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January 2021

It's 2021: Time to Check Your Tax Bracket

Will your tax bracket change in 2021? Each year the tax rate schedules are adjusted for inflation. That could result in your income being subject to a higher or lower tax rate in the new year. It’s especially important to check your tax bracket for this year if your taxable income was lower in 2020, due to:

  • Experiencing a reduction in full or part-time work-related income during the pandemic

  • Taking less income from your investment portfolio to avoid cementing loses during periods of increased market volatility

  • Suspending required minimum distributions (RMDs) under the CARES Act

  • Other circumstances resulting in a temporary reduction in income

For tax year 2021, the top tax rate of 37% will apply to income above $523,600 for individuals ($628,300 for married couples filing jointly), compared to income above $518,400 for individuals ($622,050 for married couples filing jointly) in 2020.

The Standard Deduction Increases in 2021

The standard deduction increases to $12,550 for single filers ($25,100 for married couple filing jointly) for tax-year 2021, up from $12,400 ($24,800 for couples) for 2020.1 Taxpayers over age 65 taking the standard deduction receive even more. For single filers age 65 and older, the standard deduction increases by $1,700 to $15,750. Joint filers can increase the standard deduction by $1,350 each for a total of $27,800 if both joint filers are age 65 or over. Keep in mind, if you’re considering itemizing on your 2020 or 2021 returns, your total tax deductions will need to exceed the amount of your applicable standard deduction for that tax year to make itemizing worthwhile.3

Taxes are one of the biggest risks to income in retirement. Having a plan in place to manage your tax bill in retirement is critical to helping to ensure your income will last as long as you will need it.

If you have questions about tax-smart strategies for managing your income in retirement, call the office to schedule time to talk.

1 https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2021

2 https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2020

https://www.aarp.org/money/taxes/info-2020/income-tax-brackets.html

5 Ways to Reduce Pandemic-Related Stress in 2021

If you’re suffering from pandemic fatigue, you’re far from alone. The distribution of the first COVID-19 vaccines in December marked a major milestone in the fight to end the global pandemic. However, public health experts urge patience, warning that it could take until the summer or fall to administer the vaccine to enough Americans to achieve herd immunity. In the meantime, here are five ways to help boost your emotional and physical health to maintain a positive outlook in the months ahead.

  1. Stay informed. It’s important to remain informed about the latest news and information regarding the COVID-19 vaccine distribution and related public health guidance. However, information overload can increase anxiety. Take regular breaks from news coverage of the pandemic to engage in programs or activities that you find helpful for lowering stress. These could include hobbies, watching a favorite show or movie, or calling a friend or family member.

  2. Maintain social connections. For years, studies have pointed to the importance of maintaining meaningful social connections as we age. However, months of social distancing and isolation have made it difficult for many older Americans to engage with family and friends. While digital platforms are no replacement for a hug or gathering with others to share a meal, it’s important to find ways to keep in touch with friends and family on a regular basis. If feelings of sadness or isolation persist or worsen, talk to family, friends or a healthcare professional about what you are feeling.

  3. Add healthy choices to your diet. A top resolution for many Americans in 2021 is to lose the “quarantine 15.” That refers to those extra pounds many of us gained last year, often due to an increase in comfort food and a decrease in physical activity. The Cleveland Clinic suggests that instead of focusing solely on eliminating certain foods from your diet, consider adding more healthy choices to your meals. Fruits, vegetables and grains can help you feel fuller so you can cut back on your main-course portions to accommodate the extra calories.1
  4. Exercise. Exercise is a great way to help reduce stress and anxiety. Best of all, you may not have to work out that hard to see benefits. According to a recent study, “higher levels of physical activity—regardless of intensity—are associated with a lower risk of early death in middle-aged and older people.” Conversely, the study found, being sedentary for 9½ hours a day or more (not counting sleeping) can increase your risk of early death.2

  5. Stay positive. While maintaining a positive outlook can be difficult during challenging times, it’s important for both mental and emotional health. Consider making a list of the things you’re grateful for and the things that bring you joy. Writing these things down and reviewing your list from time to time can be a great reminder of the people and things you cherish most in life. Also, take time to reflect on and give yourself credit for getting through the physical and emotional challenges of the past few months. Finally, embrace a sense of hope for the future as administration of the vaccines gains momentum in the months ahead.

1 https://health.clevelandclinic.org/can-eat-still-lose-weight/

2 https://www.sciencedaily.com/releases/2019/08/190821185336.htm

December 2020

3 Tax-Smart Ways to Help Family Members in Need Pay for College

As colleges and universities grapple with reopening during the COVID-19 pandemic, a growing number of college students and their parents find themselves struggling to pay tuition costs. In fact, a recent study found that nearly half of all college undergraduates said they need to “figure out a new way to pay for school” due to the impact of the pandemic on their finances.1

Fortunately, there are a number of tax-smart ways for parents and grandparents to help family members pay for college. However, before reaching into your own pocket, look into programs designed to help. These include emergency cash grants under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, as well as the ability to apply for or appeal an existing federal student aid application, if financial circumstances have changed.

Remember, if you are in or nearing retirement, it’s important to find the right balance between providing assistance and maintaining your own safety net, so you’re not over-extending yourself at a time when portfolio values may be impacted by ongoing market volatility. Next, determine the right tax-smart strategy for your situation, which may include one of the following.

  1. Annual gifts: In 2020, you can give $15,000 to as many different people as you wish, under the annual gift tax exclusion ($30,000 for married couples filing joint returns), before bumping up against the lifetime gift tax exemption amount, which is $11.58 million per person ($23.16 million for married couples filing joint returns) in 2020. In certain cases, gifting can be enhanced by giving appreciated stock rather than cash. Since the gift is based on the fair market value of the asset you transfer, you don’t pay capital gains tax on the appreciation.

  2. Direct payments to educational institutions: Instead of giving the money to the student, you can make a payment directly to the college or university. As long as you make the payment directly to the school, it is not considered a gift under the gift tax rules, so it won’t count toward your annual exclusion or require you to file a gift tax return.

  3. 529 plans: 529 plans offer a tax-smart way to pay for qualified college, K-12, and continuing education costs. As long as the plan satisfies a few basic requirements, the federal tax law provides special tax benefits, such as 5-year gift tax averaging and tax-free qualified distributions. Some states also offer state income tax incentives, so take time to research your state’s tax treatment first.

Consult your tax and financial professionals before implementing these or other strategies. To learn more, call the office today to schedule time to talk.

Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing.  This information is found in the issuer's official statement and should be read carefully before investing.

Investors should also consider whether the investor's or beneficiary's home state offers any state tax or other benefits available only from that state's 529 Plan.  Any state-based benefit should be one of many appropriately weighted factors in making an investment decision.  The investor should consult their financial or tax advisor before investing in any state's 529 Plan.

https://www.cnbc.com/2020/06/04/more-than-half-of-students-probably-cant-afford-college-due-to-covid-19.html

Don't Fall for Phony Contact Tracers

The pandemic has given rise to a number of new scams designed to part you from your money. One of the latest involves phony contact tracers. While contact tracing is considered an important tool for helping to contain the spread of COVID-19 in communities, the Federal Trade Commission (FTC) warns of a growing trend where scammers are pretending to be contact tracers.

How It Works

According to complaints received by the FTC, as well as a number of state and city officials throughout the country, a typical scam may unfold as follows:

  • You receive a call from someone claiming to be a local public health worker, saying that you have been in close proximity to someone who tested positive for COVID-19 and that you need to self-isolate and take a test. The caller refuses to identify the person who had tested positive, citing “confidentiality.”

  • The caller then requests that you provide some form of payment to cover the cost of mailing a COVID-19 test kit to you. The scammer instills a sense of urgency by claiming you must comply within a stated time period or face penalties for non-compliance.

How to Avoid the Scam

According to the FTC, legitimate contract tracers may ask you for your name, address, health information and the names of people and places you have visited. The agency says real contact tracers need health information, not money or personal financial information. The FTC offers the following tips for avoiding phony contact tracers:

  1. Real contact tracers won’t ask you for money. Only scammers insist on payment by gift card, money transfer, or cryptocurrency.

  2. Your immigration status doesn’t matter for contact tracing, so real tracers won’t ask. If they do, you can bet it’s a scam.

  3. Contact tracing doesn’t require your bank account or credit card number. Never share account information with anybody who contacts you asking for it.

  4. Legitimate contact tracers will never ask for your Social Security number. Never give any part of your Social Security number to anyone who contacts you.

  5. Do not click on a link in a text or email. Doing so can download malware onto your device.

For more information about contact tracing in your area, visit your state health department’s website.

November 2020

Recent Tax Law Changes Create Year-End Tax Planning Opportunities

Tax planning is an integral part of a comprehensive financial plan designed to help you meet multiple goals and priorities and keep more of what you earn from your various income sources and investments. While tax planning is a year-round activity, no time is more critical than the end of the year to make sure you’re taking advantage of opportunities to manage your tax burden. That’s especially true this year, thanks to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a significant economic aid package signed into law in March 2020.

The CARES Act provides an opportunity for those subject to required minimum distributions (RMDs) to waive them this year, which can substantially reduce the amount of your income that is subject to taxes in 2020. It also provides a unique opportunity for those who will take the standard deduction to take an above-the-line deduction of up to $300 for individuals ($600 for a married couple filing joint returns) for cash donations to charitable organizations. For those who will itemize, the CARES Act removes the 60% of adjusted gross income (AGI) limitation for most cash gifts to public charities for 2020. That means you can offset up to 100% of your income this year with charitable contributions. Contributions in excess of this amount can be carried forward for five years subject to the 60% of AGI limit in those years. It’s important to note that both of these provisions under the CARES Act only apply to cash contributions and are not available for contributions made to donor advised funds or gifts to 509(a)(3) supporting organizations.

Don’t forget about other legislation passed in recent years. Among other provisions, the Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law in December 2019, repealed the maximum age for traditional IRA contributions and increased the age to begin taking RMDs from 70 ½ to 72. However, it also eliminated the “stretch IRA” for non-spouse beneficiaries. With certain exceptions, beneficiaries are now required to withdraw assets from an inherited IRA or 401(k) plan within 10 years following the death of the account holder, which can have important estate planning implications. Finally, the Tax Cuts and Jobs Act of 2017 ushered in numerous changes, including a shift in tax brackets that resulted in lower tax rates for many individual taxpayers. While most of the provisions under the TCJA remain in effect through 2025, it’s important to note that the income floor for unreimbursed medical expenses for those who itemize is scheduled to return to 10% in 2021, unless Congress acts to extend it.* The TCJA reduced the floor to 7.5% for 2017 and 2018, and it was later extended to 2019 and 2020. If you’re close to exceeding this floor, now is the time to think about accelerating expenses for applicable elective procedures and equipment into 2020.

To learn more about tax laws impacting your planning, meet with your tax professional or contact the office anytime to talk about tax-smart financial planning and investment strategies.  

*Information is accurate as of publication date.

Your 2020 Year-End Planning Checklist

There’s no question that 2020 has been an exceptional year. The global pandemic, economic crisis and a contentious U.S. election have combined to make this year one for the history books. With the end of the year in sight, now is the time to take steps to shore up your finances to enter the new year on a firm footing. Use the list below as you work closely with your tax and financial professionals to help identify the best strategies for your situation.

Investment planning

  • Recognize capital gains and losses
  • Review strategies to avoid violating wash sale rules
  • Rebalance your portfolio, as needed, to maintain target allocation

Retirement planning

  • Fund retirement accounts
  • Contribute to health savings account(s), if applicable
  • Consider if a Roth conversion is right for you
  • Review retirement account beneficiary designations
  • Take RMDs (not required in 2020 under the CARES Act)

Tax planning

  • Review income tax withholding
  • Reduce AMT liability, if applicable
  • Accelerate deductions into 2020, as applicable, if itemizing
  • Evaluate state and estate income tax liabilities

Wealth transfer and legacy planning

  • Fund charitable giving
  • Make annual gifts
  • Consider a qualified charitable distribution from an IRA
  • Fund 529 plans
  • Review advanced estate planning strategies
  • Review/update estate planning documents

Financial planning

  • Schedule an annual plan review (at least once every 12 months)
  • Review and update goals
  • Review all beneficiary designations (retirement accounts, 529 plans, life insurance, etc.)
  • Create 2021 spending plan and budget
  • Ensure adequate emergency savings
  • Check your credit report (at least once every 12 months)