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2021 Tax Strategies

Happy New Year. Not a great start to it here in DC, but we wanted to get you a quick update on what we expect to happen given the results in Georgia and the confirmation of the Biden presidency.

We know there was some concern that the Democrats controlling all three branches meant that we would see a quick rush to more progressive legislation. Our research and analysis does not agree with this. For 2021, we believe that the focus will be on containing and eradicating the virus and continuing, if not expanding, the stimulus so that small businesses, schools, hospitals, and local governments can continue to serve and survive through this pandemic. In addition, we see a greater expansion of infrastructure spending, which has overwhelming support on both sides of the aisle.

And what about the proposed tax increases? As stated, we do not see any tax increases that will begin or be retroactive for 2021. Do we see higher taxes in your future? For most of you, absolutely! Someone has to pay for our increasing deficit that was and is needed to overcome this crisis. We promise to keep you updated for 2022+, but for now we will guide you on the optimal planning strategies to take advantage of this year’s reduced tax rates. Here are some of those strategies (which, for the most part, are a continuation of 2020 tax strategies):


As stated, the 2020 tax rates will continue into 2021. Therefore, if you can realize income in 2021, it is likely a good idea unless your personal tax rate will be lower in 2022 (due to retirement, etc.). We will work with your tax advisor and you to determine the optimal ways you can increase your taxable income this year to reduce taxable income in 2022 and beyond. Keep in mind, we don’t see dramatic tax increases for all, but we do see possible increases on income over $400K, taxable dividends & capital gains, and real estate investments. Otherwise, the likely increase will revert to 2017 tax rates.


One way to reduce future required minimum distributions is to be more aggressive with Roth conversions in 2021. Like 2020, transferring funds from your Traditional IRA to your Roth IRA and paying the taxes in this (anticipated) lower tax year reduces your RMD amount in future years and allows your converted amount to grow tax-free for the rest of your life, RMD-free. The optimal time to convert is during market corrections. Given the run-up in the market, we may be due for near-term corrections. Let us know if you are interested in a Roth conversion soon and we will work on the optimal conversion amount for 2021. Note: We will likely do half of the transfer early in the year, and half before year end.


If you are 72+ this year, our current recommendation is to hold off on taking your RMD! The reason is that it is very likely that the new administration will postpone RMDs again this year given the continuing pandemic crisis. Congress is likely to add this to the next stimulus package. In fact, there is bipartisan support to increase the start age for RMDs to age 75. We will alert you as soon as this new act is passed.


If you are age 70.5+, you can still contribute your Traditional IRA to charities (qualified charitable distribution – QCD). In fact, the maximum permitted will likely increase to $130,000 per year. If you are charitably inclined and will be at least 70.5 in 2021, we still believe this is the optimal way to gift to charity. Please alert us if you would like our assistance in gifting to your favorite charity through your Traditional IRA. If you are under age 70.5, we will likely recommend gifting highly appreciated stock from your taxable account. We can also open a Donor Advised Fund. Please alert us if you would like to discuss these options.


The gift limit per beneficiary remains $15,000 for 2021. If you are married, you can gift $30,000 combined to a child, friend, etc. If your family member may need more than $15,000 due to pandemic issues, please call us. We will recommend that you pay medical bills, tuition, or other bills directly so that it does not count as your $15,000 gift. We can also craft a loan strategy to allow for increased amounts.


If you are a corporation, you should expect that the top corporate rate will increase by at least 2% in 2022. The consensus is that it will increase from 21% to 25%. Therefore, realizing corporate income in 2021 may be the optimal strategy. Consult your business tax advisor on ways to realize taxable income this year vs. next year. (examples – bonuses in December vs. January, accounts receivable billed before December, delay equipment purchases until 2022.)


  • Mortgage interest rates continue to fall. If you have not refinanced your mortgage, as predicted, the rates continue to fall. However, our prediction is that this will only last until March/April timeframe. We see housing prices and long-term treasury rates increasing by late Spring. If you are considering a refinance, please contact us now so that we can guide you through the process.
  • Student loans: The proposed stimulus package will likely provide for at least $10,000 in Federal Student Loan forgiveness. There may be income tests to determine which students’ loans are forgiven. We will alert you as soon as we know the details of the new act. If you or your child have federal student loans, the loan payment suspension period ends on 1/31. We believe the act will pass and extend this period for all federal student loans before the February payment. Please note that this only pertains to Federal student loans. If you have private student loans, we can work with you on whether you should consolidate these private loans to achieve a lower rate.
  • Estate transfer strategies: As we stated earlier this year, we expect the estate tax exemption to be reduced from $11.7M to at most $5.5M, though it could be reduced to $3M per person. Those with asset values over this range should consult with their estate attorney (and us) to review strategies that will allow you to avoid possible estate taxes as the exemption level is decreased.

We will review these tax strategies together and with your tax advisor and/or estate attorney throughout the year. If you would like to review any of these considerations now, please email or call us and we will be glad to do so. Please note that we won’t know about several of these strategies until the next stimulus package is passed and will alert you as soon as we know the details.

We will do all we can to assist and guide you through 2021. Stay healthy, dear friends.