2020 has ended, and we now have to brace for the new tax year. In the 2021 tax season, the IRS does not initiate any massive modification to its income tax rates and deductions. But the sudden inflation has resulted in the formulation of altered tax deductions and credits. All accounting firms, CPAs, and companies deploying tax preparation outsourcing services are analyzing the changes expected in the coming year.
Here we have highlighted some of the fundamental changes expected in the 2021 tax season.
Amendments in Standard Deductions applicable to US taxpayers in 2021
There are two alternative ways to claim deduction for your tax purposes.
We have explained some of the prominent points below:
The standard charitable deductions of 2021 have indicated a slight increase, as it is now estimated at $25,100. Taxpayers will be allowed to mark up to $300 as charitable contributions.
IRS claims that people who are 65 or above and folks with physical impediments can double the standard deductions, as their withdrawal will be $1,350. If the person is a bachelor or a surviving spouse, then he will be eligible for an exemption of $1,700.
One can deduct a maximum of $2,500 from student loans if you have paid interest in the previous year. When your modified adjusted gross income (MAGI) in 2020 was less than $70,000, then the interest is deductible. If MAGI was between $70,000 and $85,000, then you can only deduct a minor amount.
The Revenue Code authorizes self-employed individuals to allege their thresholds and ceilings if they want to cover tour expenditures or home office to conduct your business. However, employees who were assigned to work from home will not get support from these concessions.
If you had substantial medical bills in 2020, one would insist that you can deduct at least 7.5% of your Adjusted Gross Income (AGI). But itemization of your expenses is necessary for deduction to exclude medical bills on your tax return. The Health Savings Account (HSA) has been made tax-free for high-deductible health insurance plans. In 2020, you can save $50 to $3,550 for individual coverage and $100 to $7,100 for family coverage. You can also claim a Medicard to get subsidized health care.
One can ease the process of claiming deductions by choosing to outsource tax preparation services. Top outsourcing companies like Initor Global offer superior tax preparation outsourcing services at affordable rates. Get the support of the tax pros on the go with tax preparation outsourcing.
Tax Credits In 2021
Tax credits diminish the actual tax bill dollar-for-dollar, making them more useful than the usual tax deductions. These tax credits get divided into three main categories – refundable, non-refundable, and partially refundable. Some of the changes in the commonly used tax credits are discussed below:
IRS has revised this personal tax credit for inflation. It will benefit low and middle-class employees. The reduction counts on family size, which is credit up to $6,728 for families with three or more children, $5,980 for two children, $3,618 for a single child, and finally $553 for childless families. If married couples file together, then the credit will commence from $25,470 to $ 57,414. For a $2000 child credit, the ultimate reduction will be curbed to $1,400 per child. There are increases in the Adoption expense credit and special credits for adopting a child with special needs to $14,440.
It is contended that this credit will pay $1,000 per recipient to promote retirement donations. Based on your income and contribution, you can earn credit as much as $2000 for 10%, 20%, and 50% contributions. In 2020-2021, IRS increased the income limit so that saver’s tax credit will aid more people. In 2021, the Secure Act 2.0 passes, then the credit will reach more people as the annual credit will increase from $1,000 to $1,500.
From this credit, you will be benefited from educational tax breaks for covering unconventional education expenses like vocational training. It is assumed that in 2021, a 20% credit can be claimed with a maximum of $10,000 to taxpayers whose annual income is less than $59,000. If your income is $119,000, you get a credit of $69,000 for singles and $139,000 for joint filers.
If you desire to get a better grip on tax credits requirements, many might recommend you to outsource tax preparation services. Accounting firms and CPAs who are highly stressed during the tax season often choose tax outsourcing services.
Retirement Deductions And Tax Planning for 2021
The government has also stated that you are eligible for deducting money from tax-advantaged retirement funds, comprising traditional IRAs, 401(k)s, and more. According to the CARES Act, adults below 59 can benefit up to $100,000 from IRAs and 401(k) till 2020. The RMDs or required minimum distributions will eliminate retirement accounts’ misuse. The SECURE Act increased the age limit of RMD from 70 ½ to 72 ½ years.
However, the coronavirus impact on the population will enable the needy to benefit from the provided incentives. To help the pensioners, the IRS has given them a tax break. Therefore, the CARES Act permits senior citizens to avoid RMD without liability.
Furthermore, from 2021 onwards, the SECURE Act will enable the traditional IRA individuals to invest money in their accounts after they are 70 ½ years old. This amount is deductible, so it will allow you to lower the income tax in 2021. But once you withdraw the amount, then you need to pay taxes on that money.
The contribution limits for IRAs and 401(k)s have not been altered this year. These limits will remain as $6,000 for adults who are less than 50 years old and $7,000 for people older than 50. At the same time, the 401(k) limit will also persist as $19,500 for individuals under 50 and $26,000 for individuals above 50.
IRS has prompted some minor changes in the income limits have in other factors of IRAs and 401(k). You could contribute regardless of your income in prior years, but you can’t subtract contributions if you have a high income. Nevertheless, these income thresholds do not apply to 401(k) contributions.
Increased Allowances for 2021
It is slated out that most of the allowances of 2020 will continue to remain in 2021 also. IRS has stated that the qualified transportation and qualified parking taxes will retain their monthly limit of $270. Despite this, the carryover ultimatum for cafeteria plans will surge from $50 to $550.
By the end of 2021, one can anticipate an increase in the estate tax deduction level from $11,580,000 to $11,700,000. The yearly gift tax exemption will continue to remain at $15,000 per person.
Allowances will also be increased for the medical savings account. In 2021 the annual medical deductible amount for individual coverage will be a minimum of $2,400 and a maximum of $3,600. For the family coverage, the deductible amount stated should be at least $4,800, and the ultimate must be $7,150.
Tax Brackets (Income Range) and Tax Rates
According to the Internal Revenue Code provisions, there are seven federal tax brackets in 2021, and they are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Your income range influences your tax rate (or the percentage of your tax). For 2020-2021, the tax rate remains the same. However, there are minor alterations in the income brackets.
|Rate of Tax||Single Taxpayers||Joint filers (Married)||Head of Household||Separate Filers (Married)|
|10 Percent||Up to $9875||Upto $19,750||Upto $14,100||Up to $9875|
|12 Percent||$9875 to $40,125||$19,750 to $80,250||$14,100 to $53,700||$9,875 to $40,125|
|22 Percent||$40,125 to $ 85,525||$80,250 to $171,050||$53,700 to $85,500||$40,125 to $85,525|
|24 Percent||$85,525 to $163,300||$171,050 to $326,600||$85,500 to $163,300||$85,525 to $163,300|
|32 Percent||$163,300 to $207,350||$326,600 to $414,700||$163,300 to $207,350||$163,300 to $207,350|
|35 Percent||$207,350 to $518,400||$414,700 to $622,050||$207,350 to $518,400||$207,350 to $311,025|
|37 Percent||Above $518,400||Above $622,050||Above $518,400||Above $311,025|
One can see that due to coronavirus lockdown, the unemployment level inflated significantly, and to tackle it, the government launched unemployment benefits. Those who receive unemployment insurance must pay income tax on that money. If you exempt taxes, then you need to pay quarterly estimated taxes.
The authorities came with the Paycheck Protection Program loans to extend support for the budding business owners. It will exempt the business expenses spent on payroll, rent or interest on mortgage expenditures, and utilities.
The Small Business Administration must approve the loan exclusion, and it is a hectic and sluggish process. According to IRS declarations, it is not possible to reduce these deducted loans from your taxes.
When to File For Refund
You can file an application electronically to assure timely refunds. IRS will start the 2021 tax season on February 12, and on April 15, the portal for 2020 tax returns will end. If an extension is necessary, then you can file it by October 15. Ease your refund claiming process with tax preparation outsourcing.
Welcoming the changes for 2021 with Tax Preparation Outsourcing Services!
The noticeable changes in the realm of taxation for the coming tax year, as discussed above, might seem perplexing for many. Getting professional consultation in-house is not feasible for many business entities. That’s where you can think to outsource tax preparation services. With the backing of tax preparation outsourcing services, you can lower the hassle of compliances involved in the new tax season. Top providers of tax preparation outsourcing services keep you aligned with the tax provisions’ changes to avoid errors and penalties.
Find the best-in-class tax preparation outsourcing services with Initor Global!
If you are planning to outsource tax preparation services, there is no better choice than Initor Global. An outsourcing firm with a distinguished position among the accounting firms and CPAs in the US, we are dedicated to lowering your tax hassles in the coming year with our outstanding tax preparation outsourcing services. Consult our team of tax experts to outsource tax preparation services cost-effectively.