The IRS Increases 2021 Contribution Limits to SEP IRAs and Solo 401(k)s for Business Owners

The IRS increased 2021 contribution limits for self-employed persons who contribute to a SEP IRA or Solo 401(k) from $57,000 to $58,000. For those 50 or older, there is also a $6,500 catch-up contribution amount allowing total contributions in 2021 of $64,500. The SEP IRA and the Solo 401(k) have become a popular savings tool for self-employed persons who don’t have an employer 401(k) plan, as they allow them to contribute more than the annual $6,000 contribution that is allowed in a Traditional IRA or Roth IRA.

Solo 401(k)s and SEP IRAs are also easier to administer than pension plans, and standard 401(k)s and have proven to be an optimal fit for self-employed persons who do not have full-time employees other than themselves, partners, and family.

The IRS did not change 2021 contribution limits on Traditional IRAs and Roth IRAs and those amounts remain at 2020 levels of $6,000 annually, with a $1,000 catch-up for those 50 or older.

The 2021 income phaseout for Roth IRA contributions begins at $125,000 for singles and heads of household and starts to phase out at $198,000 for married couples filing jointly. If you phase out for standard Roth IRA contributions because you are high-income, you can contribute using the back-door Roth IRA method.

Related: SBA Approves Simple 1-Page PPP Forgiveness Application for Loans of $50,000 or Less

Employee contribution limits to 401(k)s were increased in 2020 to $19,500 and remain the same for 2021. HSA contribution limits for 2021 will go up from $3,550 individual to $3,600, and family contributions will increase from $7,100 to $7,200.

2021 Contribution Limits

IRS 2021 Retirement Contribution Limits

All of these accounts provide tax preferences and benefits over a typical savings account. The HSA, Traditional IRA, Solo 401(k) and SEP IRA all provide tax deductions when you contribute to them and the funds grow tax deferred. For Roth IRAs and Roth accounts in Solo 401(k)s, there is no tax deduction on your contributions, but the funds grow and come out tax-free at retirement.

One of the most significant costs to growing wealth and assets for retirement is taxes. These accounts all provide tax advantages over typical savings and brokerage accounts with non-retirement account dollars.

Related: SEC Expands Accredited Investor Rule

If you are looking for tax deductions, tax deferred growth, or tax-free income, you should be using these accounts. Keep in mind there are qualifications and phase-out rules that apply, so make sure you are getting competent advice about which accounts should be utilized in your specific situation.

And lastly, the power in using these accounts is in maximizing the investement returns. All these accounts can be self-directed and invested into assets you know best. When you contribute funds into these accounts, those funds can be invested to grow. You can then invest into public stock, ETFs and mutual funds, but also into real estate, private companies and funds (LPs and LLCs) and small businesses using self-directed account providers. Consider your investment options wisely, and seek out professional advice as needed to become educated and informed on how to best achieve your financial goals.

By: Mat Sorensen Entrepreneur Leadership Network VIP



IRAFinancial 1.94K subscribers IRA Financial’s Adam Bergman Esq. discusses the recently announced contribution limits for 2021 for retirement plans, including the Solo 401(k), Self-Directed IRA, SIMPLE and SEP IRAs, along with a historical look at the limits. —

Discover more videos by IRA Financial:… Subscribe to our channel:… — About IRA Financial: IRA Financial Group was founded by Adam Bergman, a former tax and ERISA attorney who worked at some of the largest law firms.

During his years of practice, he noticed that many of his clients were not even aware that they can use an IRA or 401(K) plan to make alternative asset investments, such as real estate. He created IRA Financial to help educate retirement account holders about the benefits of self-directed retirement plan solutions. Learn More:…

Can Bitcoin’s Lightning Network Power Payments in a Japanese Bar?

A bar in Japan is teaming up with a locally-based lightning startup to let customers pay for sparkling wine and soft drinks using the experimental payments network.

For the month of June, the Japan-based lightning startup Nayuta will be partnering with Awabar Fukouka to trial the payment system in what they’re calling a “field test.”

The Lightning Network is seen by its supporters as the best way to scale bitcoin so that more people can use the payment system at once, but the technology is still rather experimental and even risky to use. To that end, Nayuta sees this project as an way to further analyze how the technology works in the real world and to find out what still needs to be done to make it easier to use.

Though Awabar said their role is “small,” as the bar did not design the technology (Nayuta did), they’re “delighted” to participate, offering a place for the experimental technology to be tested in a brick-and-mortar context.

The company said in a statement:

“We hope it helps familiarize the community with the lightning network payment system.”

The following video shows how the point of sale app (created by Nayuta and run on the open source payment processor BTCPay) will look for customers purchasing their drinks:

Nayuta is known for helping to draw up specifications for the lightning network and recently launched its own implementation of the budding payment layer geared specifically for connected devices or the Internet of Things (IoT).

The idea is that as the tech components grow less expensive, more devices such as refrigerators and TVs will connect to the internet for data collection.

Source: Pivot – Blockchain Community

IRS Announces 2019 Tax Rates, Standard Deduction Amounts And More – Kelly Phillips Erb


The Internal Revenue Service (IRS) has announced the annual inflation adjustments for more than 60 tax provisions for the year 2019, including tax rate schedules, tax tables and cost-of-living adjustments. These are the numbers for the tax year 2019 beginning January 1, 2019. They are not the numbers and tables that you’ll use to prepare your 2018 tax returns in 2019 (you’ll find them here). These are the numbers that you’ll use to prepare your 2019 tax returns in 2020.If you aren’t expecting any significant changes in 2019, you can use the updated numbers to estimate your liability. If you plan to make more money or change your circumstances (i.e., get married, start a business, have a baby), consider adjusting your withholding or tweaking your estimated tax payments………….

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Do Not Ignore IRS Form 1099-C It Will Not End Well


Pay attention.  This is one of my posts with an important lesson rather than an entertaining story.  The lesson comes from a Tax Court decision – TCM 2018-140.  You will find out the taxpayer’s name if you read the case, but my practice in cases like this is to use a different name, since he might not want to be made more famous by this decision.  We’ll call him Joe.  In 2010, Joe had two debts discharged.  One was for $64,045 and the other for $300,134.

Each of the services sent him Form 1099-C.  And of course, they each sent a copy to the IRS.  Joe did not have a really strong year income wise in 2010, so he thought he did not need to file a return, which is why he ended up in Tax Court facing over $150,000 in tax and penalty.  It did not go well.  The lesson is to not be Joe.  Don’t just ignore Form 1099-C. I could leave it at that, but that would be too short a post.  So let’s look at the decision a bit and then consider what Joe should have done and the happy result that likely would have produced.

The Decision

It was pretty ugly.  Here are some high points.

Although petitioner received those Forms 1099-C, he chose to ignore them when the time came to file his Federal income tax return (return) for 2010. Instead, petitioner determined that because he did not earn wages that year he did not have an obligation to file a return for 2010, and he acted accordingly.

Right there Judge Nega is letting you know things are not going to go well for Joe. He “chose to ignore them when the time came to file”.  That is pretty harsh.

Joe had trouble figuring out exactly which debts related to the discharges, but he thought that one involved his principal residence, but he did not offer any proof that it was his principal residence.  Judge Nega seems to imply that he cut Joe some procedural slack, that was not taken advantage of.

At the close of trial, recognizing petitioner’s initial confusion and in order to provide petitioner an opportunity to establish his principal residence claim, we signaled that we might be amenable to a joint motion to reopen the record or the filing of further stipulations or concessions. On March 30, 2018, we issued a corresponding order directing petitioner to provide respondent with any documents relevant to his principal residence claim by May 14, 2018, and directing respondent to file any related motions or a status report by June 14, 2018. On June 14, 2018, respondent filed a status report indicating that petitioner failed to correspond with, or provide any documentation to, respondent despite his repeated attempts to engage petitioner. Accordingly, we decide this case on the basis of the record as submitted. Here is one of the key items.

While petitioner testified as to his economic misfortune and entered into evidence a handwritten document listing purported assets and liabilities, the record lacks any further substantive evidence, documentary or otherwise, to corroborate his insolvency claim. On the record before us, we find that petitioner has failed to carry his burden of proving that he was insolvent at the time the debts at issue were discharged, and we accordingly hold that he is ineligible for the insolvency exception.

Note.  In Tax Court, Joe has the burden of proving he is insolvent.  He has that burden in actual fact.  Had Joe filed a Form 1040 claiming insolvency, he would have had that burden in principle.  But he would only have had that burden in actual fact if his return was audited.  It was very easy for a computer to note that the 1099-Cs with Joe’s social security number were not reported.  From there it is all on autopilot.  Had Joe filed and claimed insolvency, human intervention would have been required in order to challenge his assertion.  More on that later.

Failure to file and failure to pay penalties were also upheld.

But What If?

If those loan servicers know their business, it seems pretty unlikely that Joe was solvent to the extent of over $360,000 after the discharge.  I don’t know.  Maybe he is a really good negotiator.  For the sake of argument let’s assume there is a good argument for insolvency.  Joe could have filed his Form 1040 and attached Form 982.  Take a look.  Check box 1(b) Discharge of indebtedness to the extent insolvent or maybe 1(e) for residence interest.  Then in Box 2 go for the gold and write in $364,179.  That should appease the computers anyway.  And even if it gets looked at, at least there is no failure to file.  I’m not going to get into Part II.  It only matters if you have tax attributes that you need to reduce.

If you want to be thorough you should got to Publication 4681 and fill out the worksheet on Page 6.  Note at the top right hand corner that it says “Keep for your records”.  That means you don’t have to send it in with your return.  So you could wait till they ask for it to fill it out.  And if they never ask for it, well you saved some time.

Had Joe taken those simple steps, I would put the odds at well over 90% that his return would have sailed through the system.

The Moral

Don’t ignore 1099-C (or 1099 anything actually). Don’t be Joe.

Other Coverage

I did not note that Lew Taishoff had covered this case, which is pretty unusual.  Mr. Taishoff covers the Tax Court with intense thoroughness. He alerted me though that he actually had without mentioning it by name.

The three T. C. Memos cases today, 8/29/18, are a trio of no-substantiations. Judge Judy and others of her ilk have much to answer for; people think they can go to court with no paper, no witnesses, and a sob story. Well, they can, but if they have burden of proof they’re sunk.


That reinforces my point about avoiding going to court, if you don’t have any evidence.  Reilly’s Laws of Tax Planning Prime Directive – If you don’t have documentation, at least have a plausible story – does not work as well in Tax Court as it might at the agent level.

Follow me on Twitter or LinkedIn. Check out my website.

I have been a CPA for over 30 years focusing on taxation. I have extensive experience with partnerships, real estate and high net worth individuals. My ideology can be summarized at least metaphorically by this quote: “I have a total irreverence for anything connected with society except that which makes the roads safer, the beer stronger, the food cheaper and the old men and old women warmer in the winter and happier in the summer.” – Brendan Behan.   Nobody I work for has any responsibility for what goes into this blog and you should make no inference that they approve of it or even have read it.

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Taxpayers in the United States may have tax consequences when debt is cancelled. This is commonly known as COD (Cancellation of Debt) Income. According to the Internal Revenue Code, the discharge of indebtedness must be included in a taxpayer’s gross income.There are exceptions to this rule, however, so a careful examination of one’s COD income is important to determine any potential tax consequences.

Billions of dollars of cancelled debts will generate many unexpected tax bills, due to debt cancellations that financial institutions have started accelerating in 2012. The standard definition of income is found in a United States Supreme Court case entitled Commissioner v. Glenshaw Glass Co. The Court defined income as 1) accession to wealth; 2) that is clearly realized; and 3) over which the taxpayer has complete dominion.

Prior to this decision, the Court had already determined that the cancellation of debt was “a freeing of assets.”[5] Essentially, when debt is cancelled, money that would have been used to pay that debt is now free to be used on anything else the taxpayer wants. This is also known as “accession to wealth.” Therefore, under Glenshaw Glass, it seems only natural to include COD income in gross income.

Not all COD income must be included in gross income. There are several exceptions:

  • If the discharge of indebtedness occurs in a Title 11 case—i.e., a bankruptcy
  • If the discharge of indebtedness occurs when the taxpayer is insolvent
  • If the indebtedness discharged is qualified farm indebtedness
  • If the indebtedness discharged is qualified real property business indebtedness
  • If the indebtedness discharged is a student loan that has been discharged due to the death or total permanent disability of the borrower. This particular provision was added in the Tax Cuts and Jobs Act of 2017, and applies to discharges during calendar years 2018 through 2025. In addition, the Code recognizes a Purchase Price Adjustment exception.
  • Student loans forgiven for working for certain classes of employers are also excluded[18]


In order to qualify under these exclusions, the taxpayer’s indebtedness must result from either

  • indebtedness for which the taxpayer is liable; or
  • indebtedness subject to which the taxpayer holds property

For example, if the lender cannot legally enforce the debt, then the taxpayer is not liable for that debt and will therefore not have tax consequences. If one of the two requirements are met, then the taxpayer must show that they fall under one of the five exclusions in order to avoid tax consequences on the COD Income.

Projected 2019 Tax Rates, Brackets, Standard Deduction Amounts And More – Kelly Phillips Erb


The U.S. Bureau of Labor Statistics reported today that the consumer price index (CPI) has increased by .2% for August, the same as in July. The CPI measures the cost of goods and services – in other words, your cost of living. When the CPI doesn’t change much, it tends to signal that interest rates will stay put. This is important information for taxpayers because the Tax Code provides for mandatory annual adjustments to certain tax items based on inflation. That said, there’s a change in the way that the Internal Revenue Service (IRS) will figure cost-of-living adjustments for 2019……..

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