Page 26 - Investment Advisor - Jan/Feb 2021

TAX TIME

By Jeff Berman

10 Tax Changes in Latest COVID Relief Package

Many clients should qualify for at least one tax benefit under the new law,
according to CPA Jeffrey Levine.

ollowing President Donald all-cash contribution to a charity that is
Trump’s signing of the year-end not a donor-advised fund or a 509(a)(3)
Fspending bill in 2020, which supporting organization.
included the Taxpayer Certainty and
Disaster Tax Relief Act of 2020 and its 3. The hurdle rate for medical
$900 billion in pandemic relief, there expense deductions is set to 7.5%
are several tax-related items in the bill of AGI.
that advisors and their clients should Section 101 of the law provides a “wel-
keep in mind. come change” that tax planners have
The legislation included a vari- been yearning for, Levine said. It “per-
ety of personal income tax planning manently” restores the “hurdle rate”
relief provisions, Jeffrey Levine, for medical expense deductions to 7.5%
Buckingham Wealth Partners’ director of AGI.
of advanced planning and Kitces.com In recent years, the hurdle rate had
director of advisor education, said dur- repay deferred payroll taxes. Therefore, “oscillated between” 7.5% of AGI and 10%
ing a recent webinar. as compared to expectations prior to of AGI, and for a while, even depended
The event was led by popular blog- the passage of the Appropriations Act, upon a taxpayer’s age, he noted.
ger and Buckingham’s head of Planning affected employees will have modestly
Strategy Michael Kitces. Both the web- higher-than-expected cash flow from 4. You can carry forward unused
cast and associated report were enti- Jan. 1 through April 30, and modestly FSA balances.
tled “Coronavirus Stimulus Legislation: less-than-expected cash flow from Flexible spending account balances
What Advisors Should Know About The May 1 through Dec. 31. from 2020 will be carried into 2021. This
Latest Stimulus Bill.” year, due to COVID-19, many individuals
To be fair, “I don’t know that there’s 2. Charitable contribution miscalculated the amount of money they
anything in this bill that I would call deductions are extended. would spend. Any remaining balances at
earth-shattering or game-changing from The above-the-line deduction for the end of 2021 will be rolled forward
a personal financial planning perspec- cash contributions to charity included into 2022.
tive,” Levine explained. in the Coronavirus Aid, Relief, and Notably, however, the language of the
“But there are a lot of things to be Economic Security (CARES) Act, new law says a plan will not fail to qual-
aware of here and, inevitably, clients will passed by Congress in March 2020, ify and receive its intended tax benefits
qualify for one or more of these things, has been extended through 2021. The because it “permits” plan participants to
so you definitely want to be aware of deduction was capped at $300 for sin- roll forward such funds.
what they are — especially the tax ones, gle and joint filers. Therefore, employees should be
because everybody loves paying lower For 2021 only, the marriage penalty encouraged to reach out to their human
taxes, right? Save the client $50 on taxes has been eliminated, so joint filers will resources departments to see whether
and they think you’re a hero,” he said. be able to claim a deduction of up to the relief applies to their plan. For 2021
These are the 10 top tax takeaways $600, Levine noted. One key point to only, Section 214 also authorizes FSA
from the new legislation that all advisors keep in mind: “You cannot itemize your plans to allow participants to modify
and their clients need to know: return and claim this deduction.” future contributions to the FSA. Andrii Yalanskyi/Shutterstock
Also extended through 2021 is the
1. The deadline to repay deferred ability to deduct up to 100% of an indi- 5. Business meals at restaurants are
payroll taxes is extended. vidual’s adjusted gross income as a 100% tax-deductible.
Taxpayers now have until Dec. 31, 2021, to qualified contribution when making an In an effort to encourage business

24 INVESTMENT ADVISOR JANUARY/FEBRUARY 2021 | ThinkAdvisor.com