17 Things You Should See On Your 2021 Tax Return
Some of them are new and others are extensions of previous changes. Here’s a look at what to expect.
The Tax Cuts and Jobs Act of 2017 threw a lot of taxpayers for a loop with its myriad changes to tax law. Then the emergence of COVID-19 triggered a flurry of legislative action designed to help Americans struggling financially because of the pandemic. The Families First Coronavirus Response Act. The Coronavirus Aid, Relief, and Economic Security Act. The Paycheck Protection Program. The Consolidated Appropriations Act. The American Rescue Plan.
The nation’s recovery continues, and so does the impact this legislation has on your income taxes. Besides the usual tax code modifications, like changes to the standard deduction, IRS tax law is still feeling the effects of the Congressional actions that we’ve seen over the last four years.
Here’s a look at some of what you’ll find on your 2021 personal and business income tax forms.
Individual Income Taxes
As usual, tax brackets, the standard deduction, and some deduction and credit eligibility limits will be adjusted because of inflation.
- Tax brackets now range from $0-$9,950 (10 percent) to greater than $523,600 (37 percent) for single filers. Married filing jointly starts at $0-19,900 (10 percent) and goes up to greater than $628,301 (37 percent).
A partial list of the 2021 tax brackets
- Non-itemizers can continue to deduct up to $300 donated to a qualified charitable organization. Joint filers can deduct up to $600.
- No taxes will be assessed on 2021 stimulus payments, just as in 2020.
- The standard deduction for single taxpayers and married individuals filing separately will increase to $12, 550. For married filing jointly, the deduction is now $25,100.
- The Alternative Minimum Tax will have higher income phaseouts and exemptions.
- If you are 65 or older or are blind, your add-on deductions will increase for the 2021 tax year. Single filers will receive a $1,700 deduction, while individuals who are married will get $1,350. If you are both 65 or older and are blind, your deduction will be double those amounts.
- Income limits for the Earned Income Tax Credit will be higher. These credits vary depending on income and family size.
- The Retirement Savings Contribution Credit (Saver’s Credit), a dollar-for-dollar tax reduction designed to reward low- and middle-income taxpayers for saving for retirement in qualified plans, now has increased income limits. The maximum Adjusted Gross Income (AGI) for 2021 is $66,000.
- Little has changed in terms of the tax advantages of investing in IRAs and 401(k)s, for example, though there are some minor modifications.
- The gift and estate tax lifetime exclusion amount will increase to $11.7 million, a modest change.
These are the 2021 long-term capital gains rates and brackets.
Business Income Taxes
- Some business-related meal expenses are 100 percent deductible.
- The Family and Medical Leave Act will now be in force until 2025, allowing employers to offer eligible leave to employees.
- Employees don’t have to pay taxes on student loan payments their employers have made through December 31, 2021.
- The Qualified Business Income (QBI) deduction stays in place for the 2021 tax year. Originally a part of the Tax Cuts and Jobs Act, this allows a 20 percent deduction for pass-through businesses against QBI of up to $164,900 for unmarried individuals and $329,800 for married filing jointly.
- The Section 179 expense deduction, which allows businesses to deduct the cost of qualified equipment that is put into service during the tax year, has a maximum of $1,050,000 of the first $2,620,000 spent.
- The Work Opportunity Tax Credit (WOTC) can be claimed by employers who hire individuals who have been unemployed for 27 weeks or more. It’s equal to 40 percent of the first $6,000 that the employer pays the new hire in wages.
These are just some of the new or extended items you’ll see on your 2021 tax return (the tax code isn’t set in stone, of course, until January). As always, we suggest you start thinking about your 2021 taxes now. In fact, it’s a good idea to keep them in mind all year long, as you run reports that show you the balance between income and expenses. You certainly should be thinking about the tax implications of any major expenses or unexpectedly large income items.
We’re here to assist as you start to get serious about preparation for this year’s income taxes. If you’d like, we can prepare and file your taxes for you, helping to ensure that you’re reporting all income and taking all of the deductions and credits you can. Contact us in early 2022 to get on the schedule.
We hope you have a safe and happy New Year!
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