The IRS has issued updates for the 2021 tax brackets, deductions and thresholds. Not a lot of surprises, but there are some important changes.
The Standard deductions for 2021 will increase a bit
Married couples get $25,100 plus $1,350 for each spouse age 65 or older.
Singles claim $12,550 or $14,250 if 65 or above.
Household heads get $18,800 plus $1,700 once they reach age 65.
Blind people receive $1,350 more ($1,700 if unmarried and not a surviving spouse).
Capital Gains Tax in 2021
Tax rates on long-term capital gains and qualified dividends did not change. But the income thresholds to qualify for the various rates go up for 2021.
The 0% rate applies for individual taxpayers with taxable income up to $40,400 on single returns, $54,100 for head-of-household filers and $80,800 for joint returns.
The 20% rate starts at $445,851 for singles, $473,751 for heads of household and $501,601 for couples filing jointly.
A 15% rate applies for filers with taxable incomes between the 0% and 20% break points.
The 3.8% surtax on net investment income kicks in for single people with modified AGI over $200,000 and $250,000 for married filing jointly
AMT Exemptions for 2021
For 2021, AMT exemptions increase to $114,600 for couples and to $73,600 for singles and household heads. The exemption phaseout zones start at $1,047,200 for couples and $523,600 for others. The 28% AMT rate kicks in above $199,900.
Lifetime Estate and Gift Tax Exemption
The lifetime estate and gift tax exemption for 2021 jumps to $11,700,000… $23,400,000 for couples if portability is elected by timely filing Form 706 after the death of the first-to-die spouse.
The estate tax rate remains steady at 40%.
The gift tax exclusion remains $15,000 per donee. You can give up to $15,000 ($30,000 if your spouse agrees) to each child, grandkid or any other person in 2021 without having to file a gift tax return or tap your lifetime estate and gift tax exemption.
2021 Mileage Rate
The 2021 standard mileage rate for business driving falls to 56¢ a mile.
The mileage allowance for medical travel and military moves drops to 16¢ a mile in 2021.
The charitable driving rate stays put at 14¢ a mile.
20% Deduction for Pass-Through Entities
A key dollar threshold on the 20% deduction for pass-through income increases in 2021. Self-employed business owners (Schedule C and F) and owners of LLCs, S corporations and other pass-throughs can deduct 20% of their qualified business income, subject to limitations for individuals with taxable incomes of more than $329,800 for joint filers and $164,900 for single taxpayers.
This all means tax strategies are more available than ever! Keep in touch with your tax preparer to make sure you’re taking advantage of all the tax breaks you can.