Issue No. 5 | May 2021

By Brian R. Jenney

The IRS has not implemented large changes for 2021 income taxes. However, you should still review the changes that will affect your taxes.  Some of the most important ones, include:

Higher standard deductions
Annual inflation adjustments brought a modest rise in standard deductions for 2021:

Filing StatusStandard Deduction for 2021 Tax Year
Married filing jointly$25,100
Head of household$18,800
Married filing separately$12,550

Tax brackets for ordinary income as well as qualified dividends and long-term capital gains
The IRS made a series of inflation-related adjustments to the U.S. tax code which includes the 2021 tax brackets.

Bracket for SinglesTax is this amount plus this percentageOf the amount over
$0 to $9,950$0 plus 10%$0
$9,950 to $40,525$995 plus 12%$9,950
$40,525 to $86,375$4,664 plus 22%$40,525
$86,375 to $164,925$14,751 plus 24%$86,375
$164,925 to $209,425$33,603 plus 32%$164,925
$209,425 to $523,600$47,843 plus 35%$209,425
Above $523,600$157,804.25 plus 37%$523,600

Bracket for married filing jointlyTax is this amount plus this percentageOf the amount over
$0 to $19,900$0 plus 10%$0
$19,900 to $81,050$1,990 plus 12%$19,900
$81,050 to $172,750$9,328 plus 22%$81,050
$172,750 to $329,850$29,502 plus 24%$172,750
$329,850 to $418,850$67,206 plus 32%$329,850
$418,850 to $628,300$95,686 plus 35%$418,850
Above $628,300$168,993.50 plus 37%$628,300

Popular tax credits
There are two main ways Americans can save money on their taxes: (1) tax deductions and (2) tax credits. Tax deductions reduce the amount of income that is subject to federal income tax. Tax credits reduce the amount of tax you owe, dollar for dollar.

The following tax credits should be considered:

  • Child Tax Credit
  • Credit for other dependents
  • Child and Dependent Care Credit
  • Earned Income Tax Credit (EITC)
  • The Retirement Contribution Savings Credit (Saver’s Credit)
  • American Opportunity Tax Credit (AOTC)
  • Lifetime Learning Credit (LLC)

Retirement accounts like IRAs and 401(k)s
In 2021, you can contribute a maximum of $19,500 to your 401(k) if you are younger than 50. If you’re 50 or older, you become eligible to make additional catch-up contributions valued at $6,500.

Tax favored accounts for education and healthcare
529 plans let you set money aside for educational purposes with tax free treatment as long as you use the money on qualifying expenses.

For healthcare expenses, those with high-deductible health insurance coverage can use health savings accounts to set money aside for future care costs. Contribution amounts of up to $3,600 for those with self-only policies or $7,200 for family policies apply in 2021, with minimum annual deductibles of $1,400 or $2,800 respectively required to qualify for high-deductible health plan status.

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