It appears as I write this that any modifications to our tax laws and system will not be enacted nor take effect until 2022. Additionally, there is very little likelihood that any tax rates will be lower in 2022 than they were in 2021. While it’s usually beneficial to defer taxes when possible, it can be even more advantageous to pay taxes at the lowest rate possible. It is clear that for some taxpayers 2021 will be the lowest rate for the foreseeable future.
It’s not too late to do some year end tax planning. Based on my assumptions above, some of these actions and strategies may be beneficial for you.
The $1.9 Trillion Covid Relief Bill (American Rescue Plan Act) appears headed to passing the House and Senate with at least the $1,400 per person direct checks to many Americans remaining in the bill. In the House version, the full payments will go to all filers with incomes under $75,000 Single and $150,000 Joint. The payments would begin phasing out at incomes above that until reaching $100,000 Single and $200,000 Joint respectively.
The Senate version lowers the eligibility numbers to $50 – 75K Single and $100 – $150K Joint. In either case eligibility will be determined by the most recent of your 2019 and 2020 Tax Returns. It recognizes that many people have not filed their 2020 returns yet.
Here in lies a planning opportunity for some people. If your income will allow you to qualify for the payment(s) in only one of those tax years, make sure that the lower income is the latest return you have filed.