CPA Services Blog

How to Prepare for Potential Tax Increases in 2021


The economic turmoil of 2020 has many worried about their savings. COVID-19 has lead to the second-highest unemployment rate in American history, with about one in five people collecting unemployment benefits. State governments are reportedly experiencing extreme budget problems, and the US GDP was down 32.9%, the largest quarterly drop since the Great Depression. 

Many of these economic indicators are causing wealthy families to think carefully about how to protect their wealth. COVID-19 may cause the government to raise taxes to try to cover unemployment programs as well as the expenses that states are facing in the battle to contain the pandemic. The president has not yet revealed a tax plan for meeting rising government spending, but his opponent, Joe Biden, has released his strategy. Here’s what wealthy families need to know to protect their income and savings from higher taxes. 

Biden’s Proposed Tax Policy

It’s impossible to know the outcome of November’s election, but Joe Biden has already released some details as to his proposed tax policy. The policy, which was formed by a task force coordinated with Bernie Sanders, is 110 pages long. Perhaps the biggest change Biden has proposed is to raise the top individual tax rate from 37% to 39.6%. Americans who earn more than $1 million would also experience a rise in long-term capital gains tax, to 39.6%, from 20%.

Biden’s policy proposes the following actions: Raise the highest tax rate on high-income taxpayers from 37% to 39.6% 

  • • Tax long-term capital gains and qualified dividends as income for taxpayers making over $1 million (at a rate of 39.6%). 
  • • “Step up in basis,” a tax break that allows beneficiaries who inherit assets to sell off those assets and pay little to no taxes, would be repealed. 
  • • Begin phasing out the Sec 199A pass-through deduction for households with taxable income in excess of $400,000. 
  • • Bring back the Pease Limit on itemized deductions. Note that in 2017, the final year in which the Pease Limit was applicable, the phase-out threshold was $261,500 for single filers and $313,800 for married taxpayers filing jointly. 
  • • The benefit for itemized deductions would be limited to 28%. 
  • • Bring back the 12.4% Social Security payroll tax once earnings reach $400,000. (Note that in 2020, this tax only applies to the first $137,700 of compensation. Employees and a company split the tax 50/50; self-employed individuals also pay into the program. Biden’s plan, if it were active this year, would apply the payroll tax to the first $137,700 of earnings and resume when a worker’s earnings reach $400,000, creating a gap between $137,700 and $400,000 in which this tax wouldn’t apply.)

“A guiding principle across our tax agenda is that the wealthiest Americans can shoulder more of the tax burden, including in particular by making investors pay the same tax rates as workers and bringing an end to expensive and unproductive tax loopholes,” said the text of the plan

These changes have many Americans thinking ahead – and looking for ways to start saving on taxes now. 

How to Prepare for Tax Increases

Remember: the presidential election is just one piece of the puzzle. Democrats would also have to control the House and the Senate to push these reforms through. 

President Trump in a press briefing on August 10 proposed cutting the capital gains tax; his tax policies in the past have shown interest in protecting the wealthy. However, the IMF is recommending governments worldwide consider a “solidarity surcharge,” increasing taxes on “income, property and wealth” to protect the global economy. There may be higher taxes hitting wealthy families regardless of who wins the November election.

If you’re earning an income that places you in the crosshairs of this tax reform, there are some ways you can start to prepare ahead of time. 

  1. 1. Take advantage of lower capital gains taxes in 2020 and sell appreciated stocks you have held for more than one year. If you wish to maintain a position in this stock, repurchase the equity immediately – wash sale rules don’t apply to gains.
  2. 2. Close any sale of real estate or rental property in 2020 to avoid the top capital gains rate tax rising to an ordinary income rate of 39.6%.
  3. 3. The self-employed and private business owners should look for ways to charge more income in 2020 and shift expenses to 2021 to avoid higher income tax rates in 2021. 
  4. 4. Are you newly working from home? Some wealthy taxpayers are taking advantage of their new location independence to move to states with no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Others are relocating to a state with lower taxes. 

Also to note: historically, Democrats have proposed dropping the lifetime state tax exclusion from $11.58 million (or, for married couples, $23.16 million) to $3 million. If you’re worried about your estate taxes, gift money to family members and other beneficiaries to utilize the current lifetime exemption and avoid paying an estate tax of 40%. 

It’s also important to know that if you choose to change your tax residency, the process could take more than a year. Speak to your accountant before making that decision, as the formal process of changing your permanent residence isn’t as simple as buying a home elsewhere. 

Every financial situation is different. If you’re not sure whether or not to sell off an asset, or if you’re looking for more ideas to improve your tax situation, speak to an expert at who can help you understand what actions you can take in 2020 to avoid a bigger tax burden in the future. 

How to Maximize Your Social Security Retirement Benefits

As you get closer to retirement, you may start to think about collecting social security. According to the Social Security Administration, 68 million US citizens collected Social Security benefits in June 2019. Many people, however, plan to keep working at least part-time after they can begin collecting Social Security benefits. This can impact your taxes significantly – here’s what you need to know about the financial consequences of working during retirement. Continue reading

How To Plan for Retirement Financially

For many Americans, retirement feels like a far-off and distant dream. The most common age to retire in the US is 62 years old, which is also the minimum age to collect Social Security.

However, as demographics change in the US, Social Security will become less and less of a dependable, viable source of full income for future generations of retirees. It is of paramount importance that young people begin to plan and save for retirement sooner, rather than later.

There are several ways to predict and budget for the money you will need in retirement. Here’s how to estimate how much you need to save to live comfortably in your later years.

How much money do you need to live on after you retire?

The first step is establishing what your general living costs are and trying to adjust how much you will need to live on in retirement. The overall goal is to get a clear picture of how much you need, and then finding the sources of retirement income to match that result. Continue reading

What You Need to Know About the 529 College Savings Plan

There are many misconceptions about the 529 college savings plan. This tax-advantaged savings plan is a great option for saving for college expenses; yet more than 70% of Americans are unfamiliar with the advantages it presents.

College costs – as well as student loans – are on the rise. The average in-state college tuition, room, and board bills at $20,770, while private college costs are nearly $188,000. It can take years to pay off student debt or college loans. Parents (or grandparents) who own a 529 plan are making a smart investment in their student’s future.

To clarify some of the confusion around the 529 plan, read our guide on who should own the 529 plan, the tax benefits and types of plans available, as well as how to set one up.

The 529 Plan: Background

The 529 plan is an education savings plan that is sponsored by a state or a state agency. It’s named after Section 529 of the Internal Revenue Code (IRC) which authorizes tax-free status for “qualified tuition programs.” The section was added after Michigan established the first prepaid tuition plan, the Michigan Education Trust, in 1986. Continue reading

Get Your Tax Refund Quicker

Income tax-filing season started on January 28 and the tentative government shutdown and reopen has tax returns on everyone’s mind, especially when the IRS is one of the agencies that is unfunded while our government is closed. Despite the uncertainty of a future shutdown, the IRS will still pay tax refunds, according to the White House.

Many American families rely on getting money back in their annual tax refund. The average refund was more than $2,890, according to the IRS. And, by some estimates, more than 70% of Americans expect to get money back.

Following these tips will help you to get your tax refund quicker.

Get your tax return filed ASAP

The faster you get your taxes filed, the sooner you’ll see your return. Filing as soon as the window opens lowers the risk of refund theft. Tax refund theft has been on the rise in recent years. A fraudster steals personal information and then uses it to file a fake tax return, taking the refund amount for themselves. Then, when the real taxpayer goes to file their return, they’ll get an error message saying they’ve already filed. It could take months for the IRS to verify your identity, sort out the fraud, and get you your actual tax refund. It’s better to file early and avoid the risk altogether.

File your taxes electronically

Paper tax returns are time consuming for the IRS to process. An employee at the agency has to manually input and process your records. The IRS estimates that it takes roughly two weeks to process an e-filed return – versus six weeks to process a paper tax return. Continue reading

New Updates for 2019 Taxes – Part 2

In part 1, we covered changes to taxable income brackets and tax rates for individuals and married filing jointly. In part 2, we will cover deductions and other updates.

Changes to Standard Deduction Amounts

A standard deduction is the dollar amount that reduces the amount of income on which you are taxed and varies according to your filing status. At the beginning of 2018, the new tax plan brought higher standard deductions with the intention of helping families keep more of what they earn. Higher standard deductions often benefit middle-income families who see their income subject to lower tax rates.

This coming tax year, new standard deduction amounts will increase to: $12,200 for individuals, $18,350 for heads of household, and $24,400 for married couples filing jointly and surviving spouses.

There are also a few specific standard deduction changes you need to know for 2019:

  • Additional standard deduction amount for the aged or the blind: $1,300 (increases to $1,650 for unmarried taxpayers).
  • The standard deduction for an individual claimed as a dependent by another taxpayer cannot exceed $1,100 OR the sum of $350+ the individual’s earned income, whichever is greater.
  • There will be no personal exemption amount for 2019 per the Tax Cuts and Jobs Act.
  • Alternative minimum tax (AMT) exemption amounts will be adjusted for inflation. The AMT exemption is a mandatory alternative to the standard income tax for taxpayers who make more than the exemption.

Continue reading

New Updates for 2019 Taxes – Part 1

As 2018 winds down, it’s time to look ahead to the new year and the changes coming to your 2019 federal tax rates. The IRS recently announced changes to more than 60 tax provisions, including tax rate schedules, cost-of-living adjustments, and more. Many of the changes announced for 2019 align with the Tax Cuts and Jobs Act passed in 2017. These new policy regulations take effect starting January 1, 2019 – meaning they’ll impact the tax return you prepare for April 2020. Nevertheless, plan ahead and avoid surprises when tracking your finances.

Here are the key changes the IRS is making to your taxes in 2019.

New 2019 Taxable Income Brackets and Tax Rates

Just as in 2018, there are seven tax rates the IRS has bracketed out for 2019. These tax rates are set at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The taxable income ranges have changed slightly from 2018. Here’s how these rates break out by filing status:


In comparison to 2018, the income brackets have shifted upward slightly. For example, in 2018, incomes of 0 – $19,050 were taxed at 10%; now, the IRS includes incomes up to $19,400. Continue reading

Tax Law Update: What’s New in Tax Reform

What’s New in Tax Reform?

In our previous look at how the new tax plan will affect your income taxes in 2018, we examined the Senate and House plans. The tax reform bill has undergone reconciliation and has now passed. Here’s what you can look forward to in the new package, broken down for single and joint filers. Continue reading

How Will the New Tax Plan Affect You?

Not long ago, we wrote an overview of tax reforms, and legislation is now underway in Congress to implement some of these streamlined tax proposals. In just six months, plans have already shifted. The passage of a new tax reform law would usher in even more sweeping changes for corporate and personal finances.

Earlier this month, the House of Representatives voted to pass a version of the Tax Cuts and Jobs Act. Later the same day, the Senate Finance Committee unveiled and passed its own version. Although the final product has yet to be written by the reconciliation committee, now is the time to prepare for tax reform. During times of great economic change, the stability a skilled accountant offers can help you with smart tax planning, allowing you to control more of your own wealth and adjust to financial shifts.

Here’s what each bill looks like in its current state, the portions of it that are likely to be included in the final version, and how it could affect your financial goals. Continue reading

5 Accounting Mistakes You May Be Making

Some of the earliest writing archaeologists have discovered relates to accounting. Clearly, the concept of tracking goods and services exchanged has been with us for some time. That doesn’t stop businesses from repeating mistakes that could cost them – mistakes you could be making too. The good news is that seeing these pitfalls helps you avoid them, so here’s what you need to know about accounting for your organization whether you’re looking for a CPA firm to handle all your needs or just take care of routine bookkeeping.

 Relying on the Wrong Credentials

Accounting is a more varied field than some business owners realize, and not every accountant is qualified to take on every task. A bookkeeper or tax preparer may not be an accountant at all, yet for business owners seeking financial services, the distinction isn’t always clear. A CPA goes through years of education, rigorous testing, and ongoing coursework to maintain the title. They also have experience with handling an organization’s most sensitive data, including personnel files and financial information.

Accountants certified in multiple states are important assets for businesses that have additional branches. Your New York accountant who’s also a CPA in Florida, for example, can manage your financial records seamlessly. There may also be times you need specific accounting services such as forensic accounting or audits, and a CPA firm with a broader range of experience can provide them.

 Not Knowing What You Need

You may want someone who can handle daily and routine tasks such as preparing accounts payable, accounts receivable, and payroll. You might need a full-service accountant who also creates budgets and builds financial statements. You could be preparing for a sale or acquisition, a process that requires sharp accounting skills. For many businesses, not knowing what they want from their accountant becomes a stumbling block.

No matter what degree of service you need now, keep future growth in mind. Make a list of what you need now and what you may need soon. Consider the size and frequency of your financial transactions when deciding how much you need from your accountant too.

Working with a CPA Firm That Doesn’t Fit You

Accounting is about more than crunching numbers. You also need to feel comfortable with your CPA. The accountants you hire must understand your business thoroughly and be able to communicate their information to you in clear, concise terms. Look for a firm that stays in close contact with you and is readily accessible when you reach out to it. Your finances deserve individual attention, so pay attention if you feel you’re being overlooked or treated as part of a crowd.

Establishing a personal rapport also matters.

Your CPA will see every detail of your company’s finances, and financial records are often closely tied to other sensitive information. A trustworthy accountant is a must for any business.

 Lacking Financial Analysis

All the knowledge in your accountant’s head doesn’t do your firm much good if it isn’t available to you. Your CPA service should provide you with regular reviews of your organization’s financial health. A dashboard or daily report that lets you take the pulse of your company’s finances every day is essential to making informed business decisions. Look for a firm that gives you quality analytics, with figures broken down into comprehensive categories so you can watch growth as it happens and spot problems before they affect your bottom line.

Going It Alone

For start-ups and small businesses, handing the books to someone who took a few accounting courses in college is common practice, but it can backfire. Accountants have more than their education to support their skill; they also have experience. An in-house bookkeeper may handle corporate taxes once a quarter, but an accountant at a third-party firm deals with tax preparation every day. Accounting is important enough to entrust to professionals.