE DISTRIBUTIONS (QCD) Taxpayers who have reached age 70 ½ can donate up to $100,000 of taxable IRA distributions directly to qualified charities. The donation satisfies the minimum distribution requirement and is excluded from taxable income. A charitable deduction cannot be claimed for the contribution. It is worth noting that required minimum distributions (RMDs) from IRA accounts have resumed for 2021 and must be made by December 31. SECTION 199A DEDUCTION FOR SOLE PROPRIETORSHIPS AND OWNERS OF PASS-THROUGH ENTITIES The TCJA introduced Section 199A (Qualified Business Income deduction, or QBI), which provides a deduction for sole proprietorships and owners of pass-through entities Check with your employer for the rules on the established FSA plan.

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