2021 Tax Changes - Do They Affect Me?

2021 Tax Law Changes - Will They Help Me?

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With the tax filing season over (minus those on extensions) we should look forward to what updates to the tax laws will be applied in 2021.

The continued pandemic relief bills account for some of the changes. Let's discuss the changes.

Child Tax Credit

As announced the additional Child Tax Credits have begun. For most families the addition is 1K per child, raising the total to 3,000US$. However, if your child is under 5, the credit is 3,600US$. There are income limits to this where the Credit is phased out, starting @ 75K for Single filers, 112,500US$ for HOH filers and 150K for MFJ.

The age limit for CTC now includes the 17-year-olds living under your roof.

Additionally, you used to have to earn at least 2500US$ in order to qualify, but for 2021 that has been eliminated as a requirement.

The payments began in July (unless you have opted out) and the remainder of the credit (50%) will be trued up when we file your taxes. If the total credit on your taxes is more than what you have received, then you will get those additional funds. Whether you have to pay back the CTC, if your credit is less than you received, is a TBD at this point.

President Biden has been talking about extending this through 2025, but currently the additional CTC is only through 2021.

Dependent Care Tax Credit

Whilst speaking of the kids, let's tackle the Child and Dependent Care Tax Credit. At a high level there will be more credit given to you if you have children or dependents that qualify.

In 2021, rather than 20%-35% (capped @ 3K of expenses) the credit is fully refundable and the percentage of covered expenses jumps to 35%-50% (capped @ 8K of the expenses).

Recovery Rebate Credit (aka Stimulus Checks)

Like 2020, the Stimulus check for 1400US$/per person was to help you in the tax year received so we will again reconcile your stimulus check with your 2021 income. If your income dropped and you were entitled to more Stimulus $$ then you will be reflecting that on your 2021 tax return.

Income Levels within the Tax Brackets Whilst the brackets remained the same the income within the brackets has increased. This allows taxpayers to stay within the brackets longer based on their income.

Tax RateSingleMarriedHead Household
10%Up to 9,950Up to 19,000Up to 14,200
12%Up to 40,525Up to 81,050Up to 54,200
22%Up to 86,375Up to 172,750Up to 86,350
24%Up to 164,925Up to 329,850Up to 164,900
32%Up to 209,425Up to 418,850Up to 209,400
35%Up to 523,600Up to 628,300Up to 523,600
37%Over 523,600Over 628,300Over 523,600

Long-Term Capital Gains Tax Rates

LT as defined are for those gains from the sale of assets held for more than one year, and the tax rates did not change. However, the Taxable Income Levels went up, meaning less folks will reach the 20% Tax rate.

The ZERO % brackets changed, the income levels are 40,400US$ for Single, 54,100US$ for HOH and 80,800US$ for MFJ.

The 20% bracket starts @ 445,851SU$ for Single, 473,751US$ for HOH and 501,601US$ for MFJ.

You will pay 15% if you are in-between these levels.

Deductions

Like all years, the Standard Deduction amounts were increased. 12,550US$ (Single); 18,800US$ (HOH) + an additional 1,700US$ if you are over 65; 25,100US$ (MFJ) + an additional 1,350US$ for each person over 65 on your return.

If you take the Standard Deduction, the Charity you gave was usually not helpful. In 2020 there was a bonus (above the line) deduction given to those who gave to charity, but didn't reach the Standard Deduction. This credit has been extended for 2021 and increased from 300US$ to 600US$.

Additionally, you can take up to 100% of your Cash Donations in 2021 since the 60% cap was suspended.

In 2021, the Education Credit has been repealed. It was worth up to 4,000US$. Not to despair, the Lifetime Learning Credit was permanently increased. Hopefully this will help balance out the EC that was repealed.

For the Self-Employed folks, there is some great news.

The QBI, introduced by President Trump has higher caps now as well. The 20% credit remains for Self-Employed (or pass-through entities) with caps on income being raised to 329,800US$ for MFJ and 164,900US$ for all others.

Additionally, the Pandemic-Related family leave (or sick) was extended into 2021 and the number of days were increased that a person can use. Rather than 50 days for the family leave, it is now 60, whilst the 10 days for yourself remained in effect.

Business Meals also have increased caps, now capped @ 100% rather than the 50% as in the past. This is true also for 2022!!!

Mileage Rates change again with Business dropping to .56¢ and Medical drops to .16¢ with Charitable mileage remaining @ .14¢.

A couple of the items in Tax Extenders will help you out. These are the tax breaks that are supposed to expire, but get thrown into a bill to extended them another year. Here is a list of them for 2021.

The 7.5%-of-AGI threshold for Medical deductions remained again, rather than being raised to 10%.

If you do Solar in 2021 the Energy Credit remains @ 26% rather than dropping to 22% like it was supposed to do.

Mortgage Insurance Premiums are still deductible.

Other items changed as well, HSA limits by 50US$; AMT calculations; limits on income for those working overseas; Adoption Credits.

Thanks for stopping by and let me know if you have any questions. See you soon!!!

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