Professor Mark Levine shares his thoughts on taxes for 2021
Tax time is fast approaching amid a new administration, a lingering pandemic and a stressed economy. We approached Mark Levine, professor at the Franklin L. Burns School of Real Estate and Construction Management at the Daniels College of Business who’s worked as a real estate broker, attorney and investor, for his thoughts on taxes and some changes that may be brewing this year. Below, he covers capital gains, income tax, COVID relief, employees working from home and more.
One of the more basic issues in the federal income tax area is tax rates on income. If you’re part of a married couple making more than $480,050 and filed in 2017, you paid 39.6%. In 2018, you would have paid 35% on the same income until your income exceeded $600,000. Under the Tax Cuts and Jobs Act changes, the maximum rate would be (and is, today) 37%. Under President Biden, the proposed rate returns to 39.6% and it would apply at a lower level of taxable income.
Ordinary income is taxed at a higher rate than long-term capital gains. Capital assets held longer than a year and disposed of at a gain can generate a capital gain—clearly favorable for a taxpayer because that gain is normally taxed at a rate well below the rate of ordinary income. The Biden administration has proposed that long-term capital gains would not receive the lower tax rates when income exceeds $1 million. In this instance, the proposed rate would be 39.6%. If the proposals become law, the tax rate on capital gains rises from 20% to almost 40%.
Personal use for Company Vehicles
The U.S. Treasury Department has recently issued final regulations on how much taxable income is generated for employees using company vehicles for personal use. Using a company car for personal trips creates taxable income to those employees. Generally, this income is determined on a per-mile basis—this per-mile amount is often changed yearly, similar to the change in the deduction per mile for the business use of an auto.
Home Office Deductions
If you are one of the many workers who began working at home after the pandemic hit, you might have thought you could land a few extra deductions on your taxes. Not so fast. It’s important to know that only independent contractors or businesses, not actual employees, can claim expenses for a home office.
COVID-19 Relief Legislation
Last year, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) offered trillions of dollars of relief, more unemployment insurance, money for individuals and other tax benefits, including a $300 charitable deduction for qualified taxpayers. This deduction applies even if you claim the standard deduction and don’t itemize on your tax return. It also allows the use of net operating losses to be carried back for five years and possible payroll tax credits on some wages. Plus, it suspended some excise taxes.
Editor’s note: Those interested in learning more about these topics and others can visit Mark Levine’s website, markleelevine.com, where he publishes blogs, tips and other resources.