Looking into the New Year
2021 seems as if it has flown by, and we look to a new year with some hope that the pandemic is close to being over. Those first 2 weeks to flatten the curve have been a long “two weeks” in deed. But businesses are open again, the economy is recovering, and travel is opening up again, so we seem to be on the right path back to normalcy.
Despite the hiccoughs and stumbles along the way, we carry on. And since the year is winding down, and since the new year is often a time we take stock and at least try to set new habits in motion with New Year’s resolutions, let’s discuss some personal finance tips for the new year, especially those that could help you for next year’s tax season.
Charitable donations
A provision in the CARES Act provided that all taxpayers can take deductions for qualified charitable contributions in 2020 of up to $300. The above-the-line charitable deduction has been extended for single filers who do not itemize deductions. For 2021, this above-the-line deduction is increased to $600 for married couples filing jointly who do not itemize tax deductions. As in 2020, this deduction applies only to qualified cash contributions and does not apply to cash contributions made to private foundations, donor-advised funds, or supporting organizations, or to split-interest trusts like charitable remainder and lead trusts. It also does not apply to carry-over contributions.
The temporary suspension of the 60 percent charitable contribution deduction limitation has been extended into 2021 for qualified cash contributions. In 2021, individual taxpayers who itemize tax deductions and who contribute cash to a public charity, or a limited number of private foundations, may deduct up to 100 percent of their adjusted gross income after taking into account other contributions subject to charitable contribution limitations. Individual taxpayers can continue to carry forward any excess charitable contributions for five years, but the enhanced 100 percent deduction limitation expires after 2021. In 2021, corporations may continue to deduct charitable gifts up to 25 percent of the corporation’s taxable income (increased from 10 percent).
College Savings Funds & Gift Tax
You have until the end of the calendar year to take advantage of a state income tax deduction or a tax credit for contributing to a 529 account. But don’t wait until December 31. In many cases, the contribution has to be received, not simply postmarked, by that deadline. Also, keep in mind that contributions are considered gifts. Individuals can contribute up to $15,000 per year (or $30,000 for married couples splitting the gift), per person, to qualify for the annual gift tax exclusion.
Scott Mass, Senior Vice President of David Lerner Associates says, “Remember that 529 contributions are not tax-deductible on the federal level. However, some states may consider 529 contributions tax-deductible. Check with your 529 plan or your state to find out if you’re eligible.”
Credit Report
As we approach the holiday season, it is a good idea to increase your fraud awareness. While this season is typically a time to give thanks, embrace family, and celebrate, it is also prime time for online fraudsters. Every day, you hear about data breaches and systems getting hacked. You can get a free copy of your credit report from the three credit reporting companies every year. It’s a good idea to review them for accuracy and make sure nothing is amiss. There are also online tools for you to use like freecreditreport.com and experian.com where you can inspect your credit reports and history without charge.
Check Your Tax Withholdings
While it may feel good to get a tax refund each year, taking home more money each paycheck might give you some breathing room in your budget. Or the extra money could go toward retirement savings or even paying down debt. You may have found you had to pay taxes. You can use the IRS Tax Withholding Estimator to adjust your W4s. Have a pay stub or last year's tax return handy to fill in any relevant documents or forms.
IMPORTANT DISCLOSURES
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associ-ates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances.
Member FINRA & SIPC.