2020 was a huge financial nightmare for everyone, and we are all glad that it has come to an end. We were all hoping that IRS will make drastic changes like what we saw in 2018, but that doesn’t seem to be the case. However, the little adjustments and tinkering to different tax rules by the IRS could just as well save you a lot of money.
Below, you will find all the information you need on the most important tax changes of 2021 by the IRS. Hopefully, this information can help you make informed financial decisions. You will also find it easier to create a better tax plan for 2020.
Higher standard deductions
The annual inflation adjustments are behind the modest rise in the standard deduction for the year 2021. Single, married filing jointly, head of household, and married filing separately have a standard deduction of $12,550, $25,100, $18,800, and $12,550, respectively.
Also, those who are blind or 65 and older get extra add-ons. Those who are single get to add $1,700, while those married add $1,350. Understand that both the figures are much higher than 2020 by around $50.
Key provisional changes to popular tax credits
Did you know that tax credits reduce your tax bill significantly? You will, therefore, get more value than the deductions. Some popular credits include child tax credit, two educational tax credits, earned income tax credit, and saver’s credit.
The earned income credit will give sizable reductions to low and mid-level income workers. However, the credit amounts will vary depending on family income and size. Those with three children or more will get to enjoy up to a maximum of $6,728 in tax credit. The full list containing the changes to popular tax credits can be found here.
Exemption from estate and gift tax
The estate and gift tax amount are a key consideration for high-net-worth individuals. It depicts the amount of wealth you can pass to your next generation without paying tax. The amount saw a huge rise from $11.58 million in 2020 to $11.7 million in 2021.
Although there are a few more minor tax changes between 2020 and 2021, these are the most important. The IRS can sometimes issue liens against your property as collateral for tax debt payments. An experienced attorney can help you negotiate installment payment plans to offset your tax liability.