Hilltop Wealth Solutions Logo

October 8, 2021 ▫️ Tax Planning

Tips to Prepare for Another Tricky Tax Year

It’s not too soon to start looking at next year’s tax season. With complex implications from the pandemic, including new credits, remote work and more, 2021 is shaping up to be another precarious tax year.

Several factors will make 2021 tax returns more complicated than average, including the third stimulus payment that started going out in March. Though the stimulus payments aren’t considered taxable income — if taxpayers include them as income, they will end up paying more in taxes and will ultimately need to request a refund.

The child tax credits will also be something that tens of millions of families will need to be aware of when filing, as it could impact their final return.

There are other complicating factors that will carry over from the 2020 tax year, including unemployment benefits and working remotely in different states.

And, if proposed changes in the tax code that passed a House committee are enacted into law, those that are wealthy — as defined by lawmakers — will likely see their taxes rise.

Key Provisions That Could Impact Your 2021 Tax Return Include:

  • Raising the top federal tax rate from 37% to 39.6%.

  • Raising the tax on dividends and the long-term capital gains tax rate for assets held over one year to 25% (up from 20%) for individuals earning more than $400,000 and for couples that earn over $450,000.

  • Putting new limits on qualified business income deduction (QBI) deduction for pass-through firms.

  • Placing new limits on those who have large retirement account balances.
The proposed changes have a way to go from becoming law but are winding their way through Congress.

Moreover, a sharply divided Senate seems likely to pare down the $3.5 trillion reconciliation bill, assuming legislators in the House compromise on new outlays. If new spending is reduced, smaller tax hikes could follow.

With Senate being split 50 Republicans, and essentially 50 Democrats (48 registered Democrats and 2 Independents that caucus with the Democrats), Vice President Kamala Harris can provide the tiebreaker vote to get to a simple majority and advance another substantial change to the tax code.

While the political path forward remains uncertain, it is better to plan for — but not attempt to predict — potential tax policy changes. Below is additional information on some of the proposed changes.

  • A higher rate on dividends and long-term capital gains.
    As proposed, if a capital gain is realized on or after September 14, 2021, individuals earning more than $400,000 and couples earning over $450,000 would pay a top rate of 25%. The same would hold true with dividends.

    With a few exceptions, it would be too late to incur a long-term capital gain at 2021’s lower rate.

    Taxpayers could consider deferring gains, as an unrealized capital gain would not be subject to taxes. Yet much would depends on someone’s individual circumstances.

  • New RMD requirements for individuals who have high income and large retirement accounts.
    If someone exceeds $400,000 and $450,000 in income for single and joint filers, respectively, AND retirement accounts total over $10 million — regardless of age — they could be subject to RMDs beginning in 2022.

    They would also be prohibited from making IRA contributions.

    However, the restriction on contributions wouldn’t apply to employer-sponsored plans such as 401(k)s, SEP IRAs, or SIMPLE IRAs.

  • Limits on qualified business income (QBI) deduction.
    If you are self-employed, the House proposal could limit deductions to $500,000 for joint returns and $400,000 for individual returns.
Lawmakers left on the cutting room floor taxing unrealized capital gains at death. Also, the step-up in basis for inherited assets is NOT in the current House proposal.

The bottom line is to be diligent about keeping track of all the information you will need for your 2021 tax returns.

Get your stimulus numbers, child tax credit information, and/or unemployment benefits together in one place to streamline your filing process. Also, start a list of things that might change your tax return — and tell your tax professional.

Remember, the proposed changes mentioned above MAY or MAY NOT be enacted into law.

And while taxes are essential when it comes to your overall financial wellbeing, there are other variables to consider. Also, a financial plan should drive your investment decisions, not tax laws.

As always, we are happy to entertain any questions and tailor recommendations to your situation.


Hilltop Wealth Solutions is a registered investment adviser with the Securities and Exchange Commission; registration does not imply a certain level of skill or training. While efforts are made to ensure the information contained herein is accurate, Hilltop Wealth Solutions cannot guarantee the accuracy of all such information presented.

A portion of this article was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please not— investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax, or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

Website Disclosures

Hilltop Wealth Solutions (“Company”) is an SEC registered investment adviser located in Mishawaka, IN with branch office located in MI and other locations throughout IN.  The Company may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements.  The Company’s web site is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links.  Accordingly, the publication of the Company’s web site on the Internet should not be construed by any consumer and/or prospective client as the Company’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.  Any subsequent, direct communication by the Company with a prospective client shall be conducted by a representative that is either registered or qualified for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of the Company, please contact the SEC or the state securities regulators for those states in which the Company maintains a notice filing.  A copy of the Company’s current written disclosure statement discussing Company business operations, services, and fees is available by going online via the SEC’s Investment Advisers Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using SEC #801-115255.

The Company does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to the Company web site or incorporated herein and takes no responsibility, therefore.  All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by the Company, will be profitable or equal any historical performance level(s).

Certain portions of Company web site (i.e. newsletters, articles, commentaries, etc.) may contain a discussion of, and/or provide access to, the Company (and those of other investment and noninvestment professionals) positions and/or recommendations as of a specific prior date.  Due to various factors, including changing market conditions, such discussion may no longer be reflective of current position(s) and/or recommendation(s).  Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from the Company, or from any other investment professional.

The Company is neither an attorney nor an accountant, and no portion of the web site content should be interpreted as legal, accounting or tax advice.

Rankings and/or recognition by unaffiliated rating services and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if the Company is engaged, or continues to be engaged, to provide investment advisory services, nor should it be construed as a current or past endorsement of the Company by any of its clients.  Rankings published by magazines and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser.  Rankings are generally limited to participating advisers.

To the extent that any client or prospective client utilizes any economic calculator or similar interactive device contained within or linked to the Company web site, the client and/or prospective client acknowledges and understands that the information resulting from the use of any such calculator/device, is not, and should not be construed, in any manner whatsoever, as the receipt of, or a substitute for, personalized individual advice from the Company, or from any other investment professional.

Each client and prospective client agrees, as a condition precedent to his/her/its access to the Company web site, to release and hold harmless the Company, its officers, directors, owners, employees and agents from any and all adverse consequences resulting from any of his/her/its actions and/or omissions which are independent of his/her/its receipt of personalized individual advice from the Company.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.