Year-End Tax-Planning Opportunities for Individuals and Businesses

by Expert Contributor Jack Del Pizzo, CPA Del Pizzo & Associates

Congress is working on a spending bill that would be funded by major tax changes. If enacted, 2021 year-end tax planning could be affected. However, until changes occur, we can only base our 2021 planning on current tax laws.

If you claim the standard deduction for 2021, you can also deduct up to $300 ($600 on a joint return) of cash contributions to charity. On the other hand, if you itemize deductions, you can deduct cash contributions to most charities equal to 100% of your income. An individual who is at least age 70½ can make a Qualified Charitable Distribution (QCD) from a traditional IRA to a charity, in an amount up to $100,000. Unlike normal IRA distributions, a QCD is not taxable to the IRA owner.

For 2021, the maximum contribution to qualified retirement plans remains $19,500 for 401(k), 403(b) and 457 plans plus an extra $6,500 catch-up contribution if you are at least age 50. $13,500 plus an extra $3,500 catch up for SIMPLE Plans; and $6,000 plus an extra $1,000 catch up for a traditional IRA. Contributions to retirement plans and IRAs are subject to phase-outs based upon your income and to various complicated limitations.

Traditional IRA owners with earned income can make contributions regardless of their age. Prior to 2020, the maximum age for contributions was 70½.

Required Minimum Distributions (RMDs) to qualified retirement plan participants and traditional IRA owners must begin at age 72. For 2020, RMDs were waived, but for 2021, RMDs must be made by December 31.

If you have a business loss from a sole proprietorship in 2018, 2019 or 2020, partnership, LLC or S Corporation, you may be able to receive cash refunds by carrying the loss back five years. Under prior law, loss carrybacks were prohibited, which meant you could only receive tax relief in the future, if ever. If you had a business loss in 2020, you should speak to your tax advisor about fi ling IRS Form 1045 by December 31, 2021, to receive a “Quick Refund” of taxes paid in 2015 through 2019.

For 2021, a Qualified Business Income (QBI) deduction of 20% is allowed for income from a sole proprietorship, partnership, S Corporation and LLC. For example, a business reports $100,000 of income after expenses but only pays tax on $80,000 after the QBI deduction.

Wondering if it is better to file a joint or separate return with a spouse? Generally, it’s more expensive tax-wise to fi le separately, but in certain limited situations, it may be advantageous. You should speak to your tax advisor about your specific situation regarding all of these new tax deductions and rules.

Expert Contributor Jack Del Pizzo, CPA, Del Pizzo & Associates

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