2021 Tax Season

Preparing for 2021 Taxes

Although most people won’t worry about their 2021 taxes until early 2022 when 2021 tax returns are due, self-employed individuals or anyone who must pay quarterly tax payments will want to plan ahead.

The following is a summary of the key changes for 2021. The Tax Cuts and Jobs Act (TCJA) of 2017 is still in full effect.

Standard Deduction and Exemptions

The standard deduction will increase from $24,800 for a couple filing jointly to $25,100. For single filers, it jumps from $12,400 to $12,550. The standard deduction for heads of household will jump from $18,600 to $18,800. People aged 65 and older, as well as blind people, will get $1,700 more per person ($1,350 more per person if married).

Unfortunately, the $4,150 personal exemption was repealed in January 2018.

Child Tax Credit

The child tax credit is $2,000 and starts to phase out at incomes of $400,000 for couples and $200,000 for single individuals. $1,400 of that is a refundable tax credit.

New Dependent Credit

Under the TCJA, for each non-child dependent the taxpayer can receive a credit of $500. However, there will be no exemption credit or reduction for yourself, your spouse or your dependents.

TCJA Cutback on Itemized Deductions

Fewer people are itemizing their deductions (considering the increased standard deduction). Also, you can no longer deduct the following expenses:

Job-related moving expenses, except for military.

Miscellaneous write-offs subject to the 2% of adjusted gross income threshold, including employee business expenses, brokerage and IRA fees, hobby expenses and costs of tax return preparation.

Theft losses

Personal casualty losses, with the exception of those in presidentially declared disaster areas

A cap of $10,000 for state and local taxes.

Allowable mortgage interest deductions remain at a maximum of $750,000 of qualified residence debt. The TCJA reduced the old limit of $1,000,000.

TCJA Benefits for Individuals

The TCJA increased the alternative minimum tax (AMT) threshold (for 2019), so fewer middle-class taxpayers will be subject to AMT. The exemption amount is $71,700 for individuals and heads of household will start phasing out above $510,300. The exemption is $111,700 for joint filers and phases out above $1,020,600.

The lifetime estate and gift tax exemption were almost doubled by TCJA and is now $11.7 million (for 2021). The 40% rate stays the same, and the annual gift tax exclusion is $15,000 per person.

The annual gift tax exclusion will be $15,000. The maximum Federal gift tax rate is 40% after you exceed your lifetime exemption amounts.

There will no longer be a fine for individuals who have don’t have health insurance or fail to qualify for an exemption. However, California has not complied with this law and has penalties in place beginning Jan 2020.

Below is a list of changes to 2021 income tax rates. The highest federal income tax rate under TCJA is 37% which is 2.6% lower than in 2017.  Please keep in mind that actual tax rate you pay will be a blended/effective rate.

2021 Federal Income Tax Brackets:

Next Year’s (2022) Federal Income Tax Brackets:              

Please feel free to contact Santa Barbara Tax and Accounting Services with any questions regarding your 2021 tax filings.