Financial Services

Here are smart steps to take now to make tax filing easier for 2021


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Next year’s tax return is probably the last thing on most Americans’ minds right now. With millions of individuals and business owners still dealing with their taxes for this year, next year can wait.

“The financial industry, and the whole country, has compliance fatigue,” said Ed Reitmeyer, a CPA and a regional partner-in-charge for tax services at Marcum LLP. He says that mid-season tax legislation changes have made an already difficult year extremely challenging.

“A lot of folks have extended,” Reitmayer said. “Our client base is much more accepting of extensions because they understand where we are.

“We’re still asking people to send information.”

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However, it is never too early to think about future tax filings. They will not get any easier going forward. The combination of past tax policy changes, sunset provisions on many of those changes, special pandemic tax rules and the guarantee of new rules from the Biden administration will make future tax preparation just as challenging as it has been this year.

“After the last two years and the election, people need to think about a long-term taxable income plan and what it will look like over the next five years,” Reitmeyer said.

The range of considerations is vast.

One of the first things CPA Ed Zollars of Thomas Zollars & Lynch considers for non-business owner clients is whether they itemized deductions on their last return. If they didn’t, Zollars then determines how close they were to doing so.

The doubling of the standard deduction in 2017 was one of the most significant tax changes for individuals in recent years.

“The good news is the standard deduction for a married couple next year is $25,100,” Zollars said. “The bad news is that all the things that people learned to help lower their taxes in the past have become less helpful.”

For those people close to the $25,000 threshold, Zollars suggests they consider bunching up multi-year deductions. For example, a couple who pay $20,000 in real estate taxes and mortgage interest and normally make a $5,000 annual charitable donation could contribute $10,000 every two years instead. That would allow them to itemize deductions of $30,000 one year and take the standard deduction on the second year.

Wealthier Americans also have to consider the high probability that tax rates will be rising on both ordinary income and capital gains.

“There’s a big fear that capital gains tax rates are going to rise,” Reitmeyer said.

How high and for which taxpayers has yet to be determined. It may only affect people with more than $1 million in adjusted gross income, or it could affect a broader group.

“President Biden appears to have made $400,000 a line in the sand,” Reitmeyer added.

The goal is to maximize growth and wealth after taxes. You want to consider how things will affect your balance sheet after years of taxes.

Ed Zollars

CPA at Thomas Zollars & Lynch

If you do plan to sell assets in the future that have appreciated significantly, now may be the time to sell them and pay tax on the gains. The current maximum rate of 20% applies to single filers making more than $445,850. Paying the taxes sooner could be much better than later as legislative changes often take effect when passed.

If you plan to take advantage of Qualified Opportunity Zone investments to lower your capital gains tax bill, this is the year to act. If appreciated assets are sold and invested in eligible “opportunity zone” investments in economically distressed communities across the country, you get a 10% reduction in the taxable gain — but only if you hold it for at least five years, with 2026 being the deadline year.

In other words, this is the last year you can get that 10% reduction. Hold the investment for 10 years and you get a full step-up in cost basis for tax purposes (i.e., no capital gains tax).

Estate taxes are also likely headed up. While a lowering of the current estate tax exemption of $11.58 million and a raising of estate tax rates won’t affect your current tax bill, it could dramatically impact your heirs. Estate-planning efforts have been ramping up.

“With interest rates low and inflation expectations coming back, the more assets you can get into estates the better,” Reitmeyer said.

For business owners, the tax considerations are far more complicated, in large part due to all the efforts the government has made to help them during the pandemic. “The rules change retroactively with each new piece of legislation,” Zollars said. “The benefits get better, but it makes it all harder to deal with.”

Here are three major issues business owners need to consider this year for tax planning purposes.

• Government loans and credits. Zollars suggests that the employee retention credit (ERC) set up under the CARES Act last year may be the single most important issue for small business owners to address.

Previously, businesses that received a forgivable Payroll Protection Program loan from the government could not also claim a credit for retaining employees through difficult times. Now they can.

However, a taxpayer can’t claim credits for wages that were paid with a forgiven PPP loan. Business owners need to maximize the other eligible expenses for loan forgiveness and use the wage expenses to claim the credit. “They need to look at both programs together to maximize benefits,” said Zollars.

• Net operating loss carry backs. One reason so many business-owning taxpayers have filed for an extension this year is to figure out strategies for the favorable operating loss carry back rules in the CARES Act. The bill allows businesses to carry back losses incurred in the last three years to offset income earned up to five years ago.

They can get cash refunds by amending prior year returns. Business owners need to determine whether they need the cash now or whether prior year losses may be more valuable to offset income in the future — when tax rates will almost certainly be higher.

• Bonus depreciation rules. The same consideration on loss carry backs applies to bonus depreciation rules expanded by the CARES Act last year. They allow businesses to deduct 100% of the cost of eligible assets in the first year. If a business is still in survival mode, the rules could help them stay afloat. However, the deductions will be more valuable in the future when tax rates rise.

While lowering your tax bill for next year should certainly be an objective for both individuals and business owners, it should never be the only consideration.

“People should not focus solely on current taxes,” said Zollars. “The goal is to maximize growth and wealth after taxes.

“You want to consider how things will affect your balance sheet after years of taxes.”



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