Take note of these changes
Are there any significant tax changes for 2021?
Each year, the Internal Revenue Service (IRS) announces adjustments to
the tax code for the coming year. The IRS hasn’t made any significant changes so far, but the agency has made some notable adjustments. Also keep in mind that with a new elected president and a potential change in the makeup of Congress, the current tax code could be changed again. However, until then it is important to familiarize yourself with the applicable rules.
In this article, I’ll discuss some of the important adjustments made by the IRS for 2021.
Notable adjustments in 2021
The standard deduction increased from $ 24,800 to $ 25,100 for married couples filing jointly and increased from $ 150 to $ 12,550 for single filers and those married but filing separately. Heads of household also benefit from an increase from $ 150 to $ 18,800 in their standard deduction.
The tax rates have remained the same, but the brackets have increased slightly (Table). Likewise, the rates of capital gains have remained the same, but the income bracket that determines the rate paid has increased. Single and married tax filers separately earning $ 40,400 per year or less will pay a 0% capital gains rate; Married people declaring jointly earning $ 80,800 or less and the head of household earning $ 54,100 or less will also pay a 0% taxable earnings rate. The 15% rate will apply to adjusted net capital gains up to $ 501,600 for joint returns, $ 250,800 for separate returns for married persons, $ 473,750 for returns by the head of household and $ 445,850. for individual declarations. For any income greater than these amounts, the applicable capital gain rate is set at 20%.
The maximum contribution amounts to employer-provided pension plans, such as the 401 (k), 403 (b), and 457 plans, and the federal government savings plan have not changed. The limit remains at $ 19,500, and the catch-up contribution for employees 50 and over continues to be $ 6,500. For SIMPLE retirement accounts (Savings Incentive Match Plan for Employees), the contribution limit remains at $ 13,500 and the catch-up remains at $ 3,000.
The annual contribution limit into an individual retirement account (IRA) for pre-tax, Roth, or a combination remains at $ 6,000 for 2021. The catch-up contribution limit remains at $ 1,000. The deduction for taxpayers contributing to a traditional IRA is being phased out for singles and heads of households who are covered by a workplace retirement plan and who have changed Adjusted Gross Income (AGI) between $ 66,000 and $ 76 $ 000, up from $ 65,000 and $ 75,000 in 2020. For married couples filing jointly, in which the spouse making the IRA contribution is covered by a workplace pension plan, the phase-out range of income is $ 105,000 to $ 125,000 for 2021, compared to $ 104,000 to $ 124,000. For an IRA contributor who is not covered by a workplace retirement plan but who is married to a covered person, the deduction is phased out if the couple’s income is between $ 198,000 and $ 208,000 $ in 2021, compared to $ 196,000 to $ 206,000 in 2020.
The AGI Roth IRA phase-out range has increased from $ 198,000 to $ 208,000 for married couples filing jointly, up from $ 196,000 to $ 206,000 in 2020. For singles and heads of households , the income phase-out range is $ 125,000 to $ 140,000, up from $ 124,000 to $ 139,000 in 2020. If your income exceeds these amounts, you can open a non-deductible IRA and convert it to a Roth IRA.
The income limit for the savings credit is $ 66,000 for married couples filing jointly, $ 49,500 for heads of households, and $ 33,000 for singles and married people filing separately, compared to $ 32,500. .
The IRS made additional changes to the individual tax credit, alternative minimum tax, and allowances for employee benefits, medical savings accounts, and estates.
Also, don’t forget that the special tax provisions enacted as part of the Coronavirus Relief Bill expired at the end of 2020 (unless re-enacted by new legislation). These rules provided more flexibility for certain distributions and pension plan loans and waived the minimum distributions required.
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The information contained in this report is for informational purposes only. All calculations have been performed using techniques we believe to be reliable but are not guaranteed. Please contact your tax advisor to review this information and consult them with any questions you may have regarding this communication.