Early Peek at 2021 Tax Rates

Thursday, September 24, 2020

Original article by Fuoco.com >

Curious about what your tax bill may look like next year? For starters, the inflation adjustments may seem smaller, only about 1% for the threshold dollar amounts for 2021 tax rate brackets.

Here are the projected 2021 Tax Rates, Brackets, and Standard Deductions for the tax year beginning January 1, 2021.

Tax Brackets

The tax brackets by filing status and income are as follows:

Capital Gains

Just as you saw above capital gains rates won’t change but the brackets will. Remember a 20% tax rate applies where taxable income exceeds the thresholds set for the 37% ordinary tax rate. Exceptions also apply for art, collectibles and section 1250 gain (related to depreciation).

Standard deduction

It is predicted that the standard deduction for an individual who may be claimed as a dependent by another taxpayer will not be more than $1,100, or the sum of $350 plus the individual’s earned income. The additional standard deduction amount for the aged or the blind will be $1,350. The additional standard deduction amount will increase to $1,700 if the individual is also unmarried and not a surviving spouse.

Section 199A or “Pass Through” Deduction

Sole proprietors and owners of pass-through businesses are eligible for a deduction of up to 20% to bring the tax rate lower for qualified business income.

Alternative Minimum Tax (AMT)

The AMT exemption rate is also subject to inflation.

Other items of interest:

  • For 2021, the $2,500 deduction for interest paid on student loans begins to phase out when modified adjusted gross income (MAGI) hits $70,000 ($140,000 for joint filers) and is completely phased out when MAGI hit $85,000 ($170,000 for joint filers).
  • For 2021, the foreign earned income exclusion amount is $108,700.
  • The federal estate tax exemption for decedents dying will increase to $11.7 million per person or $23.4 million per married couple in 2021.
  • The annual exclusion for federal gift tax purposes will remain at $15,000 in 2021. That means that you can gift $15,000 (or $30k with spouse) per person to as many people as you wish with no federal gift tax consequences in 2021.