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Look Ahead on Changes to the 2021 Tax Laws and the Income Limits for Deductions

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November is here, and it means the year is slowly drawing to a close. If you are like most people looking ahead on your taxes, you will want to know that there are changes to the tax laws for 2021. It is mostly due to inflation increasing the income limits for deductions. Let’s take a look!

Rising Tax Brackets

As you know, paying federal taxes depends on your tax bracket when filing, and every year, just like clockwork, those brackets become adjusted due to inflation. So, what changes can you expect?

For 2021, these will be the new minimum income levels for the top tax brackets:

  • Single: $523,601
  • Head of Household: $523,601
  • Married Filing Jointly: $628,301
  • Married Filing Separately: $314,150

Contribution Limits Increase for Employer-Sponsored Retirement

If you have one of these:

  • A 401(k)
  • A 403(b)
  • (Most) 457 plans
  • The federal government’s Thrift Savings Plan

Then your contribution limit for elective deferrals stays at $19,500 for 2021. While the total you and your employer together can contribute to a plan goes up to $58,000, the catch-up contribution for taxpayers who are 50 and older stays at $6,500.

Increase in Traditional IRA Income Restrictions for Deducting Contributions

If you are younger than 50, your contributions limits for IRA’s stay at $6,000 and $7,000 if you are 50 plus. But some tax changes might apply to your IRAs in 2021. 

Are you covered by an employer-sponsored plan? If so, you’ll still get an increase in the deduction for contributing.

– Are you a single filer? Your maximum deduction is lowered to $65,000 in 2021 and eliminated at $75,000 or more. 

– Are you married filing jointly? Your maximum deduction is lowered to $104,000 and eliminated at $124,000.

– Is your spouse covered, but you are not? Your maximum deduction will be lowered to $198,000 in 2021 and eliminated at $208,000.

Roth IRA Rise

– If you are retired, you can find after-tax savings for Roth IRAs unless your income is too much for the year, then you won’t be allowed to contribute.

– If you are a single filer, your maximum contribution will be lowered if your modified and adjusted gross income is $125,000 but eliminated if your AGI is $140,000.

– If you are a joint filer, your maximum contribution will be lowered if your modified adjusted gross income is $198,000 but eliminated at $208,000.

2021 Standard Deduction Increases

Unless you opt to itemize your deduction, you are entitled to the standard deductions:

  • Single: $12,550
  • Head of Household: $18,800
  • Married Filing Jointly: $25,100
  • Married Filing Separately: $12,550

Your itemized deductions won’t have limitations (per usual)

Thanks to the Tax Cuts and Jobs Act, itemized deductions limits were abolished for tax years 2018 through 2025, allowing you to itemize charitable gifts, taxes paid, interest paid, job expenses, and other miscellaneous deductions no matter your income level. 

Any personal exemptions (dependents) to lower your taxable income are still not allowed

It is because of the Tax Cuts and Jobs Act, but to balance this, the standard deduction is instead dramatically increased. 

Rising health savings account contribution limits

HSA’s help you save money for future medical expenses. Now you can sock away up to $3,600 for self-only coverage and $7,200 for family coverage. 

Rising limits for estate tax exemption

The federal estate tax exemption increases to $11.7 million, and the amount you are allowed to give each individual before using some of the estate tax exemption stays at $15,000.

The same transportation fringe benefit limit applies

You don’t need to report transportation benefits on your employer fringe benefits up to $270 a month, including free parking or a public transportation pass. 

Why Corporate Capital

Corporate Capital, Inc. specializes in assisting in corporate and personal tax planning and education. Our experienced team proudly offers tax consulting and preparation through a Certified CPA and accredited IRS tax accountant to help your business remain compliant and retain corporate status. If you have any questions about taxes and whether we can help you further your business goals, contact us today or give us a call at 855-371-0070 and allow us to be a key to your success.

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