IRS issues inflation adjusted amounts for 2021

IRS issues inflation adjusted amounts for 2021

The holidays are upon us – marking the return of many annual traditions.  In 2020, virtual or outdoor meetings with family and friends are teamed with large quantities of carb-laden baked goods – and time to peruse the updated inflation adjusted tax brackets and deduction amounts from the IRS. 

Never one to disappoint, the IRS recently delivered those inflation adjusted amounts, reviewed below. 

For purposes of this article, only amounts that have changed from 2020 to 2021 will be referenced.  Items which remained the same (i.e. annual gift exclusion of $15,000) will not be shown.

Individual Brackets and Rates

Standard Deduction Amounts

AMT Exemption Amounts

Capital Gains Brackets and Rates

199A / Qualified Business Income Deduction
If your taxable income exceeds the following amounts your deduction will be limited:

Kiddie Tax
Although the amounts have not changed, the “kiddie tax” calculation has officially reverted to pre-Tax Cuts and Jobs Act (TCJA) methods, effective January 1, 2020. Rather than using trust tax rates and brackets, a child’s unearned income will once again be calculated by using the parent’s marginal tax rate.

Estate and Generation Skipping Tax (“GST”)
For 2021, the Estate and GST lifetime exemption amounts have increased to $11,700,000. 

It is worth noting that President-elect Biden’s tax plan is to drastically reduce this exemption amount.  It is unknown if this will be retroactive from January 1, 2021 or implemented for future tax years.

Section 179 Deduction
The amount allowable to be expensed under Code 179 will be $1,050,000 with a phaseout threshold of $2,620,000 when eligible property is placed in service.

Excess Business Loss Deduction
Effective January 1, 2021, the excess business loss limitation will be back in effect.  The limitation on business loss deductions included in the TJCA was temporarily removed for tax years from 2018 to 2020 by the CARES Act, passed in March 2020. This removal of the limitation allowed taxpayers to amend 2018 returns to claim higher business losses for 2018. Beginning in 2021, any combined losses incurred during the tax year that exceed $524,000 (married filing jointly) and $262,000 for all other filers, will be limited.      

Final Thoughts
2020 was a year of historic uncertainty.  While everyone is hopeful for a brighter, more stable new year, we must recognize that the tax landscape will most certainly change with the incoming administration.  Now, more than ever, working closely with your tax professional is vitally important. Herbein is ready to help you chart your path ahead.

For more information or questions, please contact a member of the Herbein tax team, or email us at info@herbein.com.

Article compiled by William Hall.