Start 2021 with a few New Year’s tax planning resolutions

COVID-related legislation drove a lot of tax changes for 2020 and President-elect Joe Biden has proposed many tax changes for 2021. With tax laws already very complicated, we have some resolutions to get ahead in 2021:

  • Beware of 2021 tax uncertainties. It is important to review tax plans and estate plans with the Democratic party win since it is probable that taxes will increase. For example, the estate tax exemption may be reduced, which would lead to an increase in estate tax. Some clients should consider gifting to the next generation.
  • Update your W-4 Form. The IRS revised the W-4 form in 2019 to make it easier for workers to calculate the correct withholding, but many employees have not yet completed the revised form. Complete the form to optimize tax withholding.
  • Explore amending prior years’ tax returns to unlock a refund. Recent retroactive tax legislation has provided a lot of potential tax benefit to amending prior years’ tax returns, including the Kiddie Tax, disaster losses, mortgage debt forgiveness, mortgage insurance premiums, energy-efficient home repairs, and, for businesses, net operating loss carryback.
  • Review estate planning documents. After 2020, if there ever was a time to review your estate planning, it is now. Estate planning documents are important documents to periodically review. Changes in federal and state estate taxes (New Jersey abolished its estate tax 3 years ago) may have an impact, and even if they do not, there may be a reason to adjust for new goals or major life changes (think new children, health changes, etc.). Old insurance trusts or credit shelter trusts may no longer be needed, or may now require more flexibility, while trusts drafted with stretch IRA provisions may need to be revised.
  • Revisit your beneficiary designation. Your IRA beneficiary designation form controls the fate of your IRA after your death. Make sure that retirement funds pass to beneficiaries in a protected and tax-efficient manner. Recent law changes may mean your beneficiary form is out of date. Spend some time in 2021 checking this form to be certain it optimizes your wishes.
  • Pay attention to foreign accounts and assets.  The IRS asks questions about these on your tax return (see the bottom of Schedule B (Part III)) and increasingly has access to foreign bank information to determine if you are disclosing your foreign assets and income properly. The IRS recently began mailing warning letters to certain targeted taxpayers who may have foreign accounts.  Failure to report foreign accounts, or reporting them incorrectly, can have serious consequences, including high civil and criminal penalties.

New Year’s is always been a time of making resolutions. However, there are few of us who make tax planning New Year’s resolutions.  Do not procrastinate. Make these resolutions even if they are unpleasant or time-consuming. Proper planning can result in security and tax benefits…and most importantly, peace of mind!

Patel Law Offices offers a free strategy session to discuss how to resolve your legal problem. Conveniently schedule online today...

For foreign asset problems complete our questionnaire and online scheduler.

For other tax problems complete our questionnaire and online scheduler.

For estate planning complete our questionnaire and online scheduler.

For probate/estate administration complete our questionnaire and online scheduler.

For other legal problems visit our website and online scheduler.