New 2021 IRS Announcements – Changes in Revenue Procedures
Tax rules and procedures are constantly changing. Generally, the only people who can keep up with them are those who provide tax advice and preparation services. There are times when the small business owner can get a jump on what’s coming and discuss with their tax expert how the changes will affect them.
On October 26, 2020, the IRS provided a report of the highlights of coming changes for the tax year 2021. These aren’t all of them, but they are those that could influence your business and personal decisions in the coming year. Use these announcement points to discuss your coming year tax planning with your accountant or tax expert.
Standard Deduction Increases – Standard deductions have increased, with the deduction for married couples rising by $300 to $25,100. The deduction for the single taxpayer rose by $150 to $12,550. For a head of household, it will by $18,800 for 2021.
Marginal Tax Rates – The top rate for 2021 remains 37% for single individual taxpayers with incomes greater than $523,600, and $628,300 for married couples filing jointly. Other rate brackets are:
35%, for incomes over $209,425 ($418,850 for married couples filing jointly);
32% for incomes over $164,925 ($329,850 for married couples filing jointly);
24% for incomes over $86,375 ($172,750 for married couples filing jointly);
22% for incomes over $40,525 ($81,050 for married couples filing jointly);
12% for incomes over $9,950 ($19,900 for married couples filing jointly).
The lowest rate is 10% for incomes of single individuals with incomes of $9,950 or less ($19,900 for married couples filing jointly).
- Other Highlights from the Announcement
There will still be no limitation on itemized deductions as it was eliminated by the Tax Cuts and Jobs Act. This will be the fourth year for this provision.
Beginning in 2021, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements remains $2,750. There is an increase of $50 to $550 for the maximum carryover for cafeteria plans that permit carryovers.
For the tax year 2021, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,400 or more than $3,600. Those are up $50 from tax year 2020. For self-only coverage, the maximum out-of-pocket expense amount is $4,800, up $50 from 2020.
In 2021, participants with family coverage, the floor for the annual deductible is $4,800, up from $4,750 in 2020; however, the deductible cannot be more than $7,150, up $50 from the limit for tax year 2020. For family coverage, the out-of-pocket expense limit is $8,750 for tax year 2021, an increase of $100 from tax year 2020.
Those are the main highlights, but others are in the announcement here. As always when the IRS is involved, your tax professional is receiving direct notification of changes from the IRS. This report gives you some talking points for an end of year tax planning discussion.
SOURCE
https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2021