With 2020 almost under our belts, it is time to start looking at some positive things coming in the new year--many tax deductions have increased resulting from inflation! In today’s post, we will catch up on the increased deductions available in 2021, explained by Revenue Procedure 2020-45.
The Standard Deduction will increase from $24,800 to $25,100 for married individuals filing joint returns or surviving spouses, $18,650 to $18,880 for heads of household, and $12,400 to $12,550 for unmarried individuals (other than surviving spouses) and married individuals filing separate returns.
The Sec. 179 amount will increase by $10,000 to $1,050,000 with a phaseout threshold of $2,620,000.
The Qualified Business Income threshold will increase to $329,800 for married individuals filing joint returns and to $164,925 for married individuals filing separate returns, and to $164,900 for single individuals and heads of household.
The Foreign Earned Income Exclusion amount will increase from $107,600 to $108,700.
The maximum Adoption Credit will increase from $14,300 to $14,440.
The basic exclusion amount for determining the unified credit against the estate tax will be $11,700,000 for decedents dying in calendar year 2021. The Annual Gift Tax Exclusion amount remains at $15,000.
The 2021 Alternative Minimum Tax exemption is $73,600 and phases out at $523,600 ($114,600 for married couples filing jointly for whom the exemption phases out at $1,047,200).
The maximum Earned Income Credit amount will increase from $6,660 to $6,728 for qualifying taxpayers with three or more qualifying children. The revenue procedure contains a table providing additional maximums, depending on a lower number of qualifying children, and phaseouts.
Participants with self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,400, but not more than $3,600. For self-only coverage, the maximum out-of-pocket expense amount is $4,800, up $50 from 2020. For tax year 2021, participants with family coverage, the floor for the annual deductible is $4,800, however, the deductible cannot be more than $7,150. For family coverage, the out-of-pocket expense limit is $8,750 for tax year 2021, an increase of $100 from tax year 2020.
For tax year 2021, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $119,000, up from $118,000 for tax year 2020.
Various penalty amounts for failure to file tax and information returns or furnish payee statements are also being adjusted for inflation for 2021.
Not everything is being adjusted though, the monthly limitation for the Qualified Transportation Fringe Benefit is remaining at $270 and the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements is remaining at $2,750, for 2021.
All these changes can become overwhelming. Knowing which apply to you can be even more daunting. However, there are some adjustments that may benefit you from a tax perspective. The Tax Warriors® at Drucker & Scaccetti are ready to assist as we visit year-end planning to better position our clients for 2021 and beyond. Contact us to arrange a consultation to discuss and review your previous returns and current tax strategy.
Topics: inflation adjustment