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Postponing Income and Accelerating Deductions
Usually, it makes sense for you to defer income into later years and to
accelerate deductions into the current year. This strategy can help you
lower taxes this year and can also help you avoid crossing the threshold
at which you are subject to the net investment income tax or subject
to losing all or part of certain deductions, such as the dependency
exemption.
For example, if you have money to donate but do not know which charity
you want to contribute to you can consider donating money to a donoradvised
fund. You can then take the deduction in the current year
while deciding which charities to parcel the donation out to over the
next couple of years.
Here are other various strategies that can help postpone income or
accelerate deductions in 2021:
Minimize tax on Social Security benefits
When you modified AGI (MAGI) plus 50% of your Social Security benefits
exceeds certain base amounts, the benefits can be taxable. The MAGI
thresholds are $25,000 for single individuals, $32,000 for married taxpayers
filing a joint return, and zero for married individuals filing separately. If your
income is close to these thresholds, you should consider deferring income
to avoid taxes on the Social Security benefits.
Defer a bonus
If your employer will cooperate, consider asking the employer to put off
paying any 2021 bonus until early in 2022.
Prepay certain expenses using a credit card
Contributions to charity and deductible medical expenses are deductible when
charged to your credit card rather than when you pay the credit card bill.
Dispose of passive activities to take advantage of
suspended passive losses
Losses from a passive activity that cannot be realized
in a particular tax year because of the passive loss
limitations are suspended and carried forward until they can be used. If
you are carrying suspended passive losses, you might want to dispose of
the passive activity before the end of the year to take advantage of those
suspended losses. When the passive activity is disposed of, the losses from
the year of disposition, including carried-over losses than exceed passive
income for the year, are no longer treated as passive losses.
Make Sec. 179 and bonus depreciation expenditures
You can currently elect to deduct the costs of certain tangible property used
in the client’s business rather than depreciate the costs over a period of
years. Under Sec. 179, for property placed in service in 2021, the maximum
amount that can be expensed is $1,050,000, and the deduction is phased
out when qualifying property placed in service during the year exceeds
$2,620,000. Under Sec. 168(k) (bonus depreciation), 100% of the cost of
eligible property placed in service in 2021 can be deducted. (This percentage
will decrease to 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.)
Realize stock losses to offset gains
If you own appreciated investments but have realized capital losses in 2020
you should consider selling the appreciated investments. You need to be
aware that long-term capital losses first offset long-term capital gains and
that short-term capital losses first offset short-term capital gains.
Karen Jou, CPA- Owner of HR Block offices located at 41-18 Crescent st and
47-46 Vernon Blvd., LIC. If you have any questions or require additional
information, please call Karen at 718-707-0295.
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