What You Should Know About Tax Year 2021

With 2021 just around the corner, you need to know what to expect concerning 2021 taxes so you can establish a strategy that will minimize your tax liability for next year. Here are a few facts you need to know:
The tax rate will remain the same for 2021.
The standard deduction will increase by $300 for married couples filing jointly.
Single taxpayers and those married filing separately will see an increased deduction of $150.
Contribution levels for retirement plans will remain the same.
Individual tax credits will adjust upward for inflation.
The income thresholds for the long-term capital gain rate will increase.
The income exclusions for employee contributions to employer retirement plans will remain the same, as will the catch-up contribution for employees age 50 and over.
The ceiling for participants in medical savings accounts will increase.
Those who do not itemize who will need to take their minimum required distribution (RMD), can contribute their RMD to a charity and will not need to report the income or take the tax deduction. This will lower their total income and reduce taxable Social Security.
Tax Brackets
The percentages for each bracket will remain the same, however, the dollar amounts within each bracket will increase. As an example, here are the 2021 brackets and ranges for married couple joint returns:
Taxable Income Category Tax Rate
$19,900 or less 10%
Over $19,900 to $81,050 12%
Over $81,050 to $172,750 22%
Over $172,750 to $329,850 24%
Over $329,850 to $418,850 32%
Over $418,950 to $628,300 35%
Over $628,300 37%
As an example, if your adjusted gross income will be $100,000 for 2021, you would pay 10 percent on income up to $19,900, and 12 percent on the next bracket level of income. On income over $81,050, you would pay 22 percent. Therefore, you would owe $13,497 or about 13.5 percent of your taxable income.
There is more to know concerning taxes for 2021, including for retirement plans, capital gains, and alternative minimum tax. Also, should Joe Biden win the presidency, this will impact future tax planning. We suggest you meet with your tax professional to assist you. We offer our clients unlimited tax planning advice throughout the year.
Professional Tax Services is a locally owned provider serving over 3,500 local residents and businesses. For more information call 661-259-1967 or visit www.protaxservices.com. Through their complimentary EZ2 Thrive program, they provide unlimited free tax planning advice to their clients.