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President Biden signed the American Rescue Plan Act today, March 11th, 2021.

Among the act’s many provisions there are several tax related items to pass along.

Here is a look at the key tax provisions that may affect you:

Unemployment benefits

The act makes the first $10,200 in unemployment benefits tax-free in 2020 for taxpayers making less than $150,000 per year.

Recovery rebates

The act creates a new round of economic impact payments to be sent to qualifying individuals. These are similar to the prior ones as they are set up as advance payments of a recovery rebate credit. The act provides individuals with a $1,400 recovery rebate credit ($2,800 for married taxpayers filing jointly) plus $1,400 for each dependent for 2021, including college students and qualifying relatives who are claimed as dependents. As with last year’s economic impact payments, the IRS will send out the advance payments of the credit.

For single taxpayers, the credit and corresponding payment will begin to phase out at an adjusted gross income (AGI) of $75,000, and the credit will be completely phased out for single taxpayers with an AGI over $80,000. For married taxpayers who file jointly, the phaseout will begin at an AGI of $150,000 and end at AGI of $160,000. And for heads of household, the phaseout will begin at an AGI of $112,500 and be complete at AGI of $120,000.

The act uses 2019 AGI to determine eligibility, unless the taxpayer has already filed a 2020 return. 

Child tax credit

The act expands the child tax credit in several ways and provides that taxpayers can receive the credit in advance of filing a return. The act makes the credit fully refundable for 2021 and makes 17-year-olds eligible as qualifying children.

The act increases the amount of the credit to $3,000 per child ($3,600 for children under 6). The increased credit amount phases out for taxpayers with incomes over $150,000 for married taxpayers filing jointly, $112,500 for heads of household, and $75,000 for others, reducing the expanded portion of the credit by $50 for each $1,000 of income over those limits.

The IRS is directed to estimate taxpayers’ child tax credit amounts and pay monthly in advance one-twelfth of the annual estimated amount. Payments will run from July through December 2021.

The IRS must set up an online portal to allow taxpayers to opt out of advance payments or provide information that would be relevant to modifying the amount.

The taxpayer in general will have to reconcile the advance payment amount with the actual credit amount on next year’s return and increase taxable income by the excess of the advance payment amount over the actual credit allowed. But taxpayers whose modified AGI for the tax year does not exceed 200% of the applicable income threshold ($60,000 for married taxpayers filing jointly) will have the increase for an excess advance payment reduced by a safe harbor amount of $2,000 per child.

Earned income tax credit

The act also makes several changes to the earned income tax credit. It introduces special rules for individuals with no children: For 2021, the applicable minimum age is decreased to 19, except for students (24) and qualified former foster youth or homeless youth (18). The maximum age is eliminated.

The threshold for disqualifying investment income would be raised from $2,200 to $10,000.

Temporarily, taxpayers would be allowed to use their 2019 income instead of 2021 income in figuring the credit amount.

Child and dependent care credit

The act makes various changes to the child and dependent care credit, effective for 2021 only, including making it refundable. The credit will be worth 50% of eligible expenses, up to a limit based on income, making the credit worth up to $4,000 for one qualifying individual and up to $8,000 for two or more. Credit reduction will start at household income levels over $125,000. For households with income over $400,000, the credit can be reduced below 20%.

The act also increases the exclusion for employer-provided dependent care assistance to $10,500 for 2021.

Family and sick leave credits

The credits are extended to Sept. 30, 2021. These fully refundable credits against payroll taxes compensate employers and self-employed people for coronavirus-related paid sick leave and family and medical leave.

The act increases the limit on the credit for paid family leave to $12,000.

The number of days a self-employed individual can take into account in calculating the qualified family leave equivalent amount for self-employed individuals increases from 50 to 60.

The paid leave credits will be allowed for leave that is due to a COVID-19 vaccination.

The limitation on the overall number of days taken into account for paid sick leave will reset after March 31, 2021.

Employee retention credit

The act extends this credit through the end of 2021. The employee retention credit was originally enacted in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and it allows eligible employers to claim a credit for paying qualified wages to employees.

Under the act, the employee retention credit would be allowed against the Sec. 3111(b) Medicare tax.  We will be readdressing this credit with employers later this spring. 

Premium tax credit

The act expands the premium tax credit for 2021 and 2022 by changing the applicable percentage amounts.  Taxpayers who received too much in advance premium tax credits in 2020 will not have to repay the excess amount. A special rule is added that treats a taxpayer who has received, or has been approved to receive, unemployment compensation for any week beginning during 2021 as an applicable taxpayer.  We will need to watch for further information related to this.

Student loans

The act amends Sec. 108(f) to specify that gross income does not include any amount that would otherwise be included in income due to the discharge of any student loan after Dec. 31, 2020, and before Jan. 1, 2026.

SBA/EIDL Grants

The act provides that targeted Economic Injury Disaster Loan (EIDL) grants received from the U.S. Small Business Administration (SBA) are not included in gross income and that this exclusion from gross income will not result in a denial of a deduction, reduction of tax attributes, or denial of basis increase. Similar treatment is afforded SBA restaurant revitalization grants.

As you can see, there are many changes to the tax rules of which not only affect the future but some retroactive to the year of 2020. We will monitor these developments as they are released. Don’t worry if you have already filed your 2020 tax return, they can be amended to take advantage of any changes that are applicable to you. There will be many changes from Congress and we will maintain a constant eye on them for you. Don’t hesitate to call if questions, but in the meantime we will analyze this new tax act and see how it applies to you.

You’ve probably heard that the recent stimulus legislation included a provision that removes the 50% limit on deducting business meals provided by restaurants in 2021 and 2022 and makes those meals fully deductible. Here are the details.

In general, the ordinary and necessary food and beverage expenses of operating your business are deductible. However, the deduction is limited to 50% of the otherwise allowable expense.

The new legislation adds an exception to the 50% limit for expenses for food or beverages provided by a restaurant. This rule applies to expenses paid or incurred in calendar years 2021 and 2022.

The use of the word “by” (rather than “in”) a restaurant makes it clear that the new rule isn’t limited to meals eaten on the restaurant’s premises. Takeout and delivery meals provided by a restaurant are also fully deductible.

It’s important to note that, other than lifting the 50% limit for restaurant meals, the legislation doesn’t change the rules for deducting business meals. All the other existing requirements continue to apply. Thus, to be deductible:

• The food and beverages can’t be lavish or extravagant under the circumstances.
• You or one of your employees must be present when the food or beverages are served.
• The food or beverages must be provided to you or to a “business associate.” This is defined as a current or prospective customer, client, supplier, employee, agent, partner, or professional adviser with whom you could reasonably expect to engage or deal in your business.

If food or beverages are provided at an entertainment activity, either they must be purchased separately from the entertainment or their cost must be stated on a separate bill, invoice, or receipt. This is required because the entertainment, unlike the food and beverages, is nondeductible.

© 2021 Thomson Reuters/Tax & Accounting. All Rights Reserved.

McMill CPAs & Advisors is pleased to announce that Clint Weeder has been recognized as a 2020 “40 Under Forty” honoree by the National Association of Certified Valuators and Analysts (NACVA). The 40 Under Forty program recognizes emerging leaders for their past accomplishments and their contributions yet to come.

Clint is a shareholder at McMill CPAs & Advisors, as well as the firm’s leading business valuator. Clint is a Certified Public Accountant (CPA) and a Certified Valuation Analyst (CVA). Even though Clint has made the annual “40 Under Forty” list, he already possesses over 13 years of experience specializing in investment advisory services, tax planning, tax compliance, and consulting for individuals and businesses.

In addition to his extensive experience, clients are consistently impressed by his personable character and willingness to go above and beyond. With a passion for educating and helping his clients be successful, Clint provides efficient, accurate, trustworthy and expert advice which his clients have come to expect.

Professional affiliations include memberships to the American Institute of CPAs (AICPA) and the Nebraska Society of CPAs, Clint is also a member of National Association of Certified Valuators and Analysts (NACVA). Outside of the firm, he pursues community enrichment through his membership in the Knights of Columbus and is currently serving as confirmation instructor in his local parish. He also enjoys taking in all the school and sporting events of his three kids.

“We are very proud of Clint and his accomplishments. This recognition is a tribute to his outstanding client service and commitment to the industry,” said Jared Faltys, partner at McMill CPAs & Advisors. “It is an honor to work with someone like Clint, who is dedicated to his family, community and clients.”

David Booth, Dimensional Executive Chairman and Founder, on Value and Values.

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Hope is greater than fear. Join bestselling authors Dave Ramsey, Rachel Cruze and Ken Coleman as they give super practical, super clear advice on what you need to do with your money and career right now.

A Message of Hope Series (Video)

Business owners typically have little time for planning. However, making that time during this New Year — and new decade — can help most businesses become more competitive now and in the future.

PLAN YOUR SUCCESSION

Whether you plan to eventually sell your business to strangers or pass it down to the next generation, succession planning can help you get there. Consider working with a business valuation expert, who can give you tips about how to increase your company’s value over time. Then put together a business succession plan. If your kids will take over, start preparing them now by gradually giving them more responsibility.

JOIN YOUR COMPETITION

How can you improve your standing among competitors? Borrowing from those who do certain things better can help. You might explore, for example, how to top competitor uses marketing and social media to highlight its business. Joining a professional or business organization can also yield helpful tips. Members typically enjoy sharing what works with fellow members.

GET HELP

If you want to squeeze more profit from your business, a tax professional might help. Or if you want to learn new ways to attract and retain top talent, a benefits consultant may help by showing you how a small increase in total compensation can increase productivity and loyalty.

You may have missed the news – buried in a much bigger spending bill, and passed in the thick of the holiday season. But after months of nearly bringing it to the finish line, it’s now official: On Friday, December 20, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law.

The SECURE Act provides a mixed bag of incentives and obligations for retirement savers and service providers alike. Its intent is to make it easier for families to save more for retirement.

That said, “easier” doesn’t necessarily mean less complicated. As your fiduciary financial advisor, we’re glad we’re here for you! To jump-start the conversation, here is an overview of the most significant changes we’ve got our eye on, as the SECURE Act starts rolling out in 2020.

As you might expect, all the points below come with detailed exceptions and disclaimers that may influence how they apply to you. Before proceeding, please consult with us.

Tax-Favorable Retirement Saving
Compared to previous generations, more Americans are living longer, remaining employed into their 70s, and shouldering more of the duty to fund their own retirement. As such, the SECURE Act includes several incentives to start saving sooner, and keep saving longer.

Initial RMD Increases To Age 72
Until now, you had to start taking Required Minimum Distribution (RMDs) out of your traditional IRA at age 70 ½. RMDs are then taxed at ordinary income rates. Now, you don’t need to begin taking RMDs until age 72. Rules for qualified charitable distributions (QCDs) and Roth IRA withdrawals remain unchanged. 

IRA Contributions For As Long As You’re Employed
If you work past age 70 ½, you can now continue to contribute to either a Roth or a traditional IRA. Before, you could only contribute to a Roth IRA after age 70 ½.

Expanded Participation For Long-Term, Part-Time Employees
Even if you’re a part-time employee, you may now be able to participate in your employer’s 401(k) plan.

Expanded Opportunities For Graduate And Post-Doc Students
If you are earning stipends and similar forms of income, you may now be able to count them as compensation for purposes of contributing to a traditional IRA.

Expanded 529 Plan Possibilities

Making it easier to pay off student debt is also expected to benefit your retirement saving efforts.

Student Loans
You and your children can now use 529 college savings plan distributions to pay off up to $10,000 in student loans – per plan beneficiary and their siblings. For example, if you have one 529 plan account but two children, you can use that account to repay up to $10,000 of each child’s student loans ($20,000 total) out of the single account. Again, check the fine print; there are some procedural details and tax ramifications to be aware of.

Apprenticeships
You can now use 529 plan distributions for expenses related to a qualified apprenticeship program.

Retirement Plan Restructuring

Even if you are not a business owner, it’s worth being aware that employers in general – and small businesses in particular – are being recruited to help employees save for retirement.

Higher Auto-Enroll Percentages
If your employer auto-enrolls you in their retirement plan, you are free to opt out. But most of us don’t bother. This usually works in your financial favor, compared to expecting you to sign up and increase contributions on your own.

The SECURE Act now allows employers to continue to auto-enroll you in their plan, and automatically increase your contributions to up to 15% of your pay after the first year (versus a prior 10% cap). Again, you can proactively remove or change your contributions to whatever you’d like, but we often recommend contributing the maximum allowed.

More MEPs
Until now, only businesses who shared a common interest were allowed to establish a multiple-employer plan (MEP). As described in a Kiplinger report, “Starting in 2021, the new law allows completely unrelated employers to participate in a [MEP] and have a ‘pooled plan provider’ administer it.” This means small businesses should now have more ways to offer more cost-effective retirement plans, with the savings passed on to employees who participate in the plan.

Additional Small Business Incentives
The SECURE Act provides a few other tax breaks and credits to help small businesses open and operate employer-sponsored retirement plans for their employees.

An Estate Planning Limitation: Stretch IRAs Mostly Go Away

So far, we’ve been covering the “carrots” meant to encourage retirement saving. There’s also an important “stick.” It’s presumably to offset the expected reduction in federal income tax collections, due to increasing the RMD age to 72. The SECURE Act eliminates the use of stretch IRAs for most beneficiaries, which could impact your current or future estate planning.

To be clear, a stretch IRA is not a formal account type. It’s a practice, that enabled you to bequeath your IRA assets to your heirs, who could then keep the inherited account intact and tax-sheltered, essentially throughout their lifetime. With some exceptions, heirs will now be required to move assets out of inherited IRA accounts within a decade after receiving them, thus having to pay taxes on the proceeds much earlier than under the old law.

Investment Management: An Annuity in Your Retirement Plan?

A number of articles in the SECURE Act are aimed at helping you not only save for retirement, but feel more confident you won’t run out of money once you get there. As such, the Act is making it easier for employers to add lifetime income annuities to their plans as a distribution option for employee participants.

The SECURE Act also has established new reporting requirements for your employer. The new report is meant to make it easier for you to envision how much of a lifetime income stream you can expect, if you decide to annuitize your accumulated retirement plan assets. This reporting requirement does not take effect until a year after the Department of Labor has established a set of rules for your employer to follow when creating your report … which could take a while.

Bottom line, we applaud the overall idea of creating a secure retirement, but there are many ways to go about achieving it. If you are considering annuitizing some of your retirement assets today or in the future, we hope you’ll be in touch so we can explore the possibilities with you in the context of your own circumstances.

Debt Management

There are quite a few other components to the SECURE Act. Some of them are aimed at managing access to your retirement savings for pre-retirement spending needs. For example, the SECURE Act now allows parents to withdraw up to $5,000 from their IRA without penalty (but with potential income taxes) for birth or adoption events. It also now prohibits plan providers from allowing participants to take out 401(k) plan loans using credit cards.

As you might expect, we prefer ensuring your financial plan budgets for upcoming spending needs without having to tap into your retirement reserves. If it might not, let’s get together soon and plan accordingly.

Planning for Your Secure Retirement

What can we expect moving forward? Not every component in the SECURE Act is effective immediately. Some may continue to come into sharper focus over time. We may recommend some changes to your financial planning in the near future, while other steps may be required or desired over time. This is to be expected given the number of reforms enacted in this sweeping bill. Come what may, we look forward to being by your side throughout.

As we embark into 2020 together, we will be connecting with you to ensure that your retirement planning complies with and takes optimal advantage of the SECURE Act of 2019.

Many people make resolutions to coincide with the advent of the New Year, including becoming more financially secure. If you want to improve your financial outlook, now is a good time to take steps to achieve this goal.

TAP THE EXPERTS
You go to a doctor for medical care and a mechanic to fix your vehicle. Why not work with a career consultant to learn how to advance in your career and earn more money? Or work with a personal trainer or nutrition expert to improve your health, which can ultimately lower your healthcare costs.

PREPARE FOR TOMORROW
Time flies — just ask any Baby Boomer who didn’t save enough for retirement. A renewed effort to put more money away might help you save more quickly for a new home or a child’s college costs, while markedly improving your retirement readiness.

SAVE MORE TODAY
Where will you find all that money for tomorrow? Learn to budget and stick to it. Skip an occasional lunch or expensive latte. Consider trimming your smartphone and cable television services for more savings.

McMill Wealth Investment Philosophy