Know the Upcoming Tax Law Changes
It’s time to start thinking about your 2021 tax return if you haven’t already. After all, the better your tax preparation, the more money you may be able to save. However, efficient tax preparation necessitates knowledge of what’s new and different from the previous year, and there are plenty of tax law updates and changes for the 2021 tax year that wise taxpayers should be aware of.
A variety of elements in the Covid-relief laws put into law in December and March might affect your 2021 tax return. New restrictions or yearly inflation changes have resulted in further 2021 revisions. But, regardless of how, when, or why the changes were made, they may either damage or improve your bottom line, so you must be prepared. To assist you, we’ve compiled a summary of the most significant tax law changes and Additional 2021 Federal Tax Law Changes for Individuals. (some related items are grouped together). Use this knowledge now to keep more of your hard-earned money when it comes time to submit your 2021 tax return in April.
Knowing about key future tax changes will help you plan for the following year. Many consumers will want to know which taxes will change in 2021, as well as which provisions will be phased out or adjusted for inflation, as the new year begins. Here’s a high-level overview of some of the tax-related changes in 2021.
(1) The Fiscal Year 2021 Consolidated Appropriations Act
The Consolidated Appropriations Act of 2021 was signed into law at the end of 2020. Several tax measures included in the bill will influence how Americans file their taxes for at least another year after it is passed.
Many expiring deductions and credits are extended, and many tax relief measures granted as part of the national response to the epidemic are extended and expanded, as well as numerous catastrophe tax relief provisions.
Among the various provisions incorporated in the statute are the following:
- $600 in advance tax credit payments per taxpayer ($1,200 for married couples filing jointly), plus $600 for each qualified kid The credit, like the initial stimulus cheques, phases out after $75,000 in modified adjusted gross income ($112,500 for heads of household and $150,000 for couples filing jointly), and is an extension of companies’ ability to deduct 100% of certain meal expenditures.
- Personal protective equipment is a deductible item for qualified instructors as part of the $250 qualified educator tax deduction, and the $300 deduction for cash charitable deductions if you use the standard deduction has been extended. The deduction for joint filers will be enhanced to $600 in 2021.
- clarification that gross income does not include any amount equivalent to a Paycheck Protection Program (PPP) loan forgiven amount, and that expenses paid with forgiven PPP loans are fully deductible.
(2) Inflationary adjustments
Our salaries often rise in lockstep with the pricing of the items and services we buy. Income taxes would typically rise faster than incomes if the income tax system did not account for this predicted development, generating unexpected financial stress. In 2021, income taxes will be assessed in the same way. The standard deduction, income tax rates, and eligibility for various tax deductions and credits will all be adjusted to account for inflation.
The standard deduction for most married couples filing jointly will increase to $25,100, up $300 from the previous year. The standard deduction for most single taxpayers and married persons filing separately rises to $12,550, approximately half that of married filers. The standard deduction for most taxpayers filing as head of household will increase.