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5 Tax Planning Tips for Retirees

5 tax planning tips for retirees

There’s a common misconception that, when you retire, your tax bills shrink, your tax returns become simpler and tax planning is a thing of the past. That may be true for some, but many people find that the combination of Social Security, pensions and withdrawals from retirement accounts increases their income in retirement and may even push them into a higher tax bracket.

If you’re retired or approaching retirement, consider these five tax-planning tips:

  1. Take inventory. Estimate how much money you’ll need in retirement for living expenses and inventory your income sources. These sources may include taxable assets, such as mutual funds and brokerage accounts; tax-deferred assets, such as IRAs, 401(k) plan accounts and pensions; and nontaxable assets, such as Roth IRAs, Roth 401(k) plans or tax-exempt municipal bonds. Social Security benefits may be nontaxable or partially taxable, depending on your other sources of income.

Develop a plan for drawing retirement income in a tax-efficient manner, being sure to keep state income tax, if applicable, in mind. For example, you might minimize current taxes by tapping nontaxable assets first, followed by assets that generate capital gains, and putting off withdrawals from tax-deferred accounts as long as possible.

On the other hand, if you’re approaching age 72 and will have substantial required minimum distributions (RMDs) from tax-deferred accounts when you reach that age (see No. 3 below), it may make sense to withdraw some of those funds earlier. Why? It can help you avoid having large RMDs that would push you into a higher tax bracket later.

For example, you might withdraw as much as you can from IRAs or 401(k) accounts each year without exceeding the lower tax brackets. That way, you keep current taxes on those funds at a reasonable level while reducing the size of your accounts and, in turn, the size of your RMDs down the road. You can obtain additional funds from nontaxable or capital gains assets, if needed.

  1. Consider the timing of Social Security benefits. You can begin receiving Social Security benefits as early as age 62 or as late as age 70. The later you start, the larger the benefit amount — so, if you don’t need the money right away, putting it off may be a good investment. Also, benefits are reduced if you start them before you reach full retirement age and continue to work.

Keep in mind that, if your income from other sources exceeds certain thresholds, your Social Security benefits will become partially taxable. For example, married couples filing jointly with combined income over $44,000 are taxed on up to 85% of their Social Security benefits. (Combined income is adjusted gross income plus nontaxable interest plus half of Social Security benefits.)

  1. Make qualified charitable distributions. You’re required to begin RMDs from tax-deferred retirement accounts once you reach age 72 (up from 70½ for people born before July1, 1949) though you’re able to defer your first distribution until April 1 of the year following the year you reach age 72. RMDs generally are taxed as ordinary income and you must take them regardless of whether you need the money. As noted in No. 1, a large RMD can push you into a higher tax bracket.

One strategy for reducing the amount of RMDs, at least if you’re charitably inclined, is to make a qualified charitable distribution (QCD). If you’re age 70½ or older (this age didn’t increase when the RMD age increased), a QCD allows you to distribute up to $100,000 tax-free directly from an IRA to a qualified charity and to apply that amount toward your RMDs.

The funds aren’t included in your income, so you avoid tax on the entire amount, regardless of whether you itemize. In addition, the income-based limits on charitable deductions don’t apply. Any amount excluded from your income by virtue of the QCD is similarly excluded from being treated as a charitable deduction.

  1. Pay estimated taxes. Your retirement income sources may or may not withhold income taxes. To avoid tax surprises and penalties, estimate whether your withholdings will be sufficient to pay your tax liability for the year and make quarterly estimated tax payments to cover any expected shortfall.
  2. Track your medical expenses. Currently, medical expenses are deductible only if you itemize and only to the extent they exceed 7.5% of your adjusted gross income. If you have significant medical expenses, track them carefully. Then if you exceed this threshold or are close to exceeding it, consider bunching elective expenses into the year to maximize potential deductions.

If you are nearing retirement age and have questions on how your tax situation may change, contact one of our expert tax advisors.

© 2021

Helpful Articles Tax

Rental Real Estate: Investment or Business?

If you own rental real estate, its classification as a trade or business rather than an investment can have a big impact on your tax bill. The distinction is especially important because of the 20% Sec. 199A deduction for certain sole proprietors and pass-through entity owners. This article provides a brief overview of the deduction and rental real estate guidance related to it.

Determining if a property is a business or an investment

If you own rental real estate, its classification as a trade or business rather than an investment can have a big impact on your tax bill. The distinction is especially important because of the 20% Section 199A deduction for certain sole proprietors and pass-through entity owners.

The 199A deduction is available for qualified business income (QBI), which can come from an eligible trade or business, but not from an investment. So, assuming you otherwise meet the requirements, qualifying your rental real estate activities as a trade or business may yield substantial tax savings. Fortunately, an IRS Revenue Procedure establishes a safe harbor.

A brief review

The 199A deduction is too complex to cover fully here. But, in general, it allows owners of sole proprietorships and pass-through entities — partnerships, S corporations and, generally limited liability companies (LLCs) — to deduct as much as 20% of their net business income, without the need to itemize.

Eligible owners are entitled to the full deduction so long as their taxable income doesn’t exceed an inflation-adjusted threshold (for tax year 2021, $164,900 for singles and heads of households; $329,800 for joint filers). Above the threshold, the deduction may be reduced or eliminated for businesses that perform certain services or lack sufficient W-2 wages or depreciable property.

Rental real estate guidance

According to the IRS, for purposes of the 199A deduction, an enterprise is a trade or business if it qualifies as such under Internal Revenue Code Section 162. That section doesn’t expressly define “trade or business” — it’s determined on a case-by-case basis based on various factors. Generally, a trade or business is an activity conducted “on a regular, continuous and substantial basis” with the aim of earning a profit.

Uncertainty over whether rental real estate qualifies, especially for taxpayers with one or two properties, prompted the IRS to issue Revenue Procedure 2019-38 to establish a safe harbor. Under the Revenue Procedure, a rental real estate enterprise (RREE) is deemed a trade or business if the taxpayer (you or a “relevant pass-through entity” in which you own an interest):

  • Maintains separate books and records for the enterprise,
  • Performs at least 250 hours of rental services per year (for an enterprise that’s at least four years old, this requirement is satisfied if you meet the 250-hour test in at least three of the last five years),
  • Keeps logs, time reports or other contemporaneous records detailing the services performed, and
  • Files a statement with his or her tax return.

The Revenue Procedure lists the types of services that count toward the 250-hour minimum and clarifies that they may be performed by the owner or by employees or contractors. It also defines an RREE as one or more rental properties held directly by the taxpayer or through disregarded entities (for example, a single-member LLC).

Generally, taxpayers must either treat each rental property as a separate enterprise or treat all similar properties as a single enterprise. Commercial and residential properties, for example, can’t be combined in the same enterprise.

Planning opportunities

There may be opportunities to restructure rental activities to take full advantage of the safe harbor. For example, Marilyn owns a rental residential building and a rental commercial building and performs 125 hours of rental services per year for each property. As noted, she can’t combine the properties into a single enterprise, so she doesn’t pass the 250-hour test.

But let’s say she exchanges the residential building for another commercial building for which she provides 125 hours of services. Then she can treat the two commercial buildings as a single enterprise and qualify for the safe harbor (provided the other requirements are met).

Don’t try this at home

The tax treatment of rental real estate is complex. To take advantage of the 199A deduction or other tax benefits for rental real estate, consult your tax advisor.

Sidebar: Are you a real estate professional?

Ordinarily, taxpayers who “materially participate” in a trade or business are entitled to deduct losses against wages or other ordinary income and to avoid net investment income tax on income from the business. The IRS uses several tests to measure material participation. For example, you materially participate in an activity if you devote more than 500 hours per year, or if you devote more than 100 hours and no one else participates more.

Rental real estate, however, is generally deemed to be a passive activity — that is, one in which you don’t materially participate — regardless of how much time you spend on it. There’s an exception, however, for “real estate professionals.”

To qualify for the exception, you must spend at least 750 hours per year — and more than half of your total working hours — on real estate businesses (such as development, construction, leasing, brokerage or management) in which you materially participate. (The hours you spend as an employee don’t count, unless you own at least 5% of the business.)

© 2021

For personalized guidance, contact one of our tax experts.

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HHS Announces $25.5 Billion in Funding Available For Healthcare Providers

On September 10, 2021, the Department of Health and Human Services (HHS) announced $25.5 billion of additional funding will become available for healthcare providers affected by the COVID-19 pandemic. The funding is split between two funds: the American Rescue Plan (ARP) and the Provider Relief Fund Phase 4 (PRF). $8.5 billion from the ARP will be available for providers that serve Medicaid, Children’s Health Insurance Program (CHIP), and Medicaid patients in rural areas. The PRF will provide the other $17 billion available for a wide range of providers that can provide evidence of revenue losses due to the pandemic between July 1, 2020 and March 31, 2021. Providers with a smaller number of patients and providers that serve Medicaid, CHIP, and Medicare patients are eligible for bonus payments. 

Here are the highlights:

  • Healthcare providers can apply for $25.5 billion in relief funds starting September 29, 2021.
  • Phase 4 payments will be based on providers’ lost revenues and expenditures between July 1, 2020, and March 31, 2021.
  • Phase 4 payments will reimburse smaller providers at a higher rate than larger providers and include bonus payments for providers who serve Medicaid, CHIP, and/or Medicare patients, who tend to be lower income and have greater and more complex medical needs.
  • Providers can apply for both the PRF and ARP programs in one application.

For more information, read the press release from the Department of Health and Human Services: 

Jackson, TN News

Seasoned Banker Joins Top Regional CPA Firm As Client Relations Director

Alexander Thompson Arnold PLLC
227 Oil Well Rd.
Jackson, TN 38305


For more information contact:
Alexis Long, Marketing Director


Jackson, Tenn. — Alexander Thompson Arnold PLLC (ATA) is proud to announce the addition of Heather Castleman in the newly created position of client relations director. Castleman, formerly of a large national bank, will bring her skillset to the ATA team effective Sept. 27, 2021.

ATA implemented this role to support client relationships and to better understand business owners’ needs in order to connect them with the abundant resources that ATA has to offer. Castleman’s primary goal is to prioritize the interests of current and future clients by facilitating conversations and fostering lasting relationships between advisees and ATA. She will serve as a liaison for ATA’s Family of Firms and advisory services.

“Heather has a great talent of meeting her advisees’ needs and helping them reach financial goals through personal relationships,” said John Whybrew, managing partner of ATA. “Her experience of maintaining relationships with clients in several states and managing a team of private client relationship managers will allow her to successfully forge connections between our clients, CPAs and the rest of our firm.”

Castleman comes to ATA with 25 years of experience managing client relationships in the financial services industry. She was most recently a private client relationship manager and the team lead for community banking at First Horizon Bank. Castleman’s priorities throughout her career have been building and maintaining positive relationships with clients as well as providing the best services available for customers.

“I am looking forward to this new opportunity in my career,” said Castleman. “This position will allow me to continue to focus on building lasting relationships and helping others. In this role, my goal is to show others that ATA has a full stack of resources available both to individuals and to the business community.”

Heather is married to Alan, a realtor with Hickman Realty Group in Jackson. They have been married for twenty-six years and have two daughters, Paige and Zoe.


About Alexander Thompson Arnold PLLC (ATA)

ATA is a long-term business advisor to its clients and provides other services that are not traditionally associated with accounting. For example, Revolution Partners, ATA’s wealth management entity provides financial planning expertise; ATA Technologies provides trustworthy IT solutions; Sodium Halogen focuses on growth through the design and development of marketing and digital products; Adelsberger Marketing offers video, social media, and digital content for small businesses; and ATA Employment Solutions is a comprehensive human resource management agency.

ATA has 13 office locations in Tennessee, Kentucky and Mississippi. Recognized as an IPA Top 200 regional accounting firm, it provides a wide array of accounting, auditing, tax and consulting services for clients ranging from small family-owned businesses to publicly traded companies and international corporations. ATA is also an alliance member of BDO USA LLP, a top five global accounting firm, which provides additional resources and expertise for clients.


House Ways And Means Committee Advances Tax Legislation As Part of Reconciliation Bill

After almost 40 hours of debate over four days, the House Ways and Means Committee on September 15 approved a tax package that would increase rates on high-net-worth individuals and corporations and affect cross-border activity and pass-through entities, advancing the tax elements of the Biden administration’s “Build Back Better” agenda.

The package advanced on a largely party-line 24-19 vote – no Republicans voted for it, and only one Democrat, Rep. Stephanie Murphy, D-Fla., voted against it.

As the next step in the legislative process, the legislation now goes to the House Budget Committee, where it will be combined with bills from other House committees and eventually brought before the full House for a vote as the reconciliation legislation.


The draft legislation would raise the top individual marginal tax rate from the current 37% to 39.6% for taxable income over $450,000 for married individuals filing jointly and surviving spouses, $425,000 for head of households, $400,000 for single individuals, $225,000 for married individuals filing separately, and $12,500 for estates and trusts. The proposal would be effective for taxable years beginning after December 31, 2021.

The capital gains tax rate would rise to 25% from 20% for transactions by high-income individuals made after Sept. 13, 2021.

The bill would also create a 3% surcharge on modified gross adjusted income above $5 million, and set a limit on contributions to large individual retirement accounts.

The bill would extend the holding period to obtain long-term capital gains treatment for gain allocated to carried interest partners from three to five years. The three-year holding period would remain in effect with respect to any income attributable to real property trades or businesses and for taxpayers (other than an estate or trust) with adjusted gross income of less than $400,000.

Business Provisions

The legislation would introduce a graduated income tax rate structure for most corporations, with a top corporate tax rate of 26.5%. Corporations with taxable income that does not exceed $400,000 would be subject to a new 18% tax rate (lower than the current 21% rate), while those with income that exceeds $400,000 but does not exceed $5 million would be subject to a 21% tax rate, and those with income in excess of $5 million would be subject to the top 26.5% rate.

On the international front, the bill would reduce the Section 250 deduction for global intangible low-taxed Income (GILTI) to 37.5%, resulting in an effective tax rate of 16.5% based on a corporate tax rate of 26.5%. The GILTI would be calculated on a country-by-country basis. Other international tax provisions include:

  • The deduction for qualified business asset investment (QBAI) would be reduced to 5%;
  • The foreign tax credit haircut would be reduced to 5%;
  • The tax on foreign-derived intangible income would rise to an effective rate of 20.7% based on a corporate tax rate of 26.5%;
  • Excess foreign tax credit carryforwards would be allowed for five years but carrybacks would be disallowed; and
  • A new limitation on interest expense deductions for some multinational corporations would be introduced.

What’s Not in the Bill

The Ways and Means tax bill does not include any changes to the cap on individual itemized deductions for state and local taxes, which was introduced in 2017’s tax reform. Ways and Means Chairman Richard Neal (D-MA) has said he is committed to include “meaningful SALT relief” in the final legislation.

A provision to end the tax-free step-up in basis above a $1 million threshold that was proposed by the Biden administration is also not included in the Ways and Means bill.


Written by Todd Simmens. Copyright © 2021 BDO USA, LLP. All rights reserved.


Helpful Articles Tax

Increased Tax Benefits for Taxpayers That Give to Charity

WASHINGTON – The Internal Revenue Service today explained how expanded tax benefits can help both individuals and businesses give to charity before the end of this year.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted last December, provides several provisions to help individuals and businesses who give to charity. The new law generally extends through the end of 2021 four temporary tax changes originally enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Here is a rundown of these changes.

Deduction for individuals who don’t itemize; cash donations up to $600 qualify

Ordinarily, individuals who elect to take the standard deduction cannot claim a deduction for their charitable contributions. The law now permits these individuals to claim a limited deduction on their 2021 federal income tax returns for cash contributions made to certain qualifying charitable organizations. Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify to claim a limited deduction for cash contributions.

These individuals, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions made to qualifying charities during 2021. The maximum deduction is increased to $600 for married individuals filing joint returns.

Cash contributions to most charitable organizations qualify. However, cash contributions made either to supporting organizations or to establish or maintain a donor advised fund do not qualify. Cash contributions carried forward from prior years do not qualify, nor do cash contributions to most private foundations and most cash contributions to charitable remainder trusts. In general, a donor-advised fund is a fund or account maintained by a charity in which a donor can, because of being a donor, advise the fund on how to distribute or invest amounts contributed by the donor and held in the fund. A supporting organization is a charity that carries out its exempt purposes by supporting other exempt organizations, usually other public charities. See Publication 526 for more information on the types of organizations that qualify.

Cash contributions include those made by check, credit card or debit card as well as amounts incurred by an individual for unreimbursed out-of-pocket expenses in connection with the individual’s volunteer services to a qualifying charitable organization. Cash contributions don’t include the value of volunteer services, securities, household items or other property.

100% limit on eligible cash contributions made by itemizers in 2021

Subject to certain limits, individuals who itemize may generally claim a deduction for charitable contributions made to qualifying charitable organizations. These limits typically range from 20% to 60% of adjusted gross income (AGI) and vary by the type of contribution and type of charitable organization. For example, a cash contribution made by an individual to a qualifying public charity is generally limited to 60% of the individual’s AGI. Excess contributions may be carried forward for up to five tax years.

The law now permits electing individuals to apply an increased limit (“Increased Individual Limit”), up to 100% of their AGI, for qualified contributions made during calendar-year 2021. Qualified contributions are contributions made in cash to qualifying charitable organizations.

As with the new limited deduction for nonitemizers, cash contributions to most charitable organizations qualify, but, cash contributions made either to supporting organizations or to establish or maintain a donor advised fund, do not. Nor do cash contributions to private foundations and most cash contributions to charitable remainder trusts

Unless an individual makes the election for any given qualified cash contribution, the usual percentage limit applies. Keep in mind that an individual’s other allowed charitable contribution deductions reduce the maximum amount allowed under this election. Eligible individuals must make their elections with their 2021 Form 1040 or Form 1040-SR.

Corporate limit increased to 25% of taxable income

The law now permits C corporations to apply an increased limit (Increased Corporate Limit) of 25% of taxable income for charitable contributions of cash they make to eligible charities during calendar-year 2021. Normally, the maximum allowable deduction is limited to 10% of a corporation’s taxable income.

Again, the Increased Corporate Limit does not automatically apply. C corporations must elect the Increased Corporate Limit on a contribution-by-contribution basis.

Increased limits on amounts deductible by businesses for certain donated food inventory

Businesses donating food inventory that are eligible for the existing enhanced deduction (for contributions for the care of the ill, needy and infants) may qualify for increased deduction limits. For contributions made in 2021, the limit for these contribution deductions is increased from 15% to 25%. For C corporations, the 25% limit is based on their taxable income. For other businesses, including sole proprietorships, partnerships, and S corporations, the limit is based on their aggregate net income for the year from all trades or businesses from which the contributions are made. A special method for computing the enhanced deduction continues to apply, as do food quality standards and other requirements.

Keep good records

The IRS reminds individuals and businesses that special recordkeeping rules apply to any taxpayer claiming a charitable contribution deduction. Usually, this includes obtaining an acknowledgment letter from the charity before filing a return and retaining a cancelled check or credit card receipt for contributions of cash. For donations of property, additional recordkeeping rules apply, and may include filing a Form 8283 and obtaining a qualified appraisal in some instances.

For details on how to apply the percentage limits and a description of the recordkeeping rules for substantiating gifts to charity, see Publication 526, Charitable Contributions, available on

The IRS also encourages employers to help get the word out about the advanced payments of the Child Tax Credit because they have direct access to many employees and individuals who receive this credit. More information on the Advanced Child Tax Credit is available on

For more information about other Coronavirus-related tax relief, visit

*Article from IRS Newswire

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Hurricane Ida victims in Mississippi now eligible for tax relief; Oct. 15 deadline, other dates extended to Nov. 1

WASHINGTON — Victims of Hurricane Ida in parts of Mississippi now have until Nov. 1, 2021, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today.

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual or public assistance. Currently, individuals and households affected by Hurricane Ida that reside or have a business in all 82 counties and the Mississippi Choctaw Indian Reservation qualify for tax relief. The current list of eligible localities is always available on the disaster relief page on

“The IRS stands ready to help people and businesses affected by Hurricane Ida, now and in the weeks ahead,” said IRS Commissioner Chuck Rettig.

The tax relief postpones various tax filing and payment deadlines that occurred starting on Aug. 28, 2021. As a result, affected individuals and businesses will have until Nov. 1, 2021, to file returns and pay any taxes that were originally due during this period. This means individuals who had a valid extension to file their 2020 return due to run out on Oct. 15, 2021, will now have until Nov. 1, 2021, to file. The IRS noted, however, that because tax payments related to these 2020 returns were due on May 17, 2021, those payments are not eligible for this relief.

The Nov. 1, 2021 deadline also applies to quarterly estimated income tax payments due on Sept. 15, 2021, and the quarterly payroll and excise tax returns normally due on Nov. 1, 2021. Businesses with an original or extended due date also have the additional time including, among others, calendar-year partnerships and S corporations whose 2020 extensions run out on Sept. 15, 2021 and calendar-year corporations whose 2020 extensions run out on Oct. 15, 2021.    

In addition, penalties on payroll and excise tax deposits due on or after Aug. 28, 2021 and before Sept. 13, will be abated as long as the deposits are made by Sept. 13, 2021.

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2021 return normally filed next year), or the return for the prior year (2020). Be sure to write the FEMA declaration number – EM-3569 − on any return claiming a loss. See Publication 547 for details.

The tax relief is part of a coordinated federal response to the damage caused by Hurricane Ida and is based on local damage assessments by FEMA. For information on disaster recovery, visit

*Article from IRS Newswire