Here are some important things you need to know for the 2021 tax season:
Tax situations are like fingerprints. No two are exactly the same. As a tax professional, our primary goal is to understand and deliver a personalized service to save every cent you deserve. Let us support you in planning, preparing and filing your taxes, and everything else involving the IRS.
A quick reminder that Your tax rate (the percentages of your income that you pay in taxes) is based on what tax bracket (income range) you are in. For example, if you’re single and your income is $75,000, then you’re in the 22% tax bracket. But that doesn’t mean your tax rate is a flat 22%. Instead, part of your income is taxed at 10%, another part at 12%, and the last part at 22%.
For the 2020 tax year, the tax rates are the same—but there are some slight changes to the brackets. Basically, the brackets have been adjusted by a few hundred dollars from 2019 to account for inflation. (Source: Updated tax brackets from IRS)
Taxable Income Exceeding |
Tax Rate |
Medicare Surtax on |
|||
Single |
Filing Jointly |
Ordinary Income |
Adj Net Capital Gain & Qualified Dividends (1) |
Earned Income |
Net Inv. Income |
$0 |
$0 |
10% |
0% |
2.9% |
0% |
$9,950 |
$19,900 |
12% |
|||
$40,400 |
$80,800 |
15% |
|||
$40,525 |
$81,050 |
22% |
|||
$86,375 |
$172,750 |
24% |
|||
$164,925 |
$250,000 |
32% |
|||
$200,000 |
$329,850 |
|
3.8% |
3.8% |
|
$209, 425 |
$418,850 |
35% |
|||
$445,850 |
$501,600 |
20% |
|||
$523,600 |
$628,300 |
37% |
(1) Other long-term capital gains could be taxed as high as 25% (building recapture) or 28% (collectibles and stock)
(2) Include employer contribution of 1.45%, the individual contribution of 1.45%, and an additional tax rate of 0.9% for AGI over $200K for an unmarried individual and $250K on a joint return
The federal tax rate for Trusts and Estates
Taxable income exceeding |
Tax Rate |
Adj. Net Cap gain & Qualified dividends (1) |
Medicare Surtax on Net inv income |
$0 |
10% |
0% |
0% |
$2,650 |
24% |
||
$2,700 |
|
15% |
|
$9,550 |
35% |
||
$13,050 |
37% |
||
$13,250 |
20% |
3.8% |
The SECURE Act made several changes to make saving for retirement easier and more accessible. Here are some of the notable ones. For a deeper summary read this article.
The CARES Act, designed to stimulate the economy, has important provisions that impact individuals and small businesses.
Please note that HEALS Act expanded some of the CARES Act provisions.
The CARES Act allows you to deduct up to 100% of their adjusted gross income (AGI), which is your total income minus other deductions you have already taken, in qualified charitable donations if you plan to itemize their deductions. The CARES Act added a new “above-the-line” deduction that will help you write off up to $300 of charitable contributions you made in cash even if you aren’t itemizing deductions.
With most of us working from home you may be tempted to claim the home office deduction, but it is reserved for self-employed individuals only.
Your stimulus check will not count as taxable income. it’s treated as a refundable tax credit for 2020. In essence you got an advance on money you would have received anyway as part of your tax refund in 2021.
The CARES Act also tried to help struggling small business owners stay afloat by offering them Paycheck Protection Program (PPP) loans. As long as these loans were used on certain business expenses—payroll, rent or interest on mortgage payments, and utilities, to name a few—these loans were designed to be “forgiven.”(Ref SBA)
Any money you take out of a 529 plan or Educational Savings Account (ESA) must be used for qualified educational expenses to be tax-free. There are also a couple of new ways you can use 529 plans in 2020 without having to pay any taxes such as the cost of certain apprenticeship programs and pay off up to $10,000 in student loan in total without having to pay any penalties or taxes(Ref. IRS).
There were a lot of changes to retirement plans in 2020—and some of those changes could impact your tax bill this year.