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Houston County Living

Upcoming 2021 Tax Law Changes

Jun 22, 2021 11:40AM ● By Griggers Wealth Management
Tax year 2021 will likely bring some surprises, but some of the changes were already planned. While the IRS has its work cut out for it between continuing to catch up on sending missing checks, stimulus payments and communicating the many tax rules changes to charitable deductions, retirement plans and student loans, here’s what you need to know about some of the planned phase-outs, changes and adjustments due to inflation the IRS will present for taxes in 2021. 

 The Consolidated Appropriations Act that is designed to assist during the COVID pandemic will still carry over through 2021. 

   • Businesses can still deduct certain meal expenses up to 100 percent. 
   • Qualified teachers will be able to deduct up to $250 of personal protective equipment as part of the qualified educator tax deduction.  
   • $300 deduction for cash contributions to charitable groups if claiming the standard deduction. Increased to $600 for joint filers. 

Inflation Adjustments have been factored in to reduce unexpected financial stress caused by reduced purchasing power.  
   • Married couples filing jointly their standard deduction will rise to $25,100 (+$300).
   • Single filers or married filing separately, standard deduction rises to $12,000 (+$150).
   • Head of household will see an increase of standard deduction to $18,800 (+$150).

Earned Income Tax Credit will see the maximum for filing jointly as married couple claiming three or more dependents have an increase credit to $6,728, with two dependents, $5,980 and $3,618 for one in 2021. This will have a phaseout for the credit starting at income levels of $56,844 and above (AGI). 

IRA Contributions will remain the same but the phaseout levels per income for the deductions of these contributions has increased as follows.
   • Single and Head of household AGIs between $66,000 and $76,000
   • Married joint filers AGIs between $105,000 and $125,000
   • For married individuals who do not have another plan (401-K) but their spouse does, their phaseout is now from $198,000 to $208,000 of the jointly files AGI. 
   • Savers Tax Credit is an additional tax credit you can get as an encouragement for retirement contributions. This credit can be 10%, 20% or 50% up to $2,000.

Alternative Minimum Tax is a means of reducing the higher income earnings from taking advantage of too many deductions by phasing out certain deductions as designated earning levels. With the adjusted inflation factors this has also increased where these taxes come into effect.  
   • The 2021 amounts will change to $73,600 with a phase out beginning at $523,600. Married couples filing jointly will be $114,600 with the phase out beginning at $1,047,200. 

Estate tax in 2021 will rise to $11.7 million exclusion that can be passed on to the next generation (Keep an eye on this one as it is likely to have major adjustments/ reductions by the year 2022). 
   • Gift tax limits are unchanged from 2020 and remain at $15,00 per person and $30,00 when combined with wife’s gifting also.

Capital gains tax rate is an area that is expected to increase with the new proposals from the Biden Administrations tax plan however there are no changes yet from 2020 to 2021. It is currently scaled much like ordinary income starting at 10% and increasing to 20%.

The real questions usually are about the income tax brackets so here’s a breakdown on where they will currently fall in 2021. 

Single filer:
$0 to $9,950 - $0 plus 10% over $0                 
$9,950 to $40,525 - $995 plus 12% over $9,950 
$40,525 to $86,375 - $4,664 plus 22% over $40,525
$86,375 to $164,925 - $14,751 plus 24% over $86,375
$164,925 to $209,425 - $33,603 plus 32% over $164,925
$209,425 to $523,600 - $   47,843 plus 35% over $209,425
Above $523,600 - $157,804.25 plus 37% over $523,600 

Married filing Jointly: 
$0 to $9,950 - $0 plus 10% over $0
$19,900 to $81,050 - $1,990 plus 12% over $19,900
$81,050 to $172,750 - $9,328 plus 22% over $81,050
$172,750 to $329,850 - $29,328 plus 22% over $81,050
$329,850 to $418,850 - $67,206 plus 32% over $329,850
$418,850 to $628,300 - $95,686 plus 35% over $418,850
Above $628,300 - $168,993.50 plus 37% over $628,300  

Keep in mind that proposed changes will be adjusting these rates in the future. Additionally, many of the deductions we have come to expect will be impacted as well. While they may not be titled “new taxes” it will certainly impact the bottom line. The Treasury Department is working on and revising their Green Book that will lay out the administration’s fiscal year 2022 tax proposals.

The Ways and Means Committee is looking at many areas such as automatic enrollment into company retirement plans, adjusting the required distribution age of retirement plans to 75 and allowance of student loan pay-downs through employer matched funds in lieu of 401(k) contributions. Clarification on many of these is expected to come later this year. 

Being informed is the best way to manage your tax obligations to maximum benefit for you.

Russell Pierce

Content in this material is for general information only and not intended to provide specific tax advice or recommendations for any individual. You should consult with the appropriate qualified professional regarding your specific situation.