As the year begins, many of the issues that plagued both the federal and state taxing authorities in 2020 look to continue into 2021.Jan 2020
In early December, the IRS Commissioner announced that there are still approximately 6.8 million returns in process, more than one million unprocessed returns and three million pieces of unopened mail.
Given the disruption caused by COVID-19 continues and the likely appointment of a new Commissioner soon, it may be some time before these processing issues are resolved. If you receive a notice from the IRS, please let us or your CPA know because it may be due to the timing lag in the Service’s correspondence.
The election of Joseph Biden and the ability of his administration to enact significant tax legislation, given the Democratic majority in the Senate, will impact the tax landscape for the foreseeable future. Even so, the outlook for action on Biden’s tax plans is still uncertain, given our still recovering economy and his party’s slim margin in the Senate.
The tax plan released by president-elect Biden prior to the election includes policies that would raise taxes on individuals with incomes above $400,000, including raising individual income, capital gains and payroll taxes. Biden may also increase taxes on corporations by raising the corporate income tax rate. President-elect Biden has also proposed changes to estate and transfer tax law. Under current law, the estate tax exemption increased to $10 million in 2018 and will be reduced to half that amount in 2026 barring legislative change. Indexed for inflation, the exemption amount is $11.7 million for 2021.
The annual gift tax exclusion remains $15,000. Biden’s proposals include reducing the estate tax exemption amount to possibly $3.5 million earlier than 2026, raising the estate tax rate to 45% and eliminating the step up in cost basis to date of death value for estate assets such as stocks and real estate. Recent legislation enacted into law continues several of the significant COVID-19 relief provisions for business and individuals originally enacted in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Certain individuals will see another round of economic impact payments, albeit at lower levels than under the CARES Act, as well as temporary enhancements of the charitable deduction and the earned income tax credit. There will also be an extension to the federal supplement for state-level unemployment insurance, although less generous than under CARES.
As these challenging and uncharted times continue, we will be carefully following tax-related developments in order to advise you of tax law changes and tax planning opportunities. As always, if
you have any questions, please feel free to contact your investment or tax professional at Howland Capital.