Tax boosts could substantially affect your personal and business budget in 2021. In our previous blog, we began our list of five ways doctors and entrepreneurs could expect their tax bills to increase in 2021. As mentioned previously, Tax Bills can increase both for you as an individual, and your practice as a company.
So, let us begin with a quick review of those previous five tax situations that might increase your taxes.
1. The Tip of the Iceberg: Changing Tax Brackets
2. Raising the Capital Gains Taxes
3. Saying Farewell to the Qualified Business Deduction
4. Ending the Step-Up Plan: Gone but not Forgotten
5. Increasing The Social Security Payroll Taxes
We invite you to refer to that article and the details within each one of these Biden Administration tax boosts. Like all good tax-planning accountants, we are alerting you early because you might see one or all of these tax increases in your 2021 tax bill.
Once you have read or reviewed the details, you will see why we say doctors and entrepreneurs have been designated “it” in the tax game of the current government. But keep in mind, we are preparing you for the 2021 tax season. You must pre-plan for those Biden tax boosts—and more.
Let us now add a few more ways you might see the IRS take more of your money.
Biden Tax Boosts # 6: Beware of the Illusions of Increased Income!
Even as we enter Spring 2021, we are seeing some normalization of both the US economy and global financial health. With the vaccine, we are beginning to see businesses re-open. Soon it is hoped, unemployment will fall. Therefore, as the world wakes up from the Pandemic nightmare, we are pretty certain most incomes will rise.
Thus, your tax bill will grow in proportion to your rising income. Just as every cloud has a silver lining, every silver lining has a cloud. Here at Invent Wealth CPA, we hope we can show you doctor-approved tax strategies and clinically tested smart investment tactics to help you protect yourself from your ever-rising income.
Increased Corporate Taxes: Tax Boost Number 7
There is no doubt that some of our clients who have incorporated their businesses will be subject to higher taxes. The Biden administration boosts the corporate tax rate up from 21% to 28% Likewise, if you are part of a corporation that profits about $100 million, you are possibly facing a tax hike up to 15 % or more. By the way, as many of our clients discovered last year, incorporating is a double-edged sword. If you are a new S-Corp, we can advise you on some surgical tax-slashing techniques that could vastly improve your financial prognosis.
Booming Biz Penalty—the Doubling of GILTI Taxes: Number 8
Guilty or GILTI? Now, we do not meet very many clients that will suffer badly from the GILTI tax boost. However, we cannot ignore it. Because we deal with foreign as well as American tax situations, we see this tax boost as particularly insidious. The rate on Global Intangible Low Tax Income, or GILTI, actually might double.
In other words, if you paid 10.5% for 2020, you could be charged 21% for 2021. Believe us, you might really appreciate knowing about this now. Then, you can plan and prepare in advance. Keep in mind, “This tax applies to foreign subsidiaries of U.S. firms. In addition to this doubling, Biden intends to evaluate GILTI on a country-by-country basis.”
Big Number 9 on our List of IRS 2021 Tax Boosts: The Cap on Itemized Deductions
Caution! Once again, if your practice is flourishing and you bring in more than $400,000, you are likely to feel a little punished by the IRS for your profitability.
- You’re in that top percentage that the Biden administration has targeted as “high earners.”
- Therefore the government will limit your itemized deductions to 28% of their value.
- Thus, because, “itemized deductions are valued at a taxpayer’s marginal tax rate, you rise top to the current marginal tax rate.” And that will be about 37%.
Terrific Take-Aways: No Miracle Cures, Only Treatments
Unfortunately, there is no vaccine for these Biden tax boosts in your tax bill for 2021. We at Invent Wealth CPA cannot cure these 9 inevitable tax conditions.
However, as wealth specialists, we know treatments including tax deductions, tax credits, and tax-planning strategies. We respectfully invite you to visit with us for a diagnosis. At that time, we can examine a proactive tax-plan designed for you. That should greatly alleviate pain and suffering. As we have said many times, early diagnosis of your current fiscal health is key to avoiding difficulties in 2021 and beyond.
Thank You for reading our blog and please return for more revelations on Inventing Wealth.
PS: Ease the pain of tax day by remembering a little tax humor.
Tax Humor From Mark Twain, Will Rogers, and Others
“The income tax has made more liars out of the American people than golf has.” –Will Rogers
“What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin.”–Mark Twain
“Some taxpayers close their eyes, some stop their ears, some shut their mouths, but all pay through the nose.” –Evan Esar
“I figured out why Uncle Sam wears such a tall hat. It comes in handy when he passes it around.” –Soupy Sales