Summer is here, but taxes never end. Here are a few recent tax questions for 2021 and updates we want you to be aware of:
If you are age 72 or older, you must take annual required minimum distributions (RMD) from traditional IRA’s and 401(K) plans. The 2020 exclusion to this rule does not apply to 2021 and going forward. Be sure to make these distributions this year.
If you are age 70 ½ or older you can transfer up to $100,000 yearly directly to qualified charitable organizations. This distribution counts towards your RMD, but they are not taxable and not included in your adjusted gross income. It’s much better to use this than to report as an itemized deduction on Schedule A of your tax return. Keep in mind the distribution must go directly to the charity. You cannot receive the distribution and then donate to charity for this to qualify. Transfers to donor-advised funds do not qualify for QCD treatment.
You’ve probably read about the possibility of increased capital gains rates. While this initially is targeted to taxpayers with incomes of $1M or more you may think this will never apply to you. But what if you are selling your company’s stock and retiring? Do you have stock options with sizable gains?
When you sell online such as PayPal or Amazon and receive $600 or more (starting in 2022) you will receive form 1099-K that reports the income to the IRS. There are slightly different rules for 2021. This income must be reported on your tax return. How does this affect you? Many people use these platforms as the new “garage sales”. An example might be if you tire of your exercise equipment and sell the equipment online. If you receive $600 or more, you will need to report the income and have tax due
This tax season we are seeing an increased number of delayed refunds, some up to several months. The IRS says they are checking amounts reported for stimulus payments and other verification measures. As preparers, we have no additional resource to check on the status of your refund other than using the IRS’s “Get your refund status” on their website. This adds even more questions to ask. We can verify the return has been electronically filed and accepted, but not as to the status of the refund.
At David Mills, CPA, LLC our experts can help answer your tax questions for 2021. Contact us online or call (309) 266-5700.
At the moment, tax rates are at historic lows. We have record deficits and are looking to add more. Where do you think tax rates will be at in 1 year? 3 years? 5 years or more? Here are a few things to consider when thinking about taxes in 2020.
While everyone’s situation is different, we believe this is a serious consideration in tax planning for many individuals.
Most IRA fund balances are at a low point and many taxpayers may see lower income in 2020. This may be a good time to convert some or all your funds to a Roth IRA.
You can manage the tax brackets. For example, an estimate of income can be prepared to find out how much more income you can have to stay in the same tax bracket. This way you can effectively manage your tax burden.
If your modified adjusted gross income in 2020 for married filing jointly is $196,000 or less you can contribute directly to a Roth IRA. Income at $206,000 cannot make a Roth contribution.
You can contribute to a traditional IRA. You can then convert to a Roth IRA. There are other limitations so be sure to discuss this with your financial adviser or make an appointment with us to discuss how this works and if a conversion will help you in retirement.
The IRS has a $300 cash (not non-cash such as a Goodwill donation) charitable deduction for 2020 which can be used whether you itemize or not.
If you have not begun taking required minimum distributions (RMD’s) in 2020 you can wait until age 72 to start. The previous rules were at age 70 ½. Note that if you have already started your RMD’s you cannot skip them until age 72-you are bound by the previous rules.
There are other considerations for this so it is best to consult your financial adviser.
If you have questions, please talk to the experts at David Mills, CPA, LLC, today. We would be happy to help! Contact us today.