2021 Tax Organizer Self Preparation

Our tax organizer can be helpful as a checklist and reminder of items we will need to prepare your tax return.

Tax Rates and Brackets

For 2018-2025, the Tax Cuts and Jobs Act (TCJA) changes the federal income tax rates and brackets for individual taxpayers and trusts and estates.  For 2018 through 2025, the TCJA retains seven tax rate brackets for ordinary income.  Five of the rates are lower than before. In 2026, the rates and brackets that were in place for 2017 are scheduled to return (subject to inflation adjustments for the brackets).

Tax-Saving Advantages. QCDs have at least four potential tax-saving advantages.

1. QCDs are not included in your adjusted gross income (AGI). This lowers the odds that you will be affected by various unfavorable AG I-based rules-such as those that can cause more of your Social Security benefits to be taxed, less of your rental estate losses to be deductible, and more of your investment income to be hit with the 3.8% NIIT. QCDs are also exempt from the rule that says your itemized charitable write-offs cannot exceed 60% of your AGI for 2018-2015.
2. A QCD from a traditional IRA counts as a distribution for purposes of the required minimum distribution (RMD) rules. Therefore, you can arrange to donate all or part of your annual RMD amount (up to the $100,000 limit) that you would otherwise be forced to receive during the year and pay taxes on.

Key Point: In response to the COVID-19 crisis, the RMD rules were suspended for 2020. In other words, you need not take any RMDs that should otherwise have been taken during calendar year 2020.

3. Say you own one or more traditional IRAs to which you have made nondeductible contributions over the years. Your IRA balances consist partly of a taxable layer (from deductible contributions and account earnings) and partly of a nontaxable layer (from those nondeductible contributions). Any QCDs are treated as coming first from the taxable layer. Any nontaxable amounts are left behind in your IRA(s). Later on, those nontaxable amounts can be withdrawn tax-free by you or your heirs.
4. QCDs reduce your taxable estate, although that is much less of an issue for most folks right now since the TCJA drastically increased the federal estate tax exemption for 2018-2025. The exemption for 2020 is a whopping $11.58 million, or effectively $23.16 million if you are married.

A Good QCD Candidate Clients who can afford to donate IRA money can benefit tax-wise if they match one or more of the following profiles.

1. The increased standard deduction for 2018-2025 limits the tax benefit of making itemized charitable donations. See Example 1 see in the next screen.
2. The client wants to avoid being taxed on the required minimum distribution amount that must take from his or her IRA(s).
3. The client is “rich” and is looking for a quick and easy estate tax reduction strategy.

IRS website for more information.

Interested in learning about the Tax Cuts and Jobs Act? Click here.