Tax Law Changes for 2021

IRA Contributions

If the taxpayer’s investment income is over $3,650 (from $3,600), the taxpayer is not eligible for the Earned Income Credit (this includes Interest, Dividends, Stocks & Real Estate Income).

Elective Deferrals
The maximum deferral to 401(k) plans, 403(b) annuities, 457 deferrals, and salary reduction SEPs increases to $19,500 (from $19,000). The maximum contribution to a SIMPLE plan increases to $13,500 (from $13,000). The “Catch-Up” contributions and elective deferrals is $26,000.

IRA Deduction Phaseout
If a taxpayer is covered by a retirement plan at work, their IRA deductions may be limited if the AGI on Form 1040 is:

If Your Filing Status Is… And Your Modified AGI Is… Then You Can Take…
single or
head of household
$66,000 or less a full deduction up to the amount of your contribution limit.
more than $66,000 but less than $76,000 a partial deduction.
$76,000 or more no deduction.
married filing jointly or qualifying widow(er) $105,000 or less a full deduction up to the amount of your contribution limit.
more than $105,000 but less than $125,000 a partial deduction.
$125,000 or more  no deduction.
married filing separately less than $10,000  a partial deduction.
$10,000 or more  no deduction.
If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the “Single” filing status.

Investment Income 
If the taxpayer’s investment income is over $3,650 (from $3,600), the taxpayer is not eligible for the Earned Income Credit (this includes Interest, Dividends, Stocks & Real Estate Income).

Education Credit 
The maximum American Opportunity Tax Credit (AOTC) remains $2,500 per eligible student. The maximum Lifetime Learning Credit (LLC) remains $2,000 per tax return. The phase-out range for the Lifetime Learning Credit (LLC) is $160,000 – $180,000 if married filing jointly and $80,000 – $90,000 for all other filing statuses. The phase-out range for the American Opportunity Tax Credit (AOTC) is $160,000 – $180,000 (MFJ) and $80,000 – $90,000 for all other filing statuses. If your AGI is over $90,000 ($180,000 for joint filers), you cannot claim the (AOTC) credit.

Qualified Adoption Expenses
The maximum adoption credit is $14,440 (from $14,080). The credit is phased out for taxpayers with modified adjusted gross income (MAGI) beginning at $216,660, and is completely phased out at MAGI of $256,660. The credit is NOT refundable. The credit for a special needs child is allowed for the year in which the adoption becomes final. No credit for a special needs child is allowed until the adoption becomes final.

Social Security and Medicare Wage base
Only the social security tax has a wage base limit. The wage base limit is the maximum wage that is subject to the tax for that year. For earnings in 2021, this base is $142,800 (from $132,900). There is no wage base limit for Medicare tax. All covered wages are subject to Medicare tax.

Child Tax Credit
2021 Tax Year Child Tax Credit is $3,000 per child under age 18 and $3,600 for under age 6. Advanced Child Tax Credit started July 15th which is a 6-month advancement. Whatever was not received during July 2021 – Dec 2021 will be applied to your Tax Return. For a qualifying dependent for Other Dependent Credit the amount is $500 (www.irs.gov).

New Standard Deduction

Filing Status 2021 2020 2019 2018
Single $12,550 $12,400 $12,200 $12,000
Head of Household $18,800 $18,650 $18,350 $18,000
Married Filing Joint $25,100 $24,800 $24,400 $24,000
Widow(er) w/ Dependent $25,100 $24,800 $24,400 $24,000
Married Filing Separate $12,550 $12,400 $12,200 $12,000

 

 Deductible Mileage 

Year Business Mail Carrier Charity & Volunteer Medical & Moving
2011 (1/1 – 6/30) 0.51 0.4725 0.14 19.0
2011 (7/1 – 12/31) 0.555 0.4725 0.14 23.5
2012 0.555 0.4725 0.14 24
2013 0.565 0.4725 0.14 0.24
2014 0.56 0.4725 0.14 23.5
2015 0.575 0.4725 0.14 23
2016 0.54 0.4725 0.14 19
2017 0.535 0.4725 0.14 17
2018 0.545 0.4725 0.14 18
2019 0.58 0.4725 0.14 20
2020 0.575 0.4725 0.14 17
2021 0.56 0.4725 0.14 16

 

Transportation Industry/Truck Drivers M & E – $66 inside the continental U.S., $71 outside the continental U.S.  If subject to the Department of Transportation (DOT) Hours Of Service rule, 80% of the amount spent for meals is deductible, rather than the 50% for other taxpayers. 

 

Foreign Earned Income Inclusion
If you meet certain requirements, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction.

If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings that is adjusted annually for inflation ($104,100 for 2018, $105,900 for 2019, $107,600 for 2020, & $108,700 for 2021). In addition, you can exclude or deduct certain foreign housing amounts.

Certain itemized deductions are limited for taxpayers with AGI of $313,800 (MFJ), $287,650 (HOH), $156,900 (MFS), and $261,500 (S) for year 2017. Medical expenses, investment interest, and casualty and theft losses are not phased out. Beginning with tax year 2018, there is no longer a limitation on itemized deductions for higher income tax payers.

Student Loan Interest
The maximum deduction for interest paid on qualified student loans is $2,500 and begins to phase out at MAGI of $70,000 to $85,000 (S, HOH, QW) and $140,000 to $170,000 (MFJ). MFS No exclusion.

 

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