IR-2020-279,
​December 22, 2020

WASHINGTON — The Internal Revenue Service today issued the 2021 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on January 1, 2021, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
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• 56 cents per mile driven for business use, down 1.5 cents from the rate for 2020,
• 16 cents per mile driven for medical, or moving purposes for qualified active duty members of the Armed Forces, down 1 cent from the rate for 2020, and
• 14 cents per mile driven in service of charitable organizations, the rate is set by statute and remains unchanged from 2020.

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, unless they are members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details see Moving Expenses for Members of the Armed Forces.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Taxpayers can use the standard mileage rate but must opt to use it in the first year the car is available for business use. Then, in later years, they can choose either the standard mileage rate or actual expenses. Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.

It's important to note that Governor Hogan signed an executive order (copy below, FAQs) that excludes 2020 employer data from the formula used to determine the 2021 unemployment rate. If the Governor had not done this, all employers would have had an even higher tax rate for 2021.

​While obviously not good news, at first glace it might not sound all that punitive at first glance. However, imagine you have 50 employees, all of which require an unemployment contribution. That comes out to an extra $8,075 that employers will have to pay in for 2021. In higher turnover businesses such as retail and hospitality, it's very possible to have on average 10 to 15 employees per year, but because of attrition this equals 50 or more total employees per year, all of which require their own unemployment contribution.

While unemployment rates will reduce over time as we saw a similar situation occur during and after the financial crisis (great recession). Unfortunately, in the short term, this is one more hit businesses are going to have to contend with.

2021 Standard Deduction and Personal Exemption
​The standard deduction for single filers will increase by $150 and by $300 for married couples filing jointly (Table 2).
The personal exemption for 2021 remains eliminated.

The Alternative Minimum Tax (AMT) was created in the 1960s to prevent high-income taxpayers from avoiding the individual income tax. This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two.

The AMT uses an alternative definition of taxable income called Alternative Minimum Taxable Income (AMTI). To prevent low- and middle-income taxpayers from being subject to the AMT, taxpayers are allowed to exempt a significant amount of their income from AMTI. However, this exemption phases out for high-income taxpayers. The AMT is levied at two rates: 26 percent and 28 percent.
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The AMT exemption amount for 2021 is $73,600 for singles and $114,600 for married couples filing jointly (Table 3).

In 2021, the 28 percent AMT rate applies to excess AMTI of $199,900 for all taxpayers ($99,950 for married couples filing separate returns).
AMT exemptions phase out at 25 cents per dollar earned once taxpayer AMTI hits a certain threshold. In 2021, the exemption will start phasing out at $523,600 in AMTI for single filers and $1,047,200 for married taxpayers filing jointly (Table 4).

​The maximum Earned Income Tax Credit in 2021 for single and joint filers is $543, if the filer has no children (Table 5). The maximum credit is $3,618 for one child, $5,980 for two children, and $6,728 for three or more children. All these are relatively small increases from 2020.

​​2021 Child Tax Credit

2021 Qualified Business Income Deduction (Sec. 199A)
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The Tax Cuts and Jobs Act includes a 20 percent deduction for pass-through businesses against up to $164,900 of qualified business income for unmarried taxpayers and $329,800 for married taxpayers (Table 7).

2021 Annual Exclusion for Gifts
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In 2021, the first $15,000 of gifts to any person are excluded from tax. The exclusion is increased to $159,000 for gifts to spouses who are not citizens of the United States.

I was fortunate earlier in my career to work directly with my employer’s risk management department for guidance and feedback as well responsible for most of the insurance accounting for our organization.  Along with previous audit experience of some smaller insurers, I received a world of insight into the world of insurance, including coverage types, specialty insurance, coverage limitations, reinsurance, premium increases (even when costs are flat or going down), and insurance reserves.

If not already obvious, it’s simple to understand that insurance companies are designed to come out on the positive end of premiums received minus claims paid, especially over the mid and long term (reserves help cover acceptable short and long term losses & risks) …..they are in the business of making money.  No, while it's not exactly Vegas, the odds are on the carrier side by using a laundry list of people and means to do so, including: actuaries, risk models, historical experience, premium methodology, client selection process, risk weighting, coverage types provided especially by area & region, coverage limits, and so much more. So, a tremendous amount of information is considered, and we should all get why, as when a carrier fails, everyone seems to lose.

The purchase of this insurance probably starts out something like this with a business owner talking to an agent, "I need to make sure that I have enough coverage for me/my business so if something (catastrophic) major happens and I can't open my doors for more than a couple days, months, or possibly forever, I'll have plenty of protection in place for at least a period of time so I don't lose everything."

The agent’s response, "sure thing, business interruption insurance would be perfect for you. If some major event occurs (excluding those covered by other types of insurance) forcing you to close for several days or weeks, then the policy will provide X dollars a month for X months."

Yes, a bit simplistic but this does occur, and I understand both sides of it, including an agent acting in good faith.  Yet, chances are other than price, the small business owner is hooked, and along with their other coverages think they are fully covered, with the rest being noise and fine print. The carrier knows they've covered a majority, if not near ALL the major risk factors (along with other types of insurance coverage) a business will encounter. However, the carrier ABSOLUTELY KNOWS the owner is nowhere near fully covered, which is the part I really can't stand and needs to change in some meaningful way as this happens all too often.

Now with the entire world being caught in the clutches of the Coronavirus (Covid-19) pandemic we’re hearing the stories once again of insurers denying claims and this time it’s about business interruption insurance, just when businesses need it most.

From the Article in The Advocate https://ramlcpa.link/935ca ...., ​Bill Davis, a regional spokesman for the Insurance Information Institute said:

This response is telling and shows why the excuses need to stop, while solutions being found.
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A fact of life is there will always be one off crises & events putting money and lives at risk.  Including man made events there have been at least three (3) major world effecting events in the past 20 years which have changed are lives forever (9/11, the 2008 Financial Crisis, and Covid-19).  If you count more localized disasters and events (Katrina, Fukushima, Thailand to name a few…. its 6+ easy, likely closer to 10) this number gets more unsettling very quickly. 

As bad as that may sound, if we look back through the 20th century (I know, history shows how great we are at looking to the past for insight, as why learn something from our past troubles or mistakes) this shouldn’t be much of a surprise, as its littered with events & crises every decade while wiping away billions of dollars & lives in the process (Vietnam, Korea, WWII, WWI, and the Great Depression to name some of the largest).  The one certainty is uncertainty, which is exactly what insurance is for.

So, while pricing in a specific unknown world or local event may be difficult for the carrier, it makes no difference to a business owner if their doors are shut due to a virus, a tsunami, or war. Yes, property damage does matter but that is the easy part.  While this is not a new problem, it is a lot more fixable especially if measures are setup before the next crisis hits and provide more favorable back stops by the government, especially for things that an insurance policy can't be expected to cover. Thus, they can be structured in far more favorable ways for business owners and everyday taxpayers instead of just another last-minute bailout.

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​HSA's are still so underutilized as a tax tool it’s a bit unreal especially considering its 2019 & HSA's have been around for years.

While we’ve been delayed a bit longer than planned with the clients only section to our website, we are now just a short time away.  The emphasis in the end is to touch on matters like this in greater and greater detail, and move BEYOND the OBVIOUS, and instead supercharge wealth creation for ALL our clients. 
 
Here are a few of my favorite perks of HSA's.
 
1) Maximizing your contribution(s) when able.  As some who's been through hell and back with health scares in the past, and the money crunch that can come after (even with insurance), HSA's that are well planned and funded long before an event arises can save a ton of heart ache and years of hard work.
 
2) IT’S TAX FREE MONEY - Literally!!   When you put money into an HSA it's tax deductible up to the limits, it then grows tax free, and as long as distributions (and growth) are used for qualified medical the entire transactions costs you nothing in tax.  How many tax breaks save you money to start, and charge no tax on the back end (even on the growth)?  Not many believe me.
 
3) If you're Married and Your Spouse is the Beneficiary the funds transfer TAX FREE, better yet the spouse isn't even required to carry an HSA-eligible health plan.  There are other rules if the beneficiary is not your spouse which can be very tax beneficial in their own right if done properly. 
 
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