Recovery from the Covid-19 Pandemic is well under way. A substantial number of American businesses and individuals are reopening their doors and/or slowly returning to the work force. In many cases businesses were sustained by the Paycheck Protection Program (PPP) funding. Individuals and families have received greater unemployment benefits in addition to bonus amounts while not working. There are two pieces of Federal legislation that will potentially affect tax strategies in 2021; The American Rescue Plan Act and The Consolidated Appropriations Act. Each act may have a specific impact on individual and business planning. Our goal is to help you navigate through the decision process in order to achieve the best possible tax outcome. Please be sure to contact us for more information.

The stock market has been holding fairly steady through 2021 and home prices in many states have soared subsequent to a geographic shift; in part due to individuals and families relocating because of Covid-19 concerns and/or restrictions. In addition to changes to Federal tax Legislation, prices for many goods and services have increased dramatically because of inflation. It is difficult to ascertain the long term effects of inflation on the economy as well as individual and business tax obligations. Questions also remain regarding what actions the Federal Reserve might take to dampen future inflationary pressures. We raise these factors because the impact of inflation is similar to a tax. The tax table below will help provide you with a guestimate of what you might owe for 2021.

The American Rescue Plan was signed into law by President Biden on March 11, 2021. This COVID-relief stimulus bill provided a third round of stimulus checks, extended unemployment benefits, funding for various public health and education programs, and expanded tax breaks for many families and small businesses. The tax changes are temporary, although there are a number of U.S. lawmakers pushing to make them more permanent.

The large majority of the Tax Cuts and Jobs Act (TCJA) changes went into effect for the 2018 tax year (for returns filed in the spring of 2019). The TCJA legislation cut the top corporate tax rate to 21%, lowered the top marginal rate for individual tax payers to 37%, eliminated or scaled back several deductions, reduced taxes on business income earned by pass-through businesses, doubled the estate tax exemption, and enhanced immediate expensing of capital investments. Apart from these changes introduced in 2018, here are some other highlights:

There continue to be seven tax brackets in 2021, (a change from five was made in 2018). For individuals the top tax rate of 37% applies to those with taxable income of $523,601 or more in 2021. Standard deduction for heads of household will increase $150 to $18,800 in 2021. Estates will have an exemption of $11,700,000 in 2021.

In 2021, the maximum amount workers can contribute to their 401(k) is the same as 2019. The amount is $19,500 ($26,000 for workers over age 50 in 2021). IRA amounts also remain the same at $6,000 ($7,000 for those over age 50).

Starting in 2019, the Affordable Care Act (ACA) individual mandate is repealed. There will no longer be a penalty payment on individual taxpayers who do not have health insurance.

For tax year 2021, there are a number of (mostly temporary) tax changes thanks to the American Rescue Plan Act (ARPA) of 2021. These provisions involve the Child Tax Credit, the Child and Dependent Care Credit, unemployment benefits, and more.

Given the changing nature of tax law and the complexity of our tax rules, planning is essential. We can help keep you informed of legislative action that may affect your tax situation and develop tax-efficient strategies for you.

Tax Rate Reduction

Your filing status determines the tax rate schedule you use, and your annual income determines your tax rate. It can be helpful to think of tax rates as layers: Zero tax is paid on the bottom layer, 10% on the next layer, and so forth. The highest layer your income reaches is known as your marginal rate. The highest marginal tax rate for 2021 is 37%.

2021 Tax Rates

To determine your tax level, click on the appropriate filing status below: