2021 Tax
Planning Guide

Information published as of June 2021

Tax planning in 2021

As we approach the midpoint of 2021, we have reason to hope that better days are ahead in the fight against COVID-19. Thanks to the tireless work of scientists, vaccinations are already in progress. Healthcare workers have gone above and beyond in helping to treat those afflicted. After going through such a difficult year in which the global pandemic created upheaval for nearly everyone, people are hoping for a return to normal.


The ramifications were spread far and wide, from minor inconveniences and frustrations, to mental health challenges, and, for those diagnosed with COVID-19, sickness and far too many deaths. At this time in 2021, the pandemic's control over the economy is beginning to wane. For the most part, trends are pointing in a positive direction, and we are hopeful that the worst is over despite a long way to go.

President Biden is in office with a slim Democratic margin in the House and an evenly divided Senate. The new administration has focused on vaccine distribution and additional financial stimulus, providing a bridge until our economy becomes fully operational.

At the time of publication, the markets have continued to do well, though struggling small businesses, unemployment trends, and housing issues remain a concern. There has been no formal introduction of tax legislation, but we believe work and negotiations are likely going on in the background. In this guide, we provide information and ideas to mitigate the impact of taxes while keeping an eye on potential changes. As always, we would caution that while taxes are an important consideration, the tax tail should not wag the financial planning dog. Always keep your larger and long-term goals in mind.

Using the guide

This guide provides the details of current tax law, items for you to be aware of both now and throughout the year, steps you can take to potentially defer taxes, and options to consider in light of current market volatility and low interest rates. Even if changes to income and estate taxes are not enacted in 2021, there are planning considerations for you to address. The favorable tax laws for individuals resulting from the Tax Cut and Jobs Act (TCJA) of 2017 expire at the end of 2025.

Throughout each section of the guide, you’ll find (where applicable):

  • Tax schedules/tables for the various income and asset categories

  • Additional tax information about these categories

  • Potential strategies to consider

  • Possible changes to the law that may occur under the new administration and Congress

Because tax planning decisions are not made in a bubble, this guide also includes some family dynamics aspects to keep in mind when considering the impacts of financial actions.

Be sure to consult with your investment, planning, legal, and tax professionals to determine the right approach for your needs, goals, and financial situation.

Planning with market volatility and low interest rates

This guide will touch on various strategies that could be advantageous during a time of market volatility, low rates, and the possibility of higher taxes on the horizon. Some options to consider include:

  • Converting your traditional IRA to a Roth IRA. If the value of your traditional IRA drops due to market volatility, the income taxes due in the year of conversion could be lower and future distributions will be tax-free.

  • If you have stock options and intend to hold the stock, consider exercising now as you will be paying ordinary income tax rates at exercise and capital gains rates when you sell the stock.

  • For individuals who have exposure to federal estate tax, gifting assets at a lower value could increase the impact of the gift as its value increases in the future. At the same time, be sure to consider the income tax consequences of carryover basis.

  • If possible, you may also want to consider substituting assets in a previously created irrevocable grantor trust with assets that have a higher potential for growth.
  • For individuals who expect to be subject to federal estate tax, explore strategies that benefit from lower interest rates, such as intra-family loans, grantor retained annuity trusts (GRATs), charitable lead trusts (CLTs), or sales to an intentionally defective grantor trust (IDGT).

Be prepared for change

Keep in mind that while many of the corporate tax changes in the TCJA are intended to be permanent, the ones that benefit individual taxpayers are scheduled to “sunset” on December 31, 2025. With the change in administration in 2021, it is possible that some TCJA provisions could be repealed sooner rather than later. Because of this possibility, it could make sense for you to rethink timing around certain estate and tax planning strategies.

Connect regularly with your advisors

While the strategies in this guide can be effective in helping manage your tax burden, they are not all-inclusive or a destination in and of themselves. A better starting point is a strategic financial plan tailored for your specific needs and goals. Only by sitting down with your trusted advisors to define and prioritize your objectives and review them against your current situation can you know which solutions and strategies may be the most appropriate for you.

Establishing a plan with your local Wells Fargo professionals and revisiting it on a regular basis can help you make appropriate adjustments as needed, avoid potential pitfalls, and keep you on track to reach your long-term objectives. Given current market volatility and the chance for significant tax law changes in 2021, taxpayers need to create a Plan A and a Plan B so they can execute nimbly.

Finally, connect with your legal and tax advisors before taking any action that may have tax or legal consequences to determine how the information in this guide may apply to your specific situation at the time your tax return is filed.

Tax and stimulus proposals

As of the date of publication of this material, the Biden administration’s stated priority appears to be addressing the COVID-19 pandemic and the related economic fallout. With Democrats having a narrow majority in the House and the potential to break ties in a 50-50 Senate, there is certainly a possibility that some revenue-raising tax changes will find their way into legislation.


The first part of the administration’s relief plan is the $1.9 trillion American Rescue Plan aimed at facilitating vaccine administration and providing direct relief to individuals, and state and local governments. Some highlights of this plan include:

  • $1,400 stimulus check for individuals (in addition to the $600 passed in December 2020 as part of the Consolidated Appropriations Act)*

  • Maximum child tax care credit increased to $3,000 per child under age 18 ($3,600 for children under six)*

  • Child and dependent care tax credit increased to $4,000 (one child) and $8,000 (two or more children)*

  • Federal unemployment insurance benefits of $300 per week extended through September 6, 2021

  • $15 billion in funding for Small Business Administration Economic Injury Disaster Loans Advance grant program

  • $28.6 million for businesses in the food service industry

  • $7.25 billion for Paycheck Protection Program

  • $350 billion in flexible aid for state, local, and tribal governments

  • $170 billion to support school reopening and post-secondary education funding

In 2021, President Biden announced two programs to support infrastructure and families. To pay for these programs, he proposed the following tax changes:

  • Capital gains and qualified dividends. For taxpayers with income above $1 million, a tax rate of 39.6% would be applied on long-term capital gains.

  • Ordinary income. The top ordinary income rate for individuals would increase to 39.6% from 37%.

  • Real estate 1031 exchange. Availability may be impacted for those with capital gains exceeding $500,000.

  • Inherited assets basis. Step-up in basis to fair market value at death would be eliminated for gains in excess of $1 million ($2.5 million per couple when combined with existing personal residence exemptions).

  • Corporate tax rate. Increasing the corporate tax rate from 21% to 28%, and imposing a 15% minimum tax on "book income" (the amount of income reported by corporations on their financial statements).

Other changes discussed during the presidential campaign have not been addressed by the Biden administration at the time of publication of this guide. As of publication date, the administration has not contemplated lowering estate and generation-skipping transfer (GST) tax exemptions, increasing estate tax rates, or limiting itemized deductions.

Due to the slim majority the Democrats hold in both houses of Congress, any tax changes may be less aggressive than the original proposals outlined above. Senate moderates from both parties will wield considerable power, and could be influential in scaling back or delaying some of the more ambitious revenue-raising proposals.

*Note that phase-outs occur at certain income levels

For simplicity and ease of comprehension, this guide focuses on federal tax law; it does not discuss state or municipal laws in the 50 states, District of Columbia, or U.S. territories. Nevertheless, the impact of state and municipal laws can be significant. We recommend discussing state and municipal laws with your legal and tax advisors to determine the impact before taking any action.

2021 income tax
rate schedules

These are the tax tables in effect for 2021 as of publication. Legislative changes could alter these amounts later in the year. Keep in contact with your advisors throughout the year to stay current with any changes.

Married taxpayer filing jointly/surviving spouse rates

Taxable income*
Over But not over
$0 $19,900
$19,900 $81,050
$81,050 $172,750
$172,750 $329,850
$329,850 $418,850
$418,850 $628,300
Pay + % on excess Of the amount over
$0 10% $0
$1,990.00 12% $19,900
$9,328.00 22% $81,050
$29,502.00 $24% $172,750
$67,206.00 32% $329,850
$95,686.00 35% $418,850
$168,993.50 37% $628,300

Single taxpayer rates

Taxable income*
Over But not over
$0 $9,950
$9,950 $40,525
$40,525 $86,375
$86,375 $164,925
$164,925 $209,425
$209,425 $523,600
Pay + % on excess Of the amount over
$0 10% $0
$995.00 12% $9,950
$4,664.00 22% $40,525
$14,751.00 $24% $86,375
$33,603.00 32% $164,925
$47,843.00 35% $209,425
$157,804.25 37% $523,600

Head of household rates

Taxable income*
Over But not over
$0 $14,200
$14,200 $54,200
$54,200 $86,350
$86,350 $164,900
$164,900 $209,400
$209,400 $523,600
Pay + % on excess Of the amount over
$0 10% $0
$1,420.00 12% $14,200
$6,220.00 22% $54,200
$13,293.00 $24% $86,350
$32,145.00 32% $164,900
$46,385.00 35% $209,400
$156,355.00 37% $523,600

*Taxable income is income after all deductions (including either itemized or standard deduction) and exemptions unless noted otherwise.

Married taxpayer filing separately rates

Taxable income*
Over But not over
$0 $9,950
$9,950 $40,525
$40,525 $86,375
$86,375 $164,925
$164,925 $209,425
$209,425 $314,150
Pay + % on excess Of the amount over
$0 10% $0
$995.00 12% $9,950
$4,664.00 22% $40,525
$14,751.00 $24% $86,375
$33,603.00 32% $164,925
$47,843.00 35% $209,425
$84,496.75 37% $314,150

*Taxable income is income after all deductions (including either itemized or standard deduction) and exemptions unless noted otherwise.

Standard deductions

Married/joint $25,100
Single $12,550
Head of household $18,800
Married/separate $12,550
Dependents $1,100

For dependents with earned income, the deduction is the greater of $1,100 or earned income +$350 (up to the applicable standard deduction amount of $12,550).

Married, age 65 or older or blind $1,350*
Married, age 65 or older and blind $2,700*
Single, age 65 or older or blind $1,700*
Single, age 65 or older and blind $3,400*

*Per person

Tax credit for dependent children

Modified adjusted gross income (MAGI) Tax credit for each child younger than age 18
Married/joint $0–$400,000 $3,000
Individual $0–$200,000 $3,000

The tax credit is $3,600 per child for children under age six. Tax credit is reduced when the taxpayer’s MAGI exceeds the maximum threshold. Taxpayers may be eligible for an additional $500 credit for qualifying dependents age 18 or older.

Alternative minimum tax (AMT)

The alternative minimum tax (AMT) calculates income tax under different rules for income and deductions. If the AMT calculation results in a higher tax, the taxpayer will be subject to AMT and pay the higher tax. Generally, a taxpayer with a high proportion of capital gain income in relation to total income may trigger the AMT, as might exercising incentive stock options.


AMT income
Up to $199,900*
Over $199,900*

*$99,950 if married filing separately

AMT exemption

Exemption Phased out on excess over
Married taxpayer filing jointly/surviving spouse $114,600 $1,047,200
Single taxpayer $73,600 $523,600
Married taxpayer filing separately $57,300 $523,600
Estates and trusts $25,700 $85,650

Medicare surtax

The Medicare 3.8% surtax is imposed on certain types of unearned income of individuals, trusts, and estates with income above specific thresholds.


For individuals, the surtax is imposed on the lesser of the following:

  • Net investment income for the tax year

  • The amount by which MAGI exceeds the threshold amount in that year

Net investment income defined

  1. Gross income from taxable interest, dividends, annuities, royalties, and rents
  2. Gross income from a passive activity or a trade or business in which you do not materially participate
  3. Net gain to the extent taken into account in computing taxable income (such as capital gains) less the allowable deductions that are properly allocable to that gross income or net gain

Special exception

In the case of the sale of an interest in a partnership or an S corporation, the surtax is imposed only on the portion of a transferor’s net gain that would have been net investment income if the entity had sold all of its property for fair market value immediately before the stock or partnership was sold.

The threshold amounts

Single filers Married filing jointly Married filing separately
$200,000 $250,000 $125,000

For trusts and estates, the surtax is imposed on the lesser of the following:

  • The undistributed net investment income for the tax year

  • The excess (if any) of the trust’s or estate’s adjusted gross income over the dollar amount at which the highest tax bracket begins ($13,050 in 2021)

Note: The surtax does not apply to nonresident aliens.

Capital gains, losses, and dividends

Short-term capital gains (gains on the sale of capital assets held one year or less) are taxed at the ordinary income tax rate for individuals and trusts regardless of filing status. However, long-term capital gains tax rates are not tied to the tax brackets. The table below shows the long-term capital gains tax rates. Qualified dividends are taxed at long-term capital gains rates, while nonqualified dividends are taxed at ordinary income tax rates.


0% 15% 20%
Single $0–$40,400 $40,401–$445,850 Greater than $445,850
Married filing jointly/surviving spouse $0–$80,800 $80,801–$501,600 Greater than $501,600
Married filing separately $0–$40,400 $40,401–$250,800 Greater than $250,800
Head of household $0–$54,100 $54,101–$473,750 Greater than $473,750
Estates and trusts $0–$2,700 $2,701–$13,250 Greater than $13,250

Consult your tax advisor about how this applies to your situation. Higher rates apply to collectibles and unrecaptured Section 1250 gains.

Determine when to realize capital gains and losses

Consult with your investment professional on whether realizing portions of your portfolio’s gains (and losses) can help manage the tax impact of activity in your investment portfolio. In some cases, it may be advantageous to realize larger gains sooner depending on the near-term outlook for your portfolio.

If you sell a security within one year of its purchase date, you will be subject to short-term capital gains. Short-term gains are taxed based on ordinary income tax rates that can be as high as 40.8%, adding the 3.8% Medicare surtax to the top tax bracket of 37.0%. Note that these rates do not include state and local tax rates, which can be significant in some locations. As such, short-term gains are taxed at nearly twice the rate of long-term gains.

You cannot avoid some short-term gains, and others may be economically justifiable even with the higher rate. However, if you can afford to wait until you have held the asset for a full calendar year, you may realize tax savings.

Netting capital gains and losses

  • Net short-term gains and short-term losses.

  • Net long-term gains and long-term losses.

  • Net short-term against long-term.

  • Deduct up to $3,000 of excess losses against ordinary income per year.

  • Carry over any remaining losses to future tax years.

Capital loss harvesting

Capital loss harvesting can be used to reduce taxes on other reportable capital gains. This requires selling securities at a value less than the basis to create a loss, which is generally used to offset other recognized capital gains. With the potential for volatility in the market, harvesting capital losses should not be limited to the end of the year. Instead, consider reviewing this with your advisor throughout the year to take advantage of market swings if you are anticipating other capital gains.

Prior to using this strategy, you should consider the following:

  • The amount of the loss that will be generated and how that compares with your net capital gains

  • Whether capital loss harvesting makes sense with the other income, losses, and deductions that will be reported on your tax return

  • If the investment sold will be replaced and how the new cost basis and holding period will work with your overall wealth management strategy

  • Wash sale loss rules to ensure the loss reported will not be disallowed

  • The effect of capital loss harvesting on dividend distributions and transaction fees

Remember, when executing transactions intended to affect your tax bill, the trade date — not the settlement date — determines the holding period for most transactions. This will in turn determine whether an asset is held long-term or not.

Rebalance your investment portfolio

With volatility oftentimes a risk in the market, it is important to review your investment portfolio to determine if rebalancing is necessary to maintain your desired asset allocation. You may have some or all of your accounts set up to automatically rebalance. However, if you do not have automatic rebalancing, it is important to review your entire portfolio, including both taxable accounts and assets held in tax-advantaged accounts (such as your IRA and 401(k) accounts).

Your tax-advantaged accounts may have limitations. For example, many 401(k) plans may not provide fund selections to allow allocations to international fixed income, real assets, or complementary strategies. When rebalancing, pay attention to the wash sale rules discussed below, as they can still be triggered if you sell a security at a loss and repurchase a substantially identical security within your IRA or tax-advantaged account.

Avoid purchasing new mutual funds with large expected capital gains distributions

Like other types of securities, you realize capital gains on your mutual fund holdings when you sell them. However, a unique feature of mutual funds is their potential annual distribution of capital gains (and losses) to shareholders. Companies that manage mutual funds announce the amount of capital gains to be distributed to shareholders near the end of the year.

The announcement includes a record date (the date of record for shareholders to receive a distribution) and an ex-date (the date the security trades without the distribution) and is typically expressed as a percentage of a shareholder's position. For example, a 10% distribution on a $100 investment would equal a $10 distribution.

For investors looking to rebalance their portfolios, mutual fund distributions can be problematic. A rule of thumb is that you typically don’t want to buy into capital gains distributions. For example, if you sell an asset in your portfolio that has performed well, you expect to realize capital gains. You could exacerbate your capital gains issue by reallocating your rebalanced proceeds to a new mutual fund near the date of its annual capital gains distribution.

There are risks associated with investing in mutual funds. Investment returns fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost.

Wash sale rules

A wash sale occurs when a security is sold at a loss and the same security, or a substantially identical security, is purchased within 30 days before or 30 days after the sale date. When a wash sale occurs, the loss recognized from the transaction is disallowed and is unable to be used to offset other gains. Instead, the amount of the disallowed loss will be added to the basis of the repurchased securities. The rule was developed to prevent investors from creating a deductible loss without any market risk.

A wash sale can be avoided by purchasing the identical security more than 30 days before the loss sale or more than 30 days after the loss sale. A security within the same sector but that is not substantially identical may be purchased at any time before or after the loss sale and will not trigger the wash sale rules.

Qualified Opportunity Zones

The TCJA of 2017 introduced the Qualified Opportunity Zone (QOZ) program, providing a tax incentive for private, long-term investments in economically distressed communities. You may elect to defer tax on any capital gains invested in a Qualified Opportunity Fund (QOF), defined as an entity that is organized as a corporation or partnership and that subsequently makes investments in QOZ property.


You must invest in the QOF within 180 days of the realization event. If you make the investment, you could potentially receive three valuable tax benefits:

  1. The capital gains invested in the QOF are not recognized until the earlier of the QOF sale or December 31, 2026.

  2. If you retain your investment in the QOF for five years, you may be able to exclude 10% of the deferred capital gains from eventual recognition. An additional 5% gain exclusion was available for an investment in a QOF made prior to the end of 2019, but is not available for investments made in 2020 or later.

  3. If you retain your QOF for at least 10 years and then sell your interest, you may be able to exclude 100% of the capital gains on the sale of the QOF. Thus, if you invest deferred capital gains in a QOF on December 1, 2020, and sell the QOF on or after December 2, 2030, you may not have to pay capital gains tax on the entire appreciation of the QOF.

These tax savings opportunities are only available if you retain your investment in the QOF for the noted timeframes. A sale of the QOF before the noted dates will accelerate any deferred capital gains to that date and you may lose some of the benefits. Keep in mind that capital gains rates at the time of sale or 2026 could be at a higher rate than in 2021.

Pursuant to notices issued by the Department of Treasury, as relief from the coronavirus pandemic, if the last day of the 180-day investment period falls between April 1, 2020, and March 31, 2021, the last day of the investment period is automatically extended to March 31, 2021.

The rules surrounding this option are complicated and require precision, and should be discussed with your tax advisor.

In order to provide these substantial tax benefits, money must remain in the QOF for at least 10 years. As such, discuss with your advisor how these vehicles impact other areas of your overall financial strategy including, but not limited to, cash flow planning, potential liquidity issues, and your investment risk tolerance.

Education planning

529 plans

  • Earnings accumulate tax-deferred; qualified withdrawals (such as tuition, fees, supplies, books, and required equipment) may be free of federal and state income taxes.

  • There are no income, state-residency, or age restrictions.

  • Plans may be funded up to the annual exclusion amount, $15,000 (single) or $30,000 (married) per year per donation recipient. Contributions in excess of annual exclusions should be filed on a gift tax return (Form 709) to report use of the donor’s available lifetime exclusion or the election to superfund five years’ worth of annual contributions. Most plans allow for contributions by people other than the original donors, such as aunts/uncles, grandparents, friends, etc.

  • Aggregate contribution limits vary by state — roughly $200,000 to $500,000 per beneficiary.

  • Elementary and secondary school tuition expenses of up to $10,000 per year are qualified education expenses for federal tax purposes. This flexibility may allow earlier access for private tuition prior to college. However, not all states conform to this definition of qualified expenses, so check with your tax advisor and confirm your state rules before taking a distribution for this purpose.

  • Elementary and secondary school tuition expenses of up to $10,000 per year are qualified education expenses for federal tax purposes. This flexibility may allow earlier access for private tuition prior to college. However, not all states conform to this definition of qualified expenses, so check with your tax advisor and confirm your state rules before taking a distribution for this purpose.

    • If a plan is overfunded, the donor can still access those tax-deferred funds; however, income taxes and penalties on distributions not used for education expenses will apply on the growth of the assets.

    • While changing a 529 plan beneficiary is generally not a taxable event, changing to a new beneficiary in a younger generation may have tax consequences.

  • Achieving a Better Life Experience (ABLE) accounts allow for tax-advantaged funds to help disabled individuals pay for qualified disability-related expenses.

    • Due to changes in the tax law, rollovers from 529 plans to ABLE accounts (529A plans) are permissible, subject to federal and state limitations. Be aware that rollover rules may vary by state.

  • The Setting Every Community Up for Retirement Enhancement (SECURE) Act further expanded the definition of qualified higher education expenses to include expenses for apprenticeship programs (including required equipment) and qualified education loan payments:

    • Qualified education loan payments are distributions that may be used to pay the principal and/or interest on qualified education loans and are limited to a lifetime maximum amount of $10,000 per person. Not all states have conformed to this law and therefore a distribution may be considered a nonqualified withdrawal in your state.

Funding opportunity for education

Donors can also elect to make five years’ worth of annual exclusion amounts in a single year’s contribution, up to $75,000 (single) and $150,000 (married). For example, a couple with twins could fund $150,000 for each child after birth and let those funds grow tax-free until needed. You should consult with your tax advisor about filing a gift tax return to make this election.

529 plan considerations

While the expansion of benefits under 529 plans for early education may sound exciting, taxpayers may find it more advantageous to leave the 529 plan account untouched to grow tax-free during the primary education years and instead use it for college and post-graduate studies.

Please consider the investment objectives, risks, charges, and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your advisor. Read it carefully before you invest.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act and student loans

The 2020 CARES Act suspended certain student loan payments and accrual of interest through September 30, 2020. At the request of President Biden, the Department of Education extended the suspension through September 30, 2021. Employers may make student loan payments on behalf of employees (up to $5,250) with the amount excluded from employee income through December 31, 2025. There has been discussion at the federal level regarding loan forgiveness legislation. If you are considering paying off someone’s debt as a gift, you may want to hold off on doing so until more is known about whether and what legislation forgiveness provisions are enacted.

Family dynamics considerations

  • What expectations do your children or grandchildren have for you paying for their education?

  • Have you communicated to them why you decided to pay for their education?

  • How can you communicate clearly regarding how much your children or grandchildren should expect?

Education Savings Accounts (ESAs)

  • Maximum nondeductible contribution is $2,000 per child per year.

  • Must be established for the benefit of a child younger than the age of 18.

  • Maximum contribution amount is reduced if a contributor’s MAGI is between $95,000 and $110,000 for individual filers or $190,000 and $220,000 for joint filers.

  • No contributions can be made if the contributor’s MAGI exceeds the stated limits or the beneficiary is age 18 or older (except for special needs beneficiaries).

  • Interest, dividends, and capital gains grow tax-deferred and may be distributed free of federal income taxes as long as the money is used to pay qualified education expenses.

  • Funds must be used before age 30 or transferred to a family member under the age of 30 (except for special needs beneficiaries).

  • A prior advantage of ESAs over 529s was the ability to use an ESA for private elementary or secondary school tuition. This advantage has been minimized now that 529 plans offer similar distributions and permit higher funding contributions, which are not phased out by the donor’s income level.

American Opportunity Credit

Maximum credit: $2,500 per student per year, for first four years of qualified expenses paid

MAGI phase-outs
Married filing jointly $160,000–$180,000
Single filer $80,000–$90,000

Up to 40% ($1,000) of the American Opportunity Credit is refundable. This means that even if your tax bill is zero, you can receive a refund of up to $1,000.

Lifetime Learning Credit

Maximum credit: 20% of the first $10,000 (per tax return) of qualified expenses paid in 2021

MAGI phase-outs
Married filing jointly $119,000–$139,000
Single filer $59,000–$69,000

Exclusion of U.S. savings bond interest

MAGI phase-outs
Married filing jointly $124,800–$154,800
Others $83,200–$98,200

Bonds must be titled in name(s) of taxpayer(s) only. Owner must be age 24 or older at time of issue. Must be Series EE issued after 1989 or any Series I bonds. Proceeds must be used for qualified post-secondary education expenses of the taxpayer, spouse, or dependent.

Student loan interest deduction

Maximum deduction: $2,500

MAGI phase-outs
Married filing jointly $140,000–$170,000
Others $70,000–$85,000

Kiddie tax

Children with investment and other unearned income, such as dividends and capital gains, exceeding $2,200 may be subject to the kiddie tax rules.


These rules apply to children that are:

  • Age 17 and under, or

  • Age 18 with earned income not exceeding half of their support, or

  • Over age 18 and under 24 if also full-time students with earned income not exceeding half of their support

Parents can elect to report this unearned income on their own return using Form 8814 for amounts less than $11,000. While doing so may be simpler, it may not be necessarily more tax efficient. For example, the kiddie tax applicable to a child’s unearned income of $10,000 may be less than when claimed by a parent already subject to top tax rates.

Unearned income of children is taxed at the child's parents' marginal tax rate. Prior to 2020, the trust and estate tax rates were applied to determine the kiddie tax. For children with substantial unearned income in 2018 and 2019, taxpayers may elect to file an amended return using the parent's marginal rates rather than the trust and estate tax rates that were initially used.

Unearned income Tax treatment
Less than $1,100 No tax
$1,100–$2,200 Taxed at child’s rate
More than $2,200 Taxed at the higher of the parents' top marginal rate or the child's tax rate

Family dynamics consideration

  • Have you discussed the basics of money management with your children? What other conversations might be needed so that they're ready to steward their investments, cash flow, budgeting, and savings when they are older?

Retirement accounts


401(k), 403(b), 457, Roth 401(k), or Roth 403(b)

Employee maximum deferral contributions $19,500
Catch-up contribution (if age 50 or older) $6,500

Combined limit for Roth 401(k) or Roth 403(b) and before-tax traditional 401(k) or before-tax 403(b) deferral contributions is $19,500 for those younger than 50.

Traditional and Roth IRAs

Maximum contribution $6,000
Catch-up contribution (if age 50 or older) $1,000
  • The total contribution to all of your traditional and Roth IRAs cannot be more than the annual maximum for your age or 100% of earned income, whichever is less.

  • Due to the SECURE Act, there is no maximum age restriction for making a traditional IRA contribution as long as the individual, or spouse if filing jointly, has earned income.

  • Roth contributions are not tax deductible.

  • You can contribute to an IRA whether you contribute to a workplace retirement plan or not.

2021 contributions must be made no later than the tax-filing deadline, regardless of tax extensions.

Traditional and Roth IRA considerations

Traditional IRAs offer tax-deferred growth potential; your contribution may be tax deductible and taxation would not occur until and to the extent of distributions. Roth IRAs offer tax-free growth potential; contributions are made on an after-tax basis and investment earnings are distributed tax free (if conditions are met).

There are a few factors in determining whether or a not a traditional IRA, Roth IRA, or both make sense for your particular situation. Your expectation of whether your tax rate will be higher or lower during your retirement years is one consideration. A lower tax rate in retirement may point to making contributions to a traditional IRA. Conversely, if you believe rates may be higher in retirement, you may want to use a Roth IRA to enjoy tax-free distributions at that time. Another factor is that traditional IRAs require distributions after age 72 while Roth IRAs have no mandatory distributions. Other considerations include having multiple types of accounts. Since required minimum distributions (RMDs) are necessary with traditional IRAs, significant distributions along with other taxable income can result in you being in a higher tax bracket. Furthermore, having after-tax holdings can be important as it is less appealing to take distributions when asset values are depressed as taxes will be due on those distributions.

Traditional IRA deductibility limits

If neither the individual nor the spouse are covered by a workplace retirement plan (WRP), they can obtain a full deduction for contributions to a traditional IRA ($6,000 if under 50 and $7,000 if over 50), regardless of income. If the individual and spouse are covered by a WRP1, deductions are phased out based upon MAGI:

Married/joint MAGI Single MAGI Deduction
Up to $105,000 Up to $66,000 Full1,2
$105,001–$124,999 $66,001–$75,999 Phased out
$125,000 and over $76,000 and over None

If your spouse is covered by a WRP1, but you are not, deductions are phased out based upon MAGI:

Married/joint MAGI Married/separate MAGI2 Deduction
Up to $198,000 N/A Full
$198,001–$207,999 Up to $9,999 Phased out
$208,000 and over $10,000 and over None

1. The “Retirement Plan” box in Box 13 of your W-2 tax form should be checked if you were covered by a WRP.

2. Your filing status is considered single for IRA contribution purposes if you did not live with your spouse during the tax year.

Roth IRA contribution phase-out limits

Contributions can be made if you, or your spouse if married filing jointly, have earned income, subject to the following MAGI limits:

Married/joint MAGI Married/separate MAGI1 Single MAGI Contribution
Up to $197,999 N/A Up to $124,999 Full
$198,000–$207,999 Up to $9,999 $125,000–$139,999 Phased out
$208,000 and over $10,000 and over $140,000 and over None

1. Your filing status is considered single for IRA contribution purposes if you did not live with your spouse during the tax year.

Retirement plan limits

Maximum elective deferral to SIMPLE IRA and SIMPLE 401(k) plans $13,500
Catch-up contribution for SIMPLE IRA and SIMPLE 401(k) plans (if age 50 or older) $3,000
Maximum annual defined contribution plan limit $58,000
Maximum compensation for calculating qualified plan contributions $290,000
Maximum annual defined benefit limit $230,000
Threshold for highly compensated employee $130,000
Threshold for key employee in top-heavy plans $185,000
Maximum SEP contribution is lesser of limit or 25% of eligible income $58,000

The SECURE Act impact

The SECURE Act, which was signed into law on December 20, 2019, was the largest piece of retirement legislation in over a decade. A few of the significant changes include:

  • Increase in the RMD age. The SECURE Act raises the RMD age from age 70½ to age 72. This increase affects individuals born after June 30, 1949. Such individuals do not have to take their first RMD until April following the year they turn age 72.

  • Inherited IRAs, limitation of the stretch IRA provisions. Under the previous law, RMD rules for an inherited IRA allowed a designated beneficiary to receive distributions over his or her life expectancy. The SECURE Act has changed the distribution options for some non- spouse designated beneficiaries.

    Generally, a non-spouse designated beneficiary who inherits an IRA in 2020 and thereafter will use the 10-year rule, which states that the inherited IRA must be emptied by the tenth year following the year of the IRA owner's death. No distributions are required before the tenth year. The 10-year rule applies to both individual IRAs and Roth IRAs, as well as defined contribution retirement plans.

    Eligible designated beneficiaries (EDBs) have the life expectancy option. An EDB is:

    • A spouse

    • Disabled or chronically ill individuals

    • Individuals not more than 10 years younger, the same age as, or older than the IRA owner

    • A child of the account owner who has not reached age of majority

    The life expectancy option is available for both inherited Roth and traditional IRAs, and is often referred to as the stretch IRA strategy. Stretching an IRA simply refers to the ability to take RMDs over the beneficiary's single life expectancy (using the term-certain calculation method) rather than over the life expectancy of the original IRA owner.

  • Repeal of maximum age for traditional IRA contributions. The SECURE Act repeals the restriction that previously prevented contributions to traditional IRAs by an individual who has reached age 70½. Now, as long as an individual has earned income, there is no age limitation on the ability to make contributions to a traditional IRA. However, that contribution is still subject to the same rules regarding whether your contribution will be tax deductible.

Consider converting your eligible retirement account to a Roth IRA

Benefits of converting your eligible retirement account — 401(k), traditional IRA, or other non-Roth account — to a Roth IRA can include tax-free distributions for you and your heirs and the elimination of RMDs during your lifetime and those of your spouse (if treated as his/her own Roth IRA). Another benefit is that the amount that is converted to a Roth IRA can be taken tax free and with no 10% additional tax for early or pre-59½ distributions after a five-year waiting period has been met. The potential for higher ordinary income tax rates in the near future increases the value of the benefits previously mentioned. It is important to understand your tax situation and ability to pay for the conversion since once you convert, you can no longer recharacterize or undo the conversion.

Conversion is not an all-or-nothing proposition, as you can convert a portion or all of your eligible retirement accounts. Note that a Roth IRA conversion will trigger ordinary income in the year of conversion and potentially the Medicare surtax, as the conversion counts toward the calculation of MAGI and may bump you into a higher tax bracket. For those unable to contribute directly to a Roth IRA due to MAGI limitations, a two-step process may allow you to contribute to a Roth IRA indirectly. This process is not subject to any income limitations:

  1. Make a nondeductible contribution to a traditional IRA.

  2. Convert the traditional IRA to a Roth IRA. However, if you have any before- tax amounts in any traditional, SEP, and/or SIMPLE IRA, you will follow the pro-rata rule. The pro-rata rule is often referred to as the "cream-in-your coffee" rule. Once cream and coffee are combined, you cannot separate them; in the same way, blending before-tax and after-tax funds in any traditional, SEP, and SIMPLE IRA(s) cannot be separated. This is true even if you keep the before-tax amounts in a different traditional IRA from the after-tax amounts, as the year-end values of all traditional, SEP, and SIMPLE IRA(s) are combined for purposes of determining the percentage of any distribution or conversion that is taxable.

To determine if you may benefit from this strategy, we recommend working with your tax advisor to determine all potential federal and state income tax and estate tax implications.

If you have significant income resources to sustain your lifestyle for the rest of your life without using your traditional IRA, consider a Roth IRA conversion. RMDs begin by April 1 following the year you turn age 72 from a traditional IRA whereas a Roth IRA has no RMDs for the owner. In this way, taxpayers can leave the full balance of the Roth IRA to their beneficiaries, undiminished both by income taxes (income tax is paid when completing the conversion) and RMDs during the taxpayer’s lifetime. Keep in mind that with the passage of the SECURE Act, funds in an inherited Roth IRA will have to be distributed to beneficiaries either using the 10-year rule or the life expectancy option depending on their beneficiary category. Although a qualified distribution is not taxable, the impact of this change should be taken into consideration.

Qualified charitable distributions (QCDs)

QCDs are a unique tax strategy that allow individuals who are at least age 70½ and have traditional and/or inherited IRAs to distribute up to $100,000 per year directly from their IRA to a 501(c)(3) nonprofit with no federal income tax consequences. Gifts made to grant-making foundations, donor advised funds, or charitable gift annuities are excluded from these rules. Making a QCD will reduce the value of your IRA, thereby potentially reducing your RMDs when you are obligated to do so in future years. This is an option for you even if you do not itemize your deductions. Currently, QCDs are limited to $100,000 per year.

As a result of the SECURE Act, deductible traditional IRA contributions made beginning at age 70½ may reduce your QCD amount. Additionally, if you wish to take a RMD and make a QCD, consider making the QCD first if a RMD is required for the year ("first money out" rule). Please consult with your tax advisor.

If you and your advisors have determined that a Roth conversion is the right fit for you due to current market conditions and potentially higher future income tax rates, this year may be a good time to facilitate the conversion. It is important that you have assets outside of the IRA to pay the taxes.

Inherited IRA distributions

QCDs can be made from an inherited IRA as well. You must be 70½ or older to make a QCD, even if it is from an inherited IRA.

Tax-efficient charitable gifting

The most tax-efficient beneficiaries of qualified plan assets (which receive no income tax basis step-up at death) are charities because they are tax exempt for income tax purposes. As an example, designating a charity as your $100,000 IRA beneficiary (not subject to income taxes) and bequeathing your $100,000 stock portfolio to a child transfers the full $200,000 with $0 income taxes to the IRS. On the other hand, designating a child as your $100,000 IRA beneficiary (subject to income taxes) and bequeathing a $100,000 stock portfolio to charity transfers less because your child will have to pay the income taxes on the $100,000 IRA.

Social Security

Social Security and Medicare taxes

In 2021, individuals will be taxed 6.2% in Social Security taxes, up to $142,800 of earnings, at which point there are no additional taxes. Medicare taxes are applied to 1.45% of earnings and there is no maximum wage cap. An extra 0.9% may be applied on the earnings over $200,000 for single filers and for joint filers earning over $250,000. Some of these limits may change via legislation during the year. Contact your tax advisor for current Social Security and Medicare tax information.

Earnings test

The earnings test indicates the level of earnings permissible for Social Security recipients without incurring a deduction from benefits. These limits are indexed to increases in national earnings.

Worker younger than full retirement age $18,960
Year worker reaches full retirement age (applies only to earnings for months prior to attaining full retirement age) $50,520
Worker at full retirement age No limit

Maximum monthly benefit: $3,148

This benefit is for an individual who reaches full retirement age in 2021 and earns at least the maximum wage base for 35 years ($142,800 in 2021).

Taxation thresholds

A certain percentage of an individual’s Social Security benefits may be subject to taxation when his or her provisional income1 exceeds certain threshold amounts:

Up to 50% taxed Up to 85% taxed
Married filing jointly $32,000–$44,000 More than $44,000
Single $25,000–$34,000 More than $34,000
Married filing separately 85% taxable2

1. Provisional income generally includes MAGI plus nontaxable interest and one-half of Social Security benefits.

2. There is an exception to this rule if you lived apart from your spouse for the entire year. Consult your tax advisor for more information.

Charitable contributions

Congress recognized that the doubling of the standard deduction under the TCJA of 2017 would effectively eliminate the ability of many taxpayers to obtain a benefit for their charitable contributions, potentially causing many taxpayers to give less. To counteract this, a change was made to increase the adjusted gross income (AGI) limitation for cash contributions to a public charity from 50% to 60%. In 2021, this limitation has been waived under the Consolidated Appropriations Act.


This waiver does not apply to contributions to private foundations or donor advised funds. This may encourage more high-net-worth individuals to increase their giving, helping charities recover lost revenue. This is an extension of the same provision under the CARES Act in 2020.

AGI limitations on deductions for charitable gifts

Type of organization Cash gifts Long-term capital gain property1 Tangible personal property2
Public charity (2021 only) 100% 30% using fair market value of the asset contributed 30% using fair market value of the asset contributed
Donor advised fund 60% 30% using fair market value of the asset contributed 30% using fair market value of the asset contributed
Private foundation 30% 20% using fair market value if the asset contributed is publicly traded stock 20% using tax/cost basis of the asset contributed3

1. Long-term property is property held more than one year. Short-term property, held one year or less, is subject to different limits.

2. This applies if it will be used by the charity in conducting its exempt functions (e.g., art in a museum). Different limits apply for tangible personal property that will not be used by the charity in conducting its exempt functions.

3. If the fair market value of unrelated use property is lower than the tax cost/basis (depreciated asset), the allowed deduction will be limited to the fair market value.

Source: irs.gov, unless otherwise specified

Although the AGI limitation for cash contributions is 100% in 2021, it is important to consider donating appreciated property. If you donate appreciated property that has been held for at least one year, you are eligible to deduct the fair market value without paying income tax on the unrealized gain. However, you can only deduct up to 30% of your AGI when making these gifts of long-term capital gains property (to a public charity). Being able to avoid the payment of taxes on the unrealized gain combined with the charitable contribution deduction may produce a better tax result than donating cash. A common example would be donating stock that has increased in value since its purchase. Donating the stock will allow for a deduction of the full fair market value without paying tax on capital gains. Contrast this with the alternative of selling the stock, paying capital gains tax, and then donating the net amount.

When considering charitable gifting and capturing potential tax deductions, review your tax situation and carefully determine which assets to give. Gifts made to qualified, tax-exempt organizations are generally deductible, but as noted in the previous table, are subject to limitations based on the type of organization (public or private), the asset being gifted, and your AGI. Charitable contributions that are not deductible in the current year due to AGI limitations can be carried forward for up to five years.

  • Gifts made via check or credit cards are considered deductible in the current year if the check is written and mailed or the charge to the credit card posts on or before December 31.

  • Gifts of stock are considered complete on the date the brokerage firm transfers title, which can take several business days (or the date the taxpayer can substantiate permanent relinquishment of dominion and control over the stock), so be sure to plan these types of transfers well before December 31.

  • Obtain and keep receipts and be aware of any value received for goods or services that may reduce the value of any tax deduction.

Naming a qualified charity as the beneficiary of your 401(k) or traditional IRA upon your death can keep your estate and your heirs from having to pay income taxes on the distributions from those retirement assets. The full amount of your retirement assets will benefit the named charity because charities do not pay income taxes. The retirement assets will remain as part of your estate, but your estate will receive a charitable tax deduction. Alternatively, you can divide your retirement assets between your loved ones and charity, naming both as beneficiaries.

Depending on your circumstances, there are some additional planning options to consider:

  • As noted earlier in this guide, qualified charitable distributions (QCDs) allow individuals who are at least age 70½ to distribute up to $100,000 per year directly from their IRA to a 501(c)(3) nonprofit with no federal income tax consequences.

  • If you are approaching retirement and anticipate lower ordinary income during retirement, you may find it beneficial to explore making a large gift to a donor advised fund while working instead of smaller gifts during retirement.

  • A charitable remainder trust (CRT) is a strategy in which annual income is distributed to one or more noncharitable beneficiaries, either for a life term or a term of not more than 20 years. This is an option to use in light of the SECURE Act since non-spouse beneficiaries must withdraw assets within 10 years; using a CRT may result in income distributions occurring over a 20-year period. At the end of the term, the remaining assets are paid to your chosen charity.

In addition to bunching together donations, donor advised funds are another way to take advantage of deductions. The irrevocable contribution you make to a donor advised fund is deductible in the year you fund it, but distributions to charitable organizations can be spread over multiple years. This can be useful when you are able to make a donation but have yet to determine the timing of the distributions out of the donor advised fund or what charities will receive the gift.

Family dynamics considerations

  • In what ways have you included your children, grandchildren, and family in charitable giving?

  • How might your charitable contributions be more connected to your values and beliefs?

Take advantage of charitable deductions

The higher standard deduction combined with limits on other deductions means fewer people will be able to deduct their charitable contributions. An option to get a deduction is to make direct gifts and bunch your donations together into one year. For example, instead of making contributions in December 2021, you can make your 2021 contributions in January 2022. Making your 2022 contributions later during the year might give you enough to itemize in one calendar year. You could then take the standard deduction in 2021 and again in 2023, when you don’t make contributions.

Under the Consolidated Appropriations Act passed in December 2020, an above- the-line deduction for cash charitable contributions of up to $300 (or $600 for joint filers) is allowed for taxpayers who take the standard deduction 2021.

Long-term care deduction for policy premiums

For specific qualified long-term care policies, the premiums are considered to be a personal medical expense and deductible by the IRS. The amount of qualified long-term premiums that will be considered a medical expense are shown on the table below.* The medical expense deduction is limited to qualified medical expenses over 7.5% of adjusted gross income.


Age before the close of the taxable year Limit on premiums eligible for deduction
40 or less $450
Over 40 but not over 50 $850
Over 50 but not over 60 $1,690
Over 60 but not over 70 $4,520
Over 70 $5,640

* Limitations apply based on the type of taxpayer. You should consult your tax advisor regarding your situation.

Real estate investors

As a real estate investor, you may expense 100% of new and used qualified tangible business property acquired and placed in service during 2021. In addition, the expense limitations (that is, Section 179 election) relating to the cost of certain depreciable tangible personal property used in a rental business, as well as certain nonresidential real property improvements, is $1.054 million. The maximum amount that may be spent on such property before the Section 179 deduction begins to phase out is $2.62 million.


Real estate investors may utilize Section 1031 exchanges to defer any gain realized on the sale of real estate used in a trade or business by purchasing replacement like-kind real estate. President Biden's tax proposal contains provisions that may impact the availability of Section 1031 exchanges to investors who have annual taxable income of $400,000, so please consult your tax advisor regarding the availability of a Section 1031 exchange to the sale of real estate. Section 1031 cannot be used for personal property or real property held primarily for sale.

The deduction for real estate taxes for personal use real estate is now limited to $10,000. The amount of this limitation also includes state and local income taxes. The mortgage interest deduction is limited to interest paid on the first $750,000 of mortgage indebtedness secured by a primary or secondary residence. However, for mortgages originating before December 15, 2017, a deduction is available for interest paid on the first $1 million of mortgage indebtedness. Interest on home equity loans and home equity lines of credit that are not used to either acquire or improve a primary or secondary residence is not deductible.

Generally, income from real estate activities is considered a passive activity. As such, if a property operates at a loss, the loss is only deductible against other passive income, or may be used if you dispose of your entire interest in the activity during the year. Only real estate professionals who provide greater than 750 hours of personal services in real property trades and spend more than half of their time in real estate trade or business can fully deduct losses from real property activities. As the rules often are based on specific facts and circumstances, you should consult your tax advisor to confirm the proper deductibility of these activities.

Maximize real estate deductions

Taxpayers should consider whether certain real estate properties should be used as personal assets. If the taxpayer uses the property in a real estate trade or business (for example, renting the property), the real estate tax and mortgage interest deduction limitations no longer apply.

These deductions, while limited for personal assets, are still fully deductible for real estate assets used in a trade or business.

Owners of real estate entities established as pass-through businesses, such as sole proprietorships, LLCs taxed as partnerships, partnerships, or S corporations, may be able to take advantage of the 20% qualified business income deduction against the owner’s share of taxable rental income, subject to certain limitations. Regulations indicated that real estate operated in a trade or business could qualify for the deduction.

Health savings account (HSA) limits

Health savings accounts (HSAs) are available to participants enrolled in a high-deductible health insurance plan. At the federal level, contributions to HSAs are made from before-tax dollars, and are not subject to income, Social Security, and Medicare taxes. Distributions are tax-free as long as they are used for qualified medical expenses.


In most states, contributions to HSAs are not subject to state taxes and income earned in HSAs is tax-deferred. Similar to federal law, qualified distributions are tax-free in most states. Please consult with your tax advisor for state specific guidance on the tax deductibility of contributions and state taxes due on earnings.

If a distribution occurs from an HSA prior to age 65 for reasons other than qualified medical expenses, ordinary income taxes along with a 20% penalty are due on the distribution amount. Distributions from HSAs after age 65 are not subject to the 20% penalty but are subject to ordinary income taxes. Contributions to HSAs can no longer be made after enrolling in Medicare (eligibility for Medicare begins at age 65).

Maximum contribution
Single $3,600
Family $7,200

$1,000 catch-up contribution allowed per individual age 55 or older.

Minimum health insurance plan deductible
Single $1,400
Family $2,800
Maximum out-of-pocket expenses
Single $7,000
Family $14,000

Federal trust and
estate income tax

Tax rates

Taxable income
Over But not over
$0 $2,650
$2,650 $9,550
$9,550 $13,050
Pay + % on excess Of the amount over
$0 10% $0
$265 24% $2,650
$1,921 35% $9,550
$3,146 37% $13,050

Estate and gift tax

Applicable exclusion: $11.7 million

Taxes are imposed on transfers, by gift or at death, above an applicable exclusion amount which is indexed to inflation (currently $11.7 million for an individual). With proper planning, it is possible for a married couple to use two exclusion amounts. For example, an executor can make a “portability” election to transfer any unused exclusion from a deceased spouse to a surviving spouse. Consult your tax and legal advisors to determine the appropriate strategy for applying the portability rules.

Estate tax rate: 40%

The estate tax rate is 40% for any amount exceeding $11.7 million (or exceeding $23.4 million for married U.S. residents or citizens).

Generation-skipping tax exemption: $11.7 million

Gift tax annual exclusion: $15,000

Each individual may transfer up to $15,000 per person per year to any number of beneficiaries (family or nonfamily) without paying gift tax or using up any available applicable exclusion during one's lifetime.

Explore wealth transfer opportunities

There are actions you can take to potentially reduce your future estate tax liability and to maximize your lifetime gifting. However, make these decisions in conjunction with your overall planning to make sure assets pass effectively and efficiently and fulfill your wishes and the needs of your beneficiaries.

One action that may pass assets effectively and efficiently is paying medical and educational expenses of your beneficiaries. Medical and education expenses paid on behalf of anyone directly to the institution are excluded from taxable gifts and are unlimited in amount.

Another possible action is an outright gift in excess of $15,000. While such outright gifts are simple to execute and can reduce taxable estates, clients are sometimes reluctant to use them due to a lack of control and concerns about access once gifts are made.

Typically, families with significant taxable estates are strategic about how best to use the annual exclusion and their lifetime exclusion gifting by utilizing advanced strategies such as irrevocable trusts (e.g., irrevocable life insurance trusts, spousal lifetime access trusts, intentionally defective grantor trusts, grantor retained annuity trusts, charitable split interest trusts, etc.), transfers of interests in entities (e.g., family limited partnerships and limited liability companies), and other planning techniques. Modern planning techniques are increasingly flexible and some may provide mechanisms to protect your beneficiaries while also allowing you options for maintaining your own desired lifestyle. Given the market volatility and low interest rates at time of publication, some of these strategies may be that much more impactful at this time. As with any strategy, there are risks to consider and potential costs involved. Discussions with your advisors can help in the education of how these strategies work and the role that depressed valuations of certain assets and low rates can play.

As mentioned earlier, changes could occur in the estate and gift tax system. While changes to the exemption would require congressional action, other changes could be done via regulation. One potential regulation change is the elimination of marketability and lack of control discounts with family entity transfers. These regulations were originally proposed during the Obama administration in 2016 and subsequently shelved in 2017 during the Trump administration. Any regulation on this could dampen the effectiveness of family transfer techniques based on valuation discounting concepts.

A modern wealth planning approach goes beyond minimizing transfer taxes and should incorporate income tax planning, asset protection, business succession planning, and family dynamics considerations such as education of heirs and beneficiaries to be financially fluent and knowledgeable about wealth stewardship expectations and/or opportunities. Before implementing any wealth transfer option, you should consider the trade-offs between lifetime transfers and transfers at death.

Lifetime transfers usually result in the beneficiary assuming the tax basis in the gifted asset equal to that of the donor at the time of the gift. This could result in the unrealized appreciation being taxed to the beneficiary when he or she ultimately sells the property, although any gift or estate tax on future appreciation is usually avoided from the perspective of the donor. This typically does not apply to assets with a built-in loss.

In contrast, if the transfer occurs at death, the beneficiary generally gets a new tax basis equal to the fair market value at death, eliminating any income tax on the unrealized appreciation. However, income tax savings on the asset may be offset by any estate tax imposed on the asset. Proper planning with your tax and other advisors should consider the trade-off between income and estate taxes and help you maximize your results over the long term. The right strategies to use will vary with the goals, assets, and circumstances of each family. As noted earlier, this may not be a factor in the future since one of President Biden's tax proposals is the potential elimination of step-up in basis to the fair market value at death.

Take advantage of the temporary exclusion increase

The $11.7 million lifetime exclusion amount is approximately double the prior figure of $5 million (adjusted for inflation). Because this higher exclusion expires on December 31, 2025 (or perhaps earlier depending on legislative changes), you should consider your options before this window of opportunity closes.

If you do not use it before expiration, you will lose it. The exclusions are used by either making lifetime gifts or passing away before the exclusion decreases. For example, a married couple that fails to lock in the increased exclusion with lifetime gifts may effectively add roughly $4 million to their estate tax liability.

For individuals who have already engaged in gifting, the additional lifetime exclusion amount allows taxpayers to consider new gifting strategies or use previously created entities. For married individuals with estate planning documents, the technical language within wills or trusts may need to be revisited and reevaluated considering the existing exclusion amount. As we advised last year, you should contact your estate planning attorney early in the year to discuss your estate's value and existing estate planning documents.

Family dynamics considerations

  • How might you more clearly share your intentions for a gift when making annual exclusion gifts to your family?

  • In what ways might your estate plan impact your children’s relationships with each other?

Many taxpayers reside in states that have their own death, estate, or inheritance taxes. This topic should also be reviewed with your attorney to see if additional planning can minimize or eliminate state estate taxes or if any adjustments need to be made to existing planning as a result of the discrepancy between state and federal estate taxes.

Corporate income tax

C corporations currently are subject to a flat 21% tax. As mentioned earlier, President Biden's tax proposal would increase this rate to a flat 28%. It would also provide for a corporate alternative minimum tax of 15% on corporations with net income of at least $100 million.

The CARES Act and businesses

Some of the primary components of the CARES Act and the pandemicrelated provisions of the Consolidated Appropriations Act (CAA) are intended to help both small businesses and large companies. While the CARES Act was initially enacted in 2020, some of its provisions were extended into 2021 by the CAA. Additionally, the Families First Coronavirus Response Act contained several provisions affecting businesses and their employees; however, most of those provisions were not extended beyond December 31, 2020.


The following list of considerations is not all-inclusive, and these provisions can be very technical and contain detailed limitations. In addition, Congress and the White House continue to work on legislation and executive orders that may affect businesses. Please check with your tax and legal advisors for the most recent information and how it may apply to your situation.

Employment taxes

If as an employer or self-employed individual you deferred payment of the employer share of applicable payroll taxes beginning on the date of CARES Act enactment (March 27, 2020) through December 31, 2020, the deferred payment is due to be paid over two years — half in 2021 and half in 2022. Employers who chose not to withhold and pay the employee share of applicable payroll taxes under authorization from President Trump's August 7, 2020, executive order are required to withhold and pay such taxes from January 1, 2021, to January 3, 2022.

Following the CAA, employers may be eligible for a retroactive payroll tax credit of 70% of qualified wages (limited to $10,000 per quarter) paid through June 2021 where business operations are impacted by the COVID-19 crisis (based on suspension of operations or tests applicable to a reduction in gross receipts). The CAA now allows this credit for businesses taking a small business interruption loan as part of the Paycheck Protection Program.

Paid family and medical leave credit

The CAA extended through 2025 the credit for businesses providing employees with paid family and medical leave.

Deductibility of business meal expenses

The TCJA previously limited the deductibility of business meal expenses to 50% of the cost. For 2021 and 2022, the limit is removed and such expenses are deductible up to 100% when provided by a restaurant.

Business losses

Net operating losses (NOLs) from 2018, 2019, or 2020 may be carried back five years. However, these rules do not apply to real estate investment trusts (REITs). The 80% income limitation on use of NOLs is waived for 2018, 2019, and 2020. The excess business loss limitation of $250,000 (single) and $500,000 (married filing jointly) is waived for 2018, 2019, and 2020, allowing business owners to deduct current year losses of any amount against other nonbusiness income.

Charitable contributions

The CARES Act temporarily increased the taxable income limitation to 25% for 2020 charitable contributions made by corporations in cash to qualified charities. The CAA extended this provision through 2021. Donor advised funds or other supporting organizations are specifically excluded.

Paycheck Protection Program

Under the Paycheck Protection Program (PPP), certain qualified businesses may be eligible for Small Business Administration (SBA) loans. Certain SBA loans may be eligible for loan forgiveness where funds are used for payroll, mortgage interest, rent, and utilities. The cancellation of indebtedness is not taxable. The CAA provided additional funds for this program and allowed for some businesses to apply for second draw loans. The CAA has reversed previous IRS guidance, stating that regular business expenses paid for with PPP funds are now deductible.

Other business provisions

The CARES Act accelerated use of corporate alternative minimum tax (AMT) credits remaining from prior years. It also increased the interest expense deduction limitation from 30% to 50% of taxable income in tax years beginning in 2019 and 2020, with the option of using 2019 adjusted taxable income to compute the 2020 limitation. Furthermore, the CARES Act provides for reclassification of depreciation schedules for certain restaurant and qualified retail business property to be eligible for bonus depreciation.

Municipal bond taxable-equivalent yields

Based on various federal income tax brackets (does not account for state taxes)

Example: A taxpayer in the 35% federal income tax bracket would have to purchase a taxable investment yielding more than 3.1% to outperform a 2% tax-free investment.


Tax-free yield (%)
1.0 1.5 2.0 2.5 3.0 3.5 4.0
Tax bracket (%) Taxable equivalent yield (%)
10 1.1 1.7 2.2 2.8 3.3 3.9 4.4
12 1.1 1.7 2.3 2.8 3.4 4.0 4.5
22 1.3 1.9 2.6 3.2 3.8 4.5 5.1
24 1.3 2.0 2.6 3.3 3.9 4.6 5.3
32 1.5 2.2 2.9 3.7 4.4 5.1 5.9
35 1.5 2.3 3.1 3.8 4.6 5.4 6.2
37 1.6 2.4 3.2 4.0 4.8 5.6 6.3

Note: Interest income from municipal bonds is not subject to the Medicare surtax. The taxable equivalent yield does not include the impact of the net investment income tax of 3.8%.

2021 important

Last day to …

January 15

  • Pay fourth-quarter 2020 federal individual estimated income tax

March 15

  • File the following tax returns (or file an extension)

    • 2020 federal S corporation tax returns (Form 1120S)

    • 2020 federal partnership tax returns (Form 1065)

    • 2020 federal limited liability company (LLC) tax returns (generally Form 1065)

  • Establish and fund SEP plans for S corporations, partnerships, and LLCs for 2020 (calendar-year entities; filing an extension extends the deadline)

April 15

  • Pay first-quarter 2021 federal individual estimated income tax

  • File the following tax returns (or file an extension to extend the deadline):

    • 2020 federal trust/estate income tax return (Form 1041)

    • 2020 federal gift tax return (Form 709)

    • 2020 federal calendar year corporation tax return (Form 1120)

  • Fund employer contributions for retirement plans for C corporations (calendar-year entities, filing an extension extends the deadline)

  • Fund employer contributions for retirement plans for sole proprietorships and partnerships (calendar-year taxpayers; filing an extension extends the deadline)

May 17

Note: State tax deadlines for 2020 may remain unchanged despite the IRS extension of the deadline to file individual tax returns and 2020 tax payments.

  • File the following tax returns (or file an extension to extend the deadline):

    • 2020 federal individual income tax return

  • Make 2020 contribution to traditional IRA, Roth IRA, health savings account (HSAs), or education savings account (ESA); contributions are disallowed after May 17 even if an extension is filed

  • Establish and fund SEP plans for sole proprietorships for 2020 (calendar-year taxpayers; filing an extension extends the deadline)

June 15

  • Pay second-quarter 2021 federal individual estimated income tax

September 15

  • Pay third-quarter 2021 federal individual estimated income tax

  • File the following tax returns (if subject to extension):

    • 2020 partnership tax return

    • 2020 S corporation tax return

    • 2020 LLC tax return

  • Establish and fund SEP plans for partnerships and S corporations

September 30

  • File 2020 federal trust/estate income tax return (Form 1041) if subject to extension

October 1

  • Establish a SIMPLE IRA/safe harbor 401(k)

October 15

  • File the following tax returns (if subject to automatic extension):

    • 2020 corporate tax return

    • 2020 federal individual income tax return

    • 2020 federal gift tax return (Form 709)

November 30

  • Double-up to avoid violating the wash sale rule

December 31*

  • Sell stock or listed options to harvest gains and losses

  • Take 2021 RMDs from traditional IRAs and most qualified plans if you reached age 70½ before 2021

  • Complete a Roth IRA conversion for 2021

  • Complete a 529 plan contribution

  • Sell shares acquired through the 2021 exercise of incentive stock options in disqualifying disposition to limit AMT exposure

  • Establish a new profit sharing, non-safe harbor 401(k) or defined benefit plan (calendar-year taxpayers)

  • Complete gifts for the current calendar year

    • Charitable gifts of cash must be mailed (or charged on credit card) by year-end; noncash gifts may need to be put in process in advance of December 31 to complete transfer by year-end

    • Personal gifts must be received by the recipient by year-end

*Although December 31 is the technical date, these activities need to be completed by for tax purposes, they will need to be put in process well in advance of December 31 to implement by year-end.

These dates are based on information available as of time of publication in May 2021. With various government actions taken in light of the COVID-19 impact, these dates may change. Please check with your advisors and tax professional for the most up-to-date information.


This guide has been created for informational purposes only and is subject to change. Information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed.

The implementation and maintenance of certain strategies and techniques in this brochure may require the advice of consultants or professional advisors other than Wells Fargo or its affiliates.

Wells Fargo Wealth and Investment Management (WIM) is a division within Wells Fargo & Company. WIM provides financial products and services through various bank and brokerage affiliates of Wells Fargo & Company.

Wells Fargo Private Bank provides products and services through Wells Fargo Bank, N.A., and its various affiliates and subsidiaries. Wells Fargo Bank, N.A., is a bank affiliate of Wells Fargo & Company.

Brokerage services are offered through Wells Fargo Advisors. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.

Wells Fargo Bank, N.A. offers various advisory and fiduciary products and services including discretionary portfolio management. Wells Fargo affiliates, including Financial Advisors of Wells Fargo Advisors, a separate non-bank affiliate, may be paid an ongoing or one-time referral fee in relation to clients referred to the bank. The bank is responsible for the day-to-day management of the account and for providing investment advice, investment management services and wealth management services to clients. The role of the Financial Advisor with respect to the Bank products and services is limited to referral and relationship management services.

Wells Fargo & Company and its affiliates do not provide legal or tax advice. In limited circumstances, tax advice may be provided by Wells Fargo Bank, N.A. Please consult your legal and/or tax advisors to determine how this information, and any planned tax results may apply to your situation at the time your tax return is filed.