As we know the official start date to file a 2020 tax return was February 12, 2021, but it’s a good idea to review the tax changes for 2021 so you can plan accordingly. This great article is aimed at physicians but really, we can all benefit from knowing these changes and re-orienting our finances to maximize the benefits. The author summarized, in relatively plain language, all the 2021 changes, which we’ve bulleted below.
- Standard Deductions increased:
- For those who are single or married but filing separately, deductions went up to $12,550, compared to $12,400 in 2020.
- Head of Household deductions rose to $18,800, compared to $18,650 last year.
- Those who are married and filing jointly saw deductions increase to $25,100, compared to $24,800 in 2020.
- No change to income tax rates, but tax brackets increased. The article contains a handy table that shows the new tax brackets.
- No change to capital gains rates, but the income brackets to determine those rates increased as well.
- There was no change to the maximum contribution amounts an individual can invest in an employer retirement plan.
- Individuals can still contribute up to $19,500.
- Catch-up contributions for those age 50 & older are unchanged at $6,500.
- Contribution limit for SIMPLE retirement accounts is still $13,500 with a catch-up of $3,000.
- No change to the maximum annual contribution amounts an individual can make to an Individual Retirement Account (IRA).
- Limit still is $6,000 for pretax or Roth IRAs.
- Catch-up contributions for age 50 & older are still $1,000.
- Changes to the ROTH IRA AGI phase-out increased as follows:
- For those who are single or heads of household is now between $125,000 & $140,000.
- For married couples filing jointly, it is now between $198,000 & $208,000.
- Can still contribute if your income exceeds these amounts, but will need to open up what is commonly referred to as a backdoor IRA.
Don’t forget that those special tax provisions under the CARES Act that provided relief during the pandemic expired at the end of 2020 and now the old rules regarding distributions, loans, etc are back in effect.