2021 Tax Changes

Charitable Deductions – in 2021 single taxpayers can deduct $300 and married joint filers can deduct $600 when taking the standard deduction. Also, continuing into 2021 is the ability for those who itemized deductions on Schedule A to deduct charitable contributions up to 100% of AGI.

Business Meal Deductions – in 2021 and 2022 businesses may deduct 100% of meal and beverage expenses, an increase from 50% in 2020. This includes meals and beverages that are take-out and delivery.

Hurdles To Deduct Vacation Home Losses

Renting a vacation home allows for the deduction of certain expenses such as mortgage interest, property taxes, repairs, utilities, and insurance against the rental income. A loss may be taken if two tax hurdles are met.

Tax Hurdle #1: Personal use of vacation home cannot exceed the greater of (a) 14 days or (b) 10% of the time the home is rented out.

Tax Hurdle #2: If the taxpayer “materially participates” (i.e. spending more than 500 hours a year on the activity) in the vacation home rental activity they may avoid the passive activity loss rules that limit losses to the amount of other passive income.

Note that contemporaneous records must be kept documenting material participation.

2021 Retirement Plan Limits Unchanged

Contribution limits for 401k’s and IRA’s for 2021 won’t change for 2021. For 401k’s the maximum deferral amount is $19,500 (or $26,000 age 50 and over). IRA’s annual contribution limit is $6,000 (or $7,000 age 50 and over).

Proposed Retirement Savings Changes

The SECURE Act passed at the end of 2019 increased retirement saving opportunities and new proposals in the House could go even further. A current bill includes incentives for individuals to save for retirement and for employers to offer retirement plans. The proposals include further increasing the age for RMD and increasing limits for catch-up contributions.

Beware: Economic Impact Payment Scams

IRS warns of a text message scam asking for financial information related to your economic impact payment They send you a link that takes you to a fake “Get my payment” website. DO NOT CLICK this link. The IRS recommends you take a screen shot of the text from your phone and email it to the IRS at phishing@irs.gov.

Upper Income IRS Scrutiny

The IRS if facing increased pressure to audit two main types of upper income taxpayers. These include non-filers for 2018 and prior and filers with large, unusual, or questionable 1040 items.

IRS Focus On Virtual Currency

The IRS has renewed its focus on virtual currency transactions. The front page of the 1040 for 2020 requires all individuals to answer the question: “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”.

Virtual currency for investment purposes is treated as property and taxed at short-term and long-term capital gains rates. Payment for services made in virtual currencies, such as Bitcoin, are valued at the U.S. dollar amount on the date received. These amounts are to be included on W-2 and 1099 forms.

For answers to frequently asked questions related to virtual currencies see the link to the IRS’s FAQ page:

https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions