As year-end approaches, individuals, business owners, and family offices should evaluate tax planning strategies in light of provisions from the CARES and SECURE Acts, and ongoing tax reform discussions. This guide outlines planning areas and 2021 inflationary adjustments based on available projections as of October 15, 2020. Please consult your advisor for updated guidance and personalized recommendations.
Election-Year Policy Considerations
Although no formal plans were published during the campaign, then-candidate Joe Biden spoke in favor of:
-
Increasing the top individual income tax rate to 39.6%
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Raising the capital gains tax rate to 39.6% for those earning more than $1 million
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Eliminating step-up in basis at death
Federal Income Tax Rate Brackets
2020 & Projected 2021 Brackets:
| Tax Rate | Joint | Single | Head of Household | MFS | Estates & Trusts |
|---|---|---|---|---|---|
| 10% | $0–$19,750 | $0–$9,875 | $0–$14,100 | $0–$9,875 | $0–$2,600 |
| 12% | $19,751–$80,250 | $9,876–$40,125 | $14,101–$53,700 | $9,876–$40,125 | – |
| 22% | $80,251–$171,050 | $40,126–$85,525 | $53,701–$85,500 | $40,126–$85,525 | – |
| 24% | $171,051–$326,600 | $85,526–$163,300 | $85,501–$163,300 | $85,526–$163,300 | $2,601–$9,450 |
| 32% | $326,601–$414,700 | $163,301–$207,350 | $163,301–$207,350 | $163,301–$207,350 | – |
| 35% | $414,701–$622,050 | $207,351–$518,400 | $207,351–$518,400 | $207,351–$311,025 | $9,451–$12,950 |
| 37% | Over $622,050 | Over $518,400 | Over $518,400 | Over $311,025 | Over $12,950 |
Social Security and Medicare Taxes
- OASDI wage base:
- $137,700 (2020)
- $142,800 (2021)
- FICA rates:
- 6.2% (employer) + 6.2% (employee)
- Medicare tax:
- 1.45% each (no wage cap)
- Additional 0.9% Medicare tax on earned income above $200,000 (single), $250,000 (joint), or $125,000 (MFS)
Long-Term Care Insurance Deduction Limits
| Age | 2020 | Projected 2021 |
|---|---|---|
| ≤40 | $430 | $450 |
| 41–50 | $810 | $850 |
| 51–60 | $1,630 | $1,690 |
| 61–70 | $4,350 | $4,520 |
| >70 | $5,430 | $5,650 |
Retirement Plan Contribution Limits
- 401(k)/403(b): $19,500 + $6,500 catch-up (age 50+)
- IRA Contributions: No age cap for traditional IRA contributions under the SECURE Act
- RMDs begin at age 72 for those born on or after July 1, 1949
SECURE Act Highlights
- Penalty-free withdrawals up to $5,000 for birth/adoption expenses
- 10-year distribution rule for most non-spouse inherited IRAs
- Eliminates age cap on traditional IRA contributions
- Five-year payout rule retained for non-see-through accumulation trusts
CARES Act Highlights
- Waives 10% early withdrawal penalty for up to $100,000 COVID-related distributions
- Amount can be taxed over three years or repaid within three years
- RMDs suspended for 2020
Other Key Planning Considerations
- Foreign Earned Income Exclusion:
- $107,600 (2020)
- $108,700 (projected 2021)
- Alternative Minimum Tax (AMT) Exemption Amounts:
| Filing Status | 2020 | Projected 2021 |
|---|---|---|
| Single/HOH | $72,900 | $73,600 |
| MFJ | $113,400 | $114,600 |
| MFS | $56,700 | $57,300 |
- Kiddie Tax:
Reverts to being based on parents’ tax rate (retroactively applicable to 2018 and 2019 with amended returns)
Charitable Contributions
- CARES Act allows 100% AGI deduction for 2020 cash contributions to public charities
- Excludes donor-advised funds and private foundations
- Excess contributions can be carried forward 5 years
Estate and Gift Tax Exemption
- $11,580,000 (2020)
- Projected $11,700,000 (2021)
- Gift exclusion for non-citizen spouse: $157,000 (2020) / $159,000 (projected 2021)
Simplified Employee Pension (SEP) Plans
- Contribution limit: $57,000 (2020) / $58,000 (projected 2021)
- SEP contributions due by employer’s tax return filing deadline (including extensions)
Net Operating Loss (NOL) and Excess Business Loss Provisions
- CARES Act: Allows NOL carrybacks for 2018–2020 (five years) and suspends 80% limitation
- Excess Business Loss (Section 461(l)): Suspended for 2018–2020; projected reinstatement in 2021 with thresholds of:
- $262,000 (single)
- $524,000 (joint)
For full details and planning strategies, download the PDF:
Click here to download the full PDF – 2020 Year-End Tax Planning for Individuals
We encourage you to work with your tax advisor to evaluate the impact of these changes on your personal tax situation.