MEDIA ALERT — Time for taxpayers to prepare for the next tax season

Rhea-AI Summary

Wolters Kluwer Tax & Accounting highlights crucial year-end tax planning steps for taxpayers that may affect their 2021 tax returns. With the Build Back Better Act under consideration, changes to capital gains and estate taxes could necessitate urgent planning. Taxpayers are advised to consider year-end charitable contributions, Roth IRA conversions, and review estate plans. Enhanced IRS audits may increase the importance of documentation for claims. The proposed effective date for capital gains changes is September 13, 2021, possibly limiting preemptive planning.

Positive

• Encourages year-end tax planning to optimize deductions and income.
• Highlights potential benefits from charitable contributions before year-end.

Negative

• Capital gains rate changes may limit opportunity for advance planning due to retroactive application.
• Possible loss of estate and gift tax exemptions may pressure immediate estate planning.

Wolters Kluwer Tax & Accounting looks at year-end steps to consider that might impact your 2021 tax return

Wolters Kluwer Tax & Accounting:

What: Most of the steps available to taxpayers that affect their 2021 tax return must be completed before the end of the year. Areas of focus often include accelerating deductions, postponing income, reviewing investment portfolios for possible capital gain or loss realizations, making charitable gifts, and lifetime gifts to family members.

However, 2021 year-end planning might look a little different. The US Congress is still considering a large package of tax changes that could increase taxes in 2022 for wealthier taxpayers while potentially reducing taxes for low to middle-income taxpayers. Referred to as the Build Back Better Act, the details are still subject to substantial change as legislators work to reduce the cost from around $3.5 trillion to around $2 trillion. It is possible an agreement might not be reached until very late in the year.

Why: If and when the Build Back Better bill is enacted, it could be too late to do year-end planning in response. Some of the provisions may be effective as of the enactment date, others such as capital gains rate changes could potentially be retroactive and already too late for planning, and some might be effective starting in 2022 or later. Taxpayers would likely benefit from speaking to their tax & accounting professional about any year-end changes that might make sense for them. Some steps that taxpayers might want to consider include:

• All taxpayers may want to look at year-end charitable contributions to take advantage of the $300 deduction for those claiming the standard deduction or the 100 percent of Adjusted Gross Income limit on those itemizing deductions; both provisions currently expire at the end of this year
• Taxpayers may want to look at what might be their last chance to do Roth IRA conversions, although US Congress could possibly change the Administration’s original proposals and keep Roth conversions around for a longer period to increase projected revenue from them
• With possible estate and gift tax changes, including lowering of the exemption amount and elimination of the benefits of grantor trusts and valuation discounts, year-end would be a good time for taxpayers to review their estate plans and possibly consider year-end lifetime gifts
• With a possible significant increase in IRS funding to enhance audit rates of tax returns, taxpayers may want to focus on making sure they have documentation to support all deductions and credits on their tax returns
• While capital gains rates may increase for wealthier taxpayers, the current proposed effective date is September 13, 2021, making it potentially already too late to plan in advance of the new rules
• Owners of pass-through businesses should consider reviewing possible changes to the 20 percent deduction for qualified business income, disallowance of excess business losses, changes to the taxation of carried interests, and a significant package of changes to the taxation of partnerships
• Wealthier taxpayers may want to consider accelerating income rather than the usual postponement of income
• Wealthier taxpayers may also want to consider postponing deductions rather than the usual acceleration of deductions

Who: Tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst, for Wolters Kluwer Tax & Accounting, can help discuss the issues that taxpayers might want to consider in year-end planning.

PLEASE NOTE: These materials are designed to provide accurate and authoritative information in regard to the subject matter covered. The information is provided with the understanding that Wolters Kluwer Tax & Accounting is not engaged in rendering tax advice or accounting, legal, tax or other professional service.

Contact: To arrange an interview with Mark Luscombe or other federal and state tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topics, please contact Bart Lipinski.

View source version on businesswire.com: https://www.businesswire.com/news/home/20211021005232/en/

BART LIPINSKI

847-267-2225

Bart.Lipinski@wolterskluwer.com

Source: Wolters Kluwer Tax & Accounting

FAQ

What year-end tax planning should taxpayers consider for 2021 tax returns under WTKWY?

Taxpayers should consider accelerating deductions, postponing income, and making year-end charitable contributions.

How could the Build Back Better Act impact wealthier taxpayers in 2022?

The Act may increase taxes for wealthier taxpayers while potentially reducing taxes for low to middle-income taxpayers.

What are the proposed changes to capital gains taxes for wealthier taxpayers in 2021?

The proposed effective date for capital gains tax changes is September 13, 2021, potentially limiting planning opportunities.

What is the significance of year-end charitable contributions in 2021?

Taxpayers can benefit from a $300 deduction for standard deduction claimants or 100% of Adjusted Gross Income limit for itemizers.

Why should taxpayers review their estate plans before the end of 2021?

Changes in estate and gift tax exemptions may occur, prompting a need for immediate estate planning.