What's changing in retirement tax planning for 2021? Those numbers are unchanged for singles but up $1,000 from 2020 levels for joint filers. This credit is available for graduate school, vocational training, and certain other nontraditional educational expenses. A 20% credit on up to $10,000 in eligible expenses every year is available to taxpayers making less than $59,000 in 2021 if they're single or $119,000 if they're filing jointly, with reduced credits available up to $69,000 in income for singles and $139,000 for joint filers. The Lifetime Learning tax credit offers additional educational tax breaks even beyond traditional college. The income limits below are up slightly from year-ago levels.įinally, among two educational tax credits, one is seeing minor changes. The following income limitations apply, and above the top amount, no credit is available. Depending on your income, you can get a credit for 10%, 20%, or 50% of up to $2,000 in contributions to an IRA, 401(k), or similar retirement account. It's designed for low- to middle-income taxpayers. The saver's tax credit pays as much as $1,000 per person to encourage retirement contributions. As you can imagine from the chart, a credit of several thousand dollars for workers earning less than $57,000 - in some cases, much less - can make a big financial difference for families struggling to make ends meet. Some of the most popular credits include the earned income tax credit, the child tax credit, the saver's credit, and two educational tax credits.Ī special thing about the earned income tax credit is that even if you don't owe anything in taxes, you can still get the credit amount back from the IRS in the form of a refund. Tax credits reduce your tax bill dollar-for-dollar, making them more valuable than deductions. What's changing with popular tax credits in 2021?
2021 TAX CHANGES PLUS
Children always get at least $1,100 as a standard deduction, and if they get more than $750 in earned income from work, then the standard deduction is their total earned income plus $350 more up to the regular standard deduction in the table above. The standard deduction amount for those minor children who have to file income tax returns remained the same in 2021 as it was in 2020. So married couples in which both spouses are over 65 and are blind would see their standard deduction increase by $5,400 - or $1,350 times four. Moreover, for joint filers, each spouse has an opportunity to get these added amounts. If you're 65 or older and blind, then you can boost your standard deduction by double the relevant amount. Both of those figures are $50 higher in 2021 than they were in 2020. For those who are married, the added amount is $1,350, while singles get to add $1,700. In addition to these base standard deductions, those who are 65 or older or are blind get an extra add-on. Let's take a more comprehensive look at all of these tax issues to help you create a better tax plan for 2020. Tax brackets for ordinary income as well as qualified dividends and long-term capital gains.Increases in other tax-favored accounts for healthcare and education.Contribution limits and income thresholds for retirement accounts like IRAs and 401(k)s.Changes to key provisions for popular tax credits.Below, you'll find the information you need on some of the most important ones, including:
But when it comes to your 2021 income taxes, the IRS isn't planning on a huge transformation like we saw back in 2018.Įven without major tax reform, however, you still have to go through the minor changes that happen to your taxes every single year. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.įollow hoping that 2021 will be a lot different from how 2020 was. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on. Dan Caplinger has been a contract writer for the Motley Fool since 2006.