As the coronavirus (COVID-19) continues to affect local communities and global economies, our firm remains committed to serving your tax and financial planning needs. As part of this commitment, we want to make you aware of key tax provisions impacting individuals contained in the year-end coronavirus relief legislation, known as the Consolidated Appropriations Act, 2021 (H.R. 133), that was signed into law on Dec. 27, 2020.
Please contact our office to discuss your circumstances in more detail.
Additional economic impact payment/recovery rebate
Like the first round of economic impact payments that taxpayers received in mid-2020, the year-end legislation provides a new economic impact payment in the amount of $600 per eligible family member ($1,200 if you file a joint return with your spouse). And, each qualifying child will also receive $600. However, the payment amount is reduced based on your income. The impact payment phases out starting at $75,000 of income ($112,500 for heads of household and $150,000 for married taxpayers filing jointly) at a rate of $5 per $100 of additional income.
The IRS and Treasury have begun issuing these payments, but it will take several weeks or longer for all qualifying taxpayers to receive their payments. And, for some taxpayers, they may need to file their 2020 tax return in order to claim and receive the correct payment. You may check the status of your economic impact payments using the IRS’s Get My Payment tool. And, please contact our office if you have other questions.
Medical expense deduction
The new legislation should make it easier for more taxpayers to take advantage of the medical expense deduction. The threshold for taxpayers to qualify was going to be 10% of adjusted gross income beginning in 2021 but, with the recent legislation, it now permanently remains at
7.5%. Please contact our office if you would like our assistance with calculations to determine if this deduction is beneficial to you.
Charitable contributions
The legislation extends the $300 charitable deduction (for cash donations) for taxpayers who do not itemize (known as an above-the-line deduction). It also increases the maximum amount that may be deducted on 2021 tax returns to $600 for married couples filing jointly. Keep in mind that for 2020 tax returns, $300 is the maximum allowed per tax return, regardless of filing status.
Other tax provisions
Here are a few more tax law changes that may interest you:
- The law allows residents of qualified disaster areas to take a distribution of up to $100,000 from a qualified retirement plan or individual retirement account (IRA) without penalty.
- The mortgage insurance premium deduction is extended by one year (through 2021).
- If you are a contractor or consultant, there are many tax-favorable elements in the new law. Some important changes include a 100% business expense deduction for meals (rather than the prior 50%) if the expense is for food or beverages provided by a restaurant. This is a temporary provision effective for expenses incurred after Dec. 31, 2020 and expires at the end of 2022. If a small business was able to take advantage of the Paycheck Protection Program (PPP), the new law clarifies that any amount received from a PPP loan that is forgiven is not considered income for tax purposes. Deductions are also allowed for otherwise deductible expenses paid with the proceeds of a forgiven PPP loan. The new law opens the program again and allows certain businesses to receive a second draw of funds.
There are other tax changes contained in the year-end legislation that could also apply to you. Please contact our office if you would like to discuss your situation further.
Our commitment to you
Whether you have tax or financial planning questions or need advice on ways to navigate the new tax laws, we are here for you. If you have any questions or concerns, please do not hesitate to contact us at 980.434.2044 or email: info@tanfs.com
During this unpredictable and challenging time, it’s more important than ever to stay connected. We’re in this together and our thoughts go out to all who have been impacted by this unprecedented situation.
Rest assured, we are here to help