Changes in the Internal Revenue Service (IRS) tax code tend to happen occasionally, yet the changes coming in 2021 may end up being quite significant for your family and business. Coronavirus stimulus laws and regular inflation adjustments mean you should expect some notable modifications. If you want to take advantage of these deductions, contribution limits, and credits available, you need to start learning about them now.
Tax Changes Happen
Some aspects of tax laws change every year, but the shifts are not always that noticeable for the average filer or that consequential in the long run. It is still crucial to keep up with them, however, as failing to do so can result in some costly surprises that may hit when tax season comes in.
2019 Tax Changes
There were quite a few significant tax changes made in 2019. Here are some of the most important ones you needed to consider when filing your income tax return:
- Removal of Tax Preparation Fee Deduction
One of the most common deductions people made involved the fee paid to have your taxes processed. This option became obsolete in 2019, and filers could no longer take this deduction. Instead, the cost of tax filing now comes out of their pockets.
- Increase in Total Family Deduction
Personal exemptions may have decreased, but family size deductions increased. This meant that even though you could not claim a certain amount per child or expense, you could claim a higher overall deduction for the members of your family.
- Earned Income Tax Credit Changes
The number of kids you have could now help increase your refund if you qualified for one. These increased credits also lower your tax bill dollar for dollar, as well as the amount you owed in the first place.
- No More Healthcare Act Penalty
Punishments were gone for not paying for private insurance. The IRS penalty related to not having healthcare no longer existed after the 2019 tax changes. This adjustment removed a lot of stress for those paying a bill that would not be incurred if not for the legal mandate.
- Alimony Updates
For divorce settlements that were settled in 2019 or after, the paying spouse can no longer claim his or her alimony as tax-deductible. Separate maintenance payments were also not deductible.
Tax Changes in 2021
Many individuals are worried about what the economy may look like next year with all the current unknowns. These include whether there will be substantial tax deductions or tax cuts due to COVID-19, and the impact the presidential election will have in this equation.
To prepare and adapt to some of these uncertainties, the IRS has decided on the following tax changes for 2021:
- Waived RMDs
The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 waived required minimum distributions (RMDs) from retirement accounts in 2020. RMDs generally count as taxable income. With waived RMDs, retirees will have a lower taxable income in 2020 and less in federal income taxes in 2021.
- Higher Standard Deductions
Typically, the standard deduction reduces the amount of income subject to federal taxes. According to IRS reports, standard deductions amounts for the following tax-filing statuses may include:
- Married Filing Jointly: $24,800 -up by $400
- Married Couples Filing Separately: $12,400 -up by $200
- Single: $12,400- up $200
- Heads of Household: $18,650- up by $300.
- Charitable Donations for All
To encourage charity donations during the COVID-19 pandemic, the CARES ACT enabled individuals to deduct up to $300 in monetary donations in 2020 — even if they are standard deductions. In years past, you could only write a tax-deductible donation on your federal tax return if you itemized your deductions instead of taking the standard deduction.
- Earned Income Tax Credit
Both the maximum credit amount for the Earned Income Tax Credit and the income limits are higher in 2020. You can be eligible for the Earned Income Tax Credit if your adjusted gross income (AGI) is not more than:
- Married Filing Jointly: $56,844 (up from $55,952)
- Other Tax-Filing Statuses: $50,594 (up from $50,162)
- Adoption Tax Credit
The tax credit for qualified adoption expenses becomes more valuable in 2020. The maximum allowable credit allowed increased to $14,300 from $14,080 in 2019.
- The Social Security Payroll Taxes Cap is Higher
Unfortunately, there is some bad news regarding the 2020 tax changes. The maximum amount of a worker’s income subject to Social Security payroll taxes rose to $137,700. This is up from $132,900 for 2019.
What to Do If You’re Not Sure How to File Your Taxes
Tax filing is a daunting task for many. All the rules and exceptions can be overwhelming for any taxpayer, so it might be worth considering working with a trusted tax advisor that can make tax filings that much easier — especially if you are already gearing up for the tax changes coming in 2021.
Regardless of whether you have specific tax problems with which you need assistance or are looking for general solutions regarding tax changes, the attorneys at Silver Tax Group are here for you. With over four decades of federal tax defense experience, we can not only provide the answers you need but also help you deal with any legal tax matters you are facing.
When you work with Silver Tax Group, you can expect the following services:
- Obtaining emergency relief from specific IRS actions.
- Help keep tax penalties and payments from getting out of control.
- Prevent levees from being placed on your individual bank accounts.
- Help stop the IRS from garnishing your wages.
Stay Informed About 2021 Tax Changes
Several tax provisions are scheduled for 2021, some of which can significantly impact individuals and businesses and the amount they owe in taxes. You do not have to handle these changes on your own! Contact Silver Tax Group today to speak with an expert about your tax-related questions.