The massive Consolidated Appropriations Act 2021, signed into law last December, had many benefits that you may have missed…
Medical expense deductions. Since 2017, taxpayers who chose to itemize deductions on their income taxes could deduct qualified medical expenses that exceeded 7.5% of their adjusted gross income (AGI). For 2021 and beyond, that percentage was set to increase to 10%. But the new law establishes the threshold at 7.5% indefinitely. What to do: If you are near the threshold in 2021 and plan to itemize, consider moving up elective procedures instead of waiting so that you can meet the threshold.
Charitable contribution deductions for those taking the standard deduction. Last year, in an effort to stimulate philanthropy during the pandemic, individuals who opted for the standard deduction still were allowed to claim a federal income tax write-off for up to $300 in cash contributions to IRS-approved charities. The same $300 limit applied to married couples filing jointly. That tax break has been extended through the end of 2021, plus the deduction limit for married couples filing jointly this year has been raised to $600. Important: Stocks or other noncash assets are not eligible.
Higher charitable-tax-deduction limits for generous donors. The 2020 CARES Act allowed individuals who itemized deductions to deduct cash contributions to charities up to 100% of their AGIs. The new law extends this deduction through 2021, after which the threshold reverts back to 60% of your AGI. What to do: Check with your accountant to make sure the amount that you choose to donate this year makes sense in maximizing your deductions.
Tax- and penalty-free distributions from your retirement accounts. Last year’s CARES Act allowed individuals experiencing coronavirus-related job loss or illness to take a total of up to $100,000 in early distributions from IRAs and traditional 401(k) accounts, plus avoid the 10% penalty for those under age 59½. For income tax purposes, you were allowed to spread the distribution over three years…or return any or all distributions back to your retirement accounts within that period and file amended returns to recoup any taxes paid. Update: In response to recent wildfires and hurricanes, Congress now applies these same provisions to anyone who lives in a federally declared disaster area or has suffered sustained economic loss due to a disaster declared between January 1, 2020, and February 25, 2021.