2021 Checklist

2021 Checklist

At MBA Financial & Accounting Solutions, we want to make sure that you are well equipped to enter the year 2021 in the right direction.  The year 2020 has been a year unlike any other, and with that said, 2021 is yours for the taking.  In this article, you will be able to find some items to look into as the New Year begins.

Check your withholding

 Before the end of the year, you can use the IRS’s Tax Withholding Estimator to determine whether or not you should file a new W-4 with your employer to increase the amount of taxes withheld from your paycheck. In order to do this, you will need a copy of your 2019 tax return in addition to your most recent pay stub to estimate your 2020 income. If it is determined that you will owe money when you file your tax return, the IRS tool can show you how much “extra withholding” should be put down on Line 4(c) of Form W-4. All of this can help you avoid a big tax bill this April.

Paying 2021 bills now

 Prepay deductible expenses such as mortgage payments and state taxes

  • Review your medical bills: For taxpayers with high medical expenses due to a major illness, you can deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income. If you’re near the threshold but not quite there, you can also schedule appointments and procedures that will increase the number of your deductible expenses.
  • Parents can lower their 2020 tax bill by prepaying the first quarter tuition bill. This tax break will not have to be itemized in order to claim it.
  • Students who are in their first four years of undergraduate study can take advantage of the American Opportunity Tax credit which is worth up to $2,500 for each qualifying student. Married couples can claim full credit if their joint income is under $160,000. Others can claim a partial amount if they are under $180,000.
  • In 30 states they allow you to deduct a portion of 529 plan contributions from state income taxes, so a 529 college savings plan won’t lower your federal tax bill but could lower the state tax tab.
  • If you are a resident of one of the states that offer a tax break for ABLE accounts can deduct up to $15,000 in contributions.

Standard Deduction Allowances

Taking advantage of standard deduction allowances can lower this year’s tax bill and can be claimed next year as a standard deduction. The amounts are generous, for singles and married filing separately at $12,400 and $24,800 for married joint-filing. Consider making additional expenditures before the end of the year if your total annual itemizable deductions are close to your standard deduction amount. Some of the ways this can be done are through your house payment, mortgage insurance premiums (for eligible taxpayers), and prepaying local, state, and property taxes.

To encourage charitable donations during the COVID-19 pandemic, the CARES Act allows deductions on 100% of an individual’s adjusted gross income for those who itemize. For those who don’t itemize the limit is set at $300. The CARES Act also may also require retirees to owe less in federal income taxes in 2021 since they will have lower taxable incomes. The CARES Act waived required minimum distributions for 2020 tax returns, which would typically be taxable income.

Long-term Capital Gains

In 2020 many investments fell below purchase price due to the COVID-19 pandemic. Investors can use the resulting loss to offset capital gains in taxable accounts. While investments held for less than a year are taxed as ordinary income, investments held longer are taxed at 0%-23%, the long-term capital gains rate.

2021 will have higher rates than 2020’s top rates at 35% and 37%. Investors should consider a capital loss carryover into next year to shelter short-term gains and qualify for these high rates. Those who fall into the bottom two tax brackets will have to pay no capital gains tax on investments held for more than a year. In this case, selling winning investments to take the tax-free advantage and reinvesting can reset the odometer for future gains. $3,000 of an overall net capital loss can be used to offset ordinary income and roll the rest over to the next year. Additionally, selling appreciated securities that have been held for over 12 months in a taxable brokerage firm account can have significant tax advantages.

In order to offset your gains if you are hit with a distribution, review your portfolio to see if there are any stocks, bonds, or mutual funds that have declined past purchasing value. Selling them before the end of the year can provide losses to offset your gains.


Thanks to the CARES Act, Required Minimum Distributions for 2020 have been suspended. This may be the perfect time to convert your traditional IRA into a Roth IRA. If your retirement account suffered from the economic impact in 2020, the depressed value in your IRA means more assets in a rollover distribution. The ultimate withdrawal and recovery value will then be tax-free in the Roth IRA.

Individuals can also contribute up to $19,500 to a 401(k), 403(b), or federal Thrift Savings Plan in 2020. For those over the age of 50, they can also benefit from $6,500 in catch-up contributions. If your employer offers a Roth 401(k) you can make contributions that can be withdrawn tax-free in retirement and won’t lower your taxable income. These pretax contributions will lower your take-home pay and reduce your tax bill.


At MBA Financial & Accounting Solutions we offer services including but not limited to individuals, corporations, partnerships, LLC’s, amendments, prior-years, estates, trusts, and tax-exempt organizations. MBA accountants stay up to date on current federal and state tax laws as well as complex tax codes and new tax regulations in order to provide you with the best tax advice possible.