The following are a number of tax changes for 2021
2021 TAX CHANGES
Personal Tax Changes
Standard deduction
The standard deduction for 2021 is as follows:
Filing Status | Standard Deduction Amount |
Single | $12,550 |
Head of Household | $18,800 |
Married Filing Jointly | $25,100 |
Over 65 and/or Blind | $1,350 additional per type |
Charitable Contributions
You can claim a $300 charitable cash contribution even if you do not itemize and use only standard deductions. However, the $300 is a onetime deduction, whether your married or single, per tax return. So, if you gave to your favorite charities this year you can take a $300 credit without having to itemize.
Child Tax Credit
Good news if you have children. For 2021, the American Rescue Plan gives a one-year increase in the amount of child tax credit (CTC) from $2,000 per child in 2020 to $3,000 per child in 2021. If your child is 5 years or younger, that amount jumps to $3,600 per child. The extra amount of child tax credit begins to phase out if your income is above $75,000 for singles, $112,500 for head of household, and $150,00 for married filing jointly.
This credit is fully refundable, meaning you still may get the refund even if you don’t owe any taxes. Another important change is that the child tax credit includes children who are 17 years old.
Half the 2021 credit amount will be paid in advance starting July 15 and end on December 15, 2021. You claim the other half on your 2021 taxes.
Although these increases are currently only for 2021, President Biden wants to extend the amounts through 2025. Stay tuned.
Recovery Rebate Credit
If you didn’t receive your recovery rebate (stimulus payment) amount for 2021 which was $1,400, you may be entitled to file for that rebate amount on your tax return. However, it should be noted that if you made more than $75,000 for singles, $112,500 for head of household, or $150,000 for married filing jointly you may not have received anything due to the income phase out.
Earned Income Tax Credit
Some people without qualifying children will be able to claim the Earned income Tax Credit (EITC) for 2021. The “childless” EITC amount will be greater as well. The EITC tax credit age is lowered from 25 to 19, except for some full-time students. The maximum credit available for “childless” worker has increased from $543 to $1,502 for those who qualify.
Adoption Credit
If you adopted a child in 2021, you may qualify for the child adoption credit. This credit is now at $14,440 for qualified adoption expenses.
Credit for Other Dependents
This credit, new last year, allows you to claim a credit of up to $500 for a dependent who does not qualify for the child tax credit. A qualifying relative may be considered a dependent for this credit.
Retirement Required Minimum Distribution (RMD)
Bad news, the required minimum distribution for certain retirement accounts is back on after a reprieve during 2020. If you’re over 70 ½ years old, you must take the required minimum distribution from your retirement accounts.
Standard Mileage Rates for Self Employed
The standard mileage rate has decreased from $0.575 per mile to $0.56 per mile for 2021.
Self-Employment
20% Deduction for Pass Through Income
If you're self-employed, there are additional tax law changes for 2021. Self-employed people and owners of LLCs, S corporations and other pass-through entities can deduct 20% of their qualified business income, subject to limitations.
These are just a few of the tax changes for 2021. There are more. Contact me if you have any questions.