Broker Check
Update on Possible Tax Law Changes in 2021

Update on Possible Tax Law Changes in 2021

August 03, 2021

Financial Journey Partners’ Wealth Managers Elaine and Scott Manley attended the AICPA Conference for CPAs, held in Las Vegas, on July 26-28, 2021. They took part in the conference to get a better understanding of the many tax law changes being proposed by the Biden Administration and members of Congress, and Scott, shares their learning in this week's blog post.

In this blog, you’ll learn:

  • Are 2021 Federal Tax Increases Inevitable?
  • Special Tax Rule Complexity for CPAs
  • Tax Planning Strategies in 2021

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Are 2021 Federal Tax Increases Inevitable?

The Biden Administration has been working on tax increase proposals for Federal Income, Capital Gains and Estate taxes. From what we are reading, a bill with the tax changes is likely to be passed in the 4th quarter of this year.

3 Federal Tax Increase Proposals:

  1. Federal Income Tax - Most of the current proposals have increases in Federal Income Tax for people that make over $400k.

  2. Capital Gains Tax - Proposals range from moderate increases of about 25%, all the way up to making the Capital Gains Tax rate the same as the Federal Income Tax rate. Right now, the highest Capital Gains tax is 20% while the highest Federal Income Tax is 37%. 

  3. Estate Tax - Proposals include reducing the Estate Tax exclusion from the current $11.7M down to as low as $3.5M per person.

Tax Code Changes Lead to More Complex Special Rules for CPAs

The CPAs at the conference reported that tax preparation is becoming more challenging with lots of tax code changes, uncertainty in future tax code changes and more special rules added to the tax code.

Special Tax Rule Complexity for IRA Beneficiary:

An example of a new special tax rule is for IRA required minimum distributions (RMD) by a surviving beneficiary: when the IRA owner dies makes all the difference.

  • Inherited IRA - Prior to 2020 - If the owner of an IRA died on December 31, 2019, or earlier, and the beneficiary is their child, then the required distribution from the IRA can be stretched out over their lifetime using an IRS table.
  • Inherited IRA - 10-year Rule - If the owner of the same IRA dies on January 1, 2020, or later, then the required distributions must come out of the IRA by the end of 10 years with few exceptions.

This rule was added as part of the SECURE Act in late 2019 and adds complications for a CPA but even more complexity for the survivors.

Tax Planning Strategies in 2021

Of all the years, 2021 is one of the most important ones to do some tax planning. Ideally, let’s schedule time with you and your Tax Advisor to see what strategies might make sense for your specific situation. Contact your Wealth Manager to let us know if you are interested in doing this and we’ll put a plan together.

So that we can share what we learned at this conference, we scheduled a seminar on November 11, 2021, to share strategies you can consider doing to reduce your taxes in 2021 and beyond. Register now for our “Reducing Taxes Before & During Retirement” webinar.


Financial Journey Partners

Financial Journey Partners is Here to Help You

Our Financial Journey Partners office is based in San Jose, California. We have clients that live in many states across the country. If you have questions about your investments or financial situation, call us to schedule time to talk about your specific situation.

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Financial Journey Partners, nor any of its members, are tax accountants or legal attorneys, and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.

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