With only a limited number of weeks left in the year, it is time to focus on year-end tax planning to minimize taxes for 2020 and get ready for 2021. Numerous tax law changes from recent legislation, including the SECURE Act and the CARES Act, may influence last-minute actions. There are many tax planning opportunities that can be implemented now that will make a favorable impact on income tax returns for this year.

Overview

As a general rule, year-end planning is a multi-year exercise, taking into account current tax rules, rules for next year, and the taxpayer’s income and expenses now and anticipated for the future. Due to a very modest increase in the Chained Consumer Price Index for Urban Consumers (C-CPI-U), cost-of-living adjustments (COLAs) to dozens of tax rules for 2021 are modest or nonexistent (Rev. Proc. 2020-45). There are small increases in tax brackets, standard deduction amounts, and the alternative minimum tax exemption for individuals. There are higher limits for the qualified business income deduction, the small employer health insurance credit, and the excess business loss limit (which had been suspended for 2020 but takes effect in 2021 unless Congress extends the suspension). There are also some increases for contributions, benefits, and other amounts for qualified retirement plans and IRAs for 2021 (Notice 2020-79).