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Federal Tax Changes for 2021
For the tax year 2021, some tax item limitations will remain unchanged and some tax item limitations will change. The following are some of the most commonly used tax item limitations for 2021:
- Individuals will be able to defer up to $19,500 in their 401(k) plans, plus another $6,500 if you are 50 years of age or older. This is the same as it was in 2020.
- An individual can contribute $3,600 to a single coverage health savings account (up $50 from 2020) and $7,200.00 for a family health savings account (up $100 from 2020).
- The standard deduction will increase to $12,550 for single taxpayers (up $150 from 2020) and $25,100 for married couples filing jointly (up $300 from 2020). A married individual who is blind or 65 years of age or older can claim an additional $1,350 standard deduction. This is up $50 from the 2020 limit. A single individual who is blind or 65 years of age or older is eligible for an additional $1,700 standard deduction (up $50 from 2020). If an individual is both blind and over 65 years of age then the extra amount can be doubled.
- There are currently seven income tax brackets, from 10% to 37% (the same as for 2020), and those percentages apply to your taxable income. However the taxable income amounts in each bracket have been increased due to inflation. For example, a married couple filing jointly whose taxable income is between $19,901 and $81,050 will be in the 12% tax bracket. On the opposite end of the spectrum, a married couple whose adjusted gross income is $628,300 or above will pay taxes at a 37% rate.
- The contribution limit for IRA accounts will remain the same, at $6,000 per taxpayer, plus another $1,000 for individuals who are 50 and over. This remains unchanged from 2020.
- The federal estate tax exemption will increase to $11,700,000 per individual, which is an increase of $120,000 from 2020.
- Also, the annual gift tax exclusion will remain at $15,000 per person for 2021, as it was in 2020.
For additional information on these various changes and to do some end of the year tax planning, please contact your local CPA.
NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.
James F. Contini II, Esq.
Certified Specialist in Estate Planning,
Trust & Probate Law by the OSBA
Krugliak, Wilkins, Griffiths & Dougherty Co., LPA
405 Chauncey Avenue NW
New Philadelphia, Ohio 44663
Phone: (330) 364-3472
Fax: (330) 602-3187
Email: jcontini@www.kwgd.com