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- Retirement Contributions Limits Announced for 2021
- Solar Technology Tax Credits Still Available for 2020
- Relief for Drought-Stricken Farmers and Ranchers
- Beware of Gift Card Tax Scams
- Charitable Donation Deduction Could Lower Your Tax Bill
Retirement Contributions Limits Announced for 2021
Cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for 2021 are as follows:
401(k), 403(b), 457 plans, and Thrift Savings Plan. Contribution limits for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $19,500. The catch-up contribution limit for employees aged 50 and over remains unchanged at $6,500.
SIMPLE retirement accounts. Contribution limits for SIMPLE retirement accounts for self-employed persons remains unchanged in 2021 as well at $13,500.
Traditional IRAs. The limit on annual contributions to an IRA remains at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions; however, if during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. If a retirement plan at work covers neither the taxpayer nor their spouse, the phase-out amounts of the deduction do not apply.
The phase-out ranges for 2021 are as follows:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is $66,000 to $76,000, up from $65,000 to $54,000.
- For married couples filing jointly, where a workplace retirement plan covers the spouse making the IRA contribution, the phase-out range is $105,000 to $125,000, up from $104,000 to $124,000.
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $198,000 and $208,000, up from $196,000 and $206,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
Roth IRAs. The income phase-out range for taxpayers making contributions to a Roth IRA is $125,000 to $140,000 for singles and heads of household, up from $124,000 to $139,000. For married couples filing jointly, the income phase-out range is $198,000 to $208,000, up from $196,000 to $206,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
Saver’s Credit. The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low and moderate-income workers is $66,000 for married couples filing jointly, up from $65,000; $49,500 for heads of household, up from $48,750; and $33,000 for singles and married individuals filing separately, up from $32,500.
If you have any questions about retirement plan contributions, don’t hesitate to contact us.
Solar Technology Tax Credits Still Available for 2020
Certain energy-efficient home improvements can cut your energy bills and save you money at tax time. While many of these tax credits expired at the end of 2016, tax credits for residential and non-business energy-efficient solar technologies do not expire until December 31, 2021. Here are some key facts that you should know about these tax credits:
Residential Energy Efficient Property Credit
- This tax credit is 30 percent of the cost of alternative energy equipment installed on or in your home.
- Qualified equipment includes solar hot water heaters and solar electric equipment placed into service on or after January 1, 2006, and on or before December 31, 2021.
- There is no maximum credit for systems placed in service after 2008.
- The tax credit does not apply to solar water-heating property for swimming pools or hot tubs.
- If your credit is more than the tax you owe, you can carry forward the unused portion of this credit to next year’s tax return.
- At least half the energy used to heat the dwelling’s water must be from solar in order for the solar water-heating property expenditures to be eligible.
- Solar water-heating equipment must be certified for performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed.
- The home must be in the U.S. It does not have to be your main home.
- Use Form 5695, Residential Energy Credits, to claim the credit.
Equipment costs such as assembling or installing original systems, on-site labor costs, and costs related to wiring or piping solar technology systems are considered final when the installation is complete. For a new home, the placed-in-service date is the occupancy date.
The maximum allowable credit varies by the type of technology:
Solar-electric property
- 30% for systems placed in service by 12/31/2019
- 26% for systems placed in service after 12/31/2019 and before 01/01/2021
- 22% for systems placed in service after 12/31/2020 and before 01/01/2022
Solar water-heating property
- 30% for systems placed in service by 12/31/2019
- 26% for systems placed in service after 12/31/2019 and before 01/01/2021
- 22% for systems placed in service after 12/31/2020 and before 01/01/2022
If you would like more information about this topic please contact the office today.
Relief for Drought-Stricken Farmers and Ranchers
Farmers and ranchers who were forced to sell livestock due to drought may have an additional year to replace the livestock and defer tax on any gains from the forced sales. The relief generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, or poultry, are not eligible.
Here are seven facts about this to help farmers understand how the deferral works and if they are eligible.
1. The one-year extension gives eligible farmers and ranchers until the end of the tax year after the first drought-free year to replace the sold livestock.
2. To qualify for relief, the farm or ranch must be in an applicable region. This is a county or other jurisdiction designated as eligible for federal assistance plus counties contiguous to it.
3. This extension is granted to farms and ranches located in the applicable region that qualify for the four-year replacement period if any county that is included in the applicable region is listed as suffering exceptional, extreme or severe drought conditions as determined by the National Drought Mitigation Center. All or part of 46 states, plus the District of Columbia and four U.S. territories are listed in the notice.
4. The relief applies to farmers who were affected by drought that happened between September 1, 2019, and August 31, 2020.
5. This relief generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, or poultry are not eligible.
6. To qualify, the sales must be solely due to drought, flooding or other severe weather causing the region to be designated as eligible for federal assistance.
7. Farmers generally must replace the livestock within a four-year period, instead of the usual two-year period. As a result, qualified farmers and ranchers whose drought-sale replacement period was scheduled to expire at the end of this tax year, December 31, 2020, in most cases, now have until the end of their next tax year. Furthermore, because the normal drought sale replacement period is four years, this extension immediately impacts drought sales that occurred during 2016. But because of previous drought-related extensions affecting some of these areas, the replacement periods for some drought sales before 2016 are also affected.
For additional details or more information on reporting drought sales and other farm-related tax issues, please call.
Beware of Gift Card Tax Scams
There’s never an off-season when it comes to scammers and thieves who want to trick people to scam them out of money, steal their personal information, or talk them into engaging in questionable behavior with their taxes. While scam attempts typically peak during tax season, taxpayers need to remain vigilant all year long.
For example, there are many reports of taxpayers being asked to pay a fake tax bill through the purchase of gift cards. While gift cards are a popular and convenient gift for all occasions, they are also a tool that scammers use to steal money from people.
Scammers often target taxpayers by asking them to pay a fake tax bill with gift cards. They may also use a compromised email account to send emails requesting gift card purchases for friends, family or co-workers. The IRS reminds taxpayers gift cards are for gifts, not for making tax payments.
The most common way scammers request gift cards is over the phone through a government impersonation scam. However, they will also request gift cards by sending a text message, email or through social media.
Here’s a typical scenario:
A scammer posing as an IRS agent will call the taxpayer or leave a voicemail with a callback number informing the taxpayer that they are linked to some criminal activity. For example, the scammer will tell the taxpayer their identity has been stolen and used to open fake bank accounts.
Here’s how the scam unfolds:
- The scammer will threaten or harass the taxpayer by telling them that they must pay a fictitious tax penalty.
- The scammer instructs the taxpayer to buy gift cards from various stores.
- Once the taxpayer buys the gift cards, the scammer will ask the taxpayer to provide the gift card number and PIN.
Scammers are continuously perfecting their tricks and sometimes it is difficult to determine whether it is really the IRS calling. Keep in mind that the IRS will never do the following:
- Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail a bill to any taxpayer who owes taxes.
- Demand that taxpayers pay taxes without the opportunity to question or appeal the amount they owe. All taxpayers should be aware of their rights.
- Threaten to bring in local police, immigration officers or other law-enforcement to have the taxpayer arrested for not paying.
- Threaten to revoke the taxpayer’s driver’s license, business licenses, or immigration status.
What to do if you think you’ve been targeted by a scammer
Anyone who believes they’ve been targeted by a scammer should contact the Treasury Inspector General for Tax Administration to report a phone scam. Use their IRS Impersonation Scam Reporting web page or call 800-366-4484.
Phone scams should also be reported to the Federal Trade Commission. Use the FTC Complaint Assistant on FTC.gov and make sure to add “IRS Telephone Scam” in the notes.
Unsolicited email claiming to be from the IRS, or an IRS-related component like the Electronic Federal Tax Payment System, should be reported to the IRS at phishing@irs.gov and be sure to add “IRS Phone Scam” to the subject line.
Remember, gift cards are for gifts, not for making tax payments.
Charitable Donation Deduction Could Lower Your Tax Bill
The Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted last spring, includes several temporary tax changes that help charitable organizations. One such provision allows taxpayers to deduct cash donations of up to $300 made before December 31, 2020.
Designed especially for people who choose to take the standard deduction, rather than itemize. In tax-year 2018, the most recent year for which complete figures are available, more than 134 million taxpayers claimed the standard deduction, just over 87 percent of all filers.
Under this new change, individual taxpayers can claim an “above-the-line” deduction of up to $300 for cash donations made to charity during 2020. This means the deduction lowers both adjusted gross income and taxable income – translating into tax savings for those making donations to qualifying tax-exempt organizations.
Before making a donation, however, taxpayers should use the special Tax Exempt Organization Search (TEOS) tool on IRS.gov to make sure the organization is eligible for tax-deductible donations.
Cash donations include those made by check, credit card, or debit card. They don’t include securities, household items, or other property. Though cash contributions to most charitable organizations qualify, those made to supporting organizations and donor-advised funds do not.
Be sure to keep good records. By law, special recordkeeping rules apply to any taxpayer claiming a charitable contribution deduction. Usually, this includes obtaining a receipt or acknowledgment letter from the charity, before filing a return, and retaining a canceled check or credit card receipt.
The CARES Act also includes other temporary provisions designed to help charities. These include higher charitable contribution limits for corporations, individuals who itemize their deductions, and businesses that give food inventory to food banks and other eligible charities.
For more information about these and other Coronavirus-related tax relief provisions, don’t hesitate to call the office and speak to a tax professional who can assist you.
