Each time that a new president is voted into the White House, it’s natural to wonder how the tax laws will change and what impact this will have on your family’s finances, including your income tax. This can especially be true when the new leader comes from a different political party than the previous one. Plus, COVID relief measures may trigger questions about the impact on income tax owed.
This post will provide an overview of the tax implications for individual taxpayers, as well as how U.S. Legal Services can help through financial planning services included in our plans.
Potential Tax Reforms
In 2017, former president Donald J. Trump signed the Tax Cuts and Jobs Act (TCJA) into law. Changes recommended by the current president, Joe Biden, would reverse some of the elements of the Act with proposed changes focusing on “an upper tier of high-net-worth earners.” Here’s one of the biggest potential changes. For people earning more than $400,000, there could be a 2.6 percent tax increase, which would return the tax rate to what existed pre-TCJA: 39.6 percent.
Also in 2017, the TCJA boosted the estate tax exemption in 2020 up to $11.58 million. In addition, this allowed for “transfers of appreciated property at death to get a step-up in basis.” If Biden’s tax plan becomes law, exemptions would go down to pre-TCJA levels and this would also eliminate the step-up in basis.
Additional elements of Biden’s proposal include the following:
- For people with incomes above $1 million, there would no longer be breaks for long-term capital gains and dividends; standard tax rates would apply.
- If someone earned more than $400,000, a 12.4 percent Social Security payroll tax would be imposed on the overage, evenly split between employees and employers.
Additional tax breaks could potentially include:
- An expansion of the child and dependent care tax credit up to a maximum of $8,000 through an increase of the child tax credit to $3,000 and the creation of a bonus credit for children under the age of six ($600)
- The re-establishment of first-time homebuyers’ tax credits; this could offer first-time buyers up to $15,000 in credits
None of these changes have been enacted into law. What’s being shared is Biden’s plan that he described during his presidential run. It’s possible that some of the changes won’t take place while others may be modified.
Impact of COVID Relief
Good news here! COVID relief checks, according to the IRS, are not considered taxable income. More specifically, they say, “the payment is not income and taxpayers will not owe tax on it. The payment will not reduce a taxpayer’s refund or increase the amount they owe when they file their 2020 tax return next year. A payment also will not affect income for purposes of determining eligibility for federal government assistance or benefit programs.”
The amount you received will not, explains AARP, increase the amount of income you claim (so it won’t create a bigger tax bill). It also won’t reduce your refund when you file.
2021 Tax Considerations
2020 truly was an unprecedented year, and your family may have tax-related issues that you wouldn’t normally have. For example, some families have experienced higher than average medical bills. Another common scenario in 2020: a member of the family may have been receiving unemployment benefits. Each of these circumstances can have an impact on income taxes and may trigger questions that a professional tax consultant could answer for you.
Here’s something else to consider. The CARES Act is allowing a taxpayer to deduct up to 100% of their adjusted gross income through charitable giving if itemizing deductions. The goal was to encourage people to give more freely during the pandemic. Plus, even if you plan to take the standard deduction, CARES Act contains a provision that allows taxpayers to write off up to $300 of charitable deductions given in cash.
Please note: Google searches about 2021 tax changes and considerations will display huge numbers of results. The problem, though, is that not all sources are accurate and, even if they are offering good general advice, no two people have the exact same tax situations. Only a qualified income tax consultant can offer advice that’s targeted specifically to you.
Tax Code Complexity
“Almost everyone agrees that the current tax system is too complicated, yet almost every year the system gets more complex, not less.” (Tax Policy Center)
If navigating the complexities of our tax system gives you a headache, you’re clearly not the only one. No matter how often we may hear that the system will be streamlined, it often ends up being even more confusing—to the point where, under many circumstances, only a professional tax consultant would know how to proceed.
That’s why, at U.S. Legal Services, we include financial consulting services in our Family Defender and CDL Defender legal plans—and each of these plans include tax consultation, planning, and preparation services.
Our Tax Hotline
When you have questions about changes in government regulations, tax credits, eligible deductions, capital gains and so forth, it can be expensive to get answers from professional tax consultants. You could talk to the IRS but wait times can be long and the answers you receive may be confusing. And yet, you’ve got to do the right thing to avoid making costly errors.
As a member of one of our legal plans, you’ll receive tax and financial assistance from qualified professionals, including tax attorneys and CPAs, and/or enrolled agents who have been IRS certified. You can receive the information you need confidentially in a secure environment with the advice you receive backed up by a $1 million liability policy for your peace of mind.
If you use a tax software program, you know they can be helpful. But when you have a question, you want more than a help screen answer. You want advice on your specific situation—and that’s exactly what you’ll get with our Tax Hotline: advice specifically tailored to your unique situation. Tax experts are just a phone call away with our hotline any time you want live, direct, one-on-one answers.
As a legal plan member, you’ll automatically receive a free monthly newsletter that discusses tax law changes and includes tax tips, helpful articles, and much more.
When you need it, you can receive explanations about changes in tax laws; have unlimited access to federal taxation advice through a toll-free phone call, as well as advice about IRS notifications and audits; tax planning information; and tips about filing personal federal and state taxes. Additional benefits include a review of the prior year’s tax return and research on complex tax matters.
Plus, you will benefit from these discounted prices:
- $195 per tax return with all schedules, returns, and forms included
In short, you’ll have an income tax consultant at your fingertips.
Going Beyond Filing Taxes
Members receive advice on tax implications of a wide range of financial situations, going beyond the filing of income tax forms. These include advice about:
- Individual retirement accounts, including Roth IRAs, 401k plans, and SEPs
- Retirement planning
- Healthcare spending accounts
- Capital gains
- Real estate: timing, strategies, and more
- Investing: timing, strategies, and more
- Home ownership tax benefits
- Inheritance issues
- Divorce-related tax issues
In addition to having access to tax-related advice, plans by U.S. Legal Services provide a wide range of other financial services. These include our financial education and credit counseling services.
These personalized services are available throughout the year, 24/7, through phone, online tools, and live chat. More than 1,000 experienced financial counselors provide members with guidance and advice about home buying, debt management, setting up a trust, and much more to help them make better financial decisions. During a free consultation, your counselor will provide a thorough assessment and analysis of your income and assets, expenses and liabilities.
A credit counselor will do a deep dive on current debt and credit issues to help you create a budget that you can live with, one that balances your income and expenses and helps you to gain control of your finances. If you’re having problems dealing with creditors, you’ll also receive specific advice on how to respond.
Members also have access to housing advisory services to get advice on buying a home for the first time, how to get an affordable mortgage, how to refinance a mortgage loan, and more. Post-purchase counseling is also available.
Plus, you can access online tools and articles at any time, including budgeting tools, articles to guide you in financial decision making, links to numerous consumer resources, online financial calculators that are easy to use, money management tests and quizzes, financial videos and more.
If you’re already a U.S. Legal Services plan member, we invite you to explore these services. Interested in adding these benefits to your workplace? Here is more information about our Family Defender and CDL Defender legal plans.