Taxes 2021 – Upcoming Tax Rate Law Changes
The IRS released new 2021 tax rates and tax brackets. They released it for individuals and estates. This information can be helpful for those who do plan to have a significant event in 2021. It can be a new job, starting a new business or maybe getting married. This is the information that you have to be aware of. In 2021 the top tax rate will continue to be 37%. That applies to individuals who are married and filed joint tax returns. Generally, you will see an increase in text brackets about actual income. It is something that the IRS does on an annual basis. You will see about %3 increase in income for each tax bracket.
2021 Income Tax Bracket Rates
People think that you are taxed on all of your income at the same tax rate which is wrong. Regardless of your filing status as you make more money you are going to begin to pay more tax. The first set of your income is taxed at 10% which means if you are a single filer, the first $10,000 is only taxed 10 percent. If you make money from approximately $10,000 to $40,000 is taxed 12% and the next set is taxed at 22% so it means you are never paying all at the same tax rate. The highest tax rate is %37.
Capital Gain Rates for stocks
If you have a short-term stock sale that is going to be taxed at your ordinary income tax. However, if you have qualified dividends or long-term capital gains for stocks you have had for more than a year, you get to use special rates. If you are a single filer, as long as your total income is less than $40,000, you can have qualified dividends or long-term capital gains and you will pay zero in tax for them.
If your income is increasing, you are going to start to pay tax at a rate of %15 like everybody. If you get a really high income (if you are rich) you have to pay tax at a rate of 20%. Once you have more than $250,000 as an income that is when investment income taxes apply. We can say that zero tax until you are rich.
Standard Deduction 2020 vs 2021
It changed in 2021. The IRS gives this to you for free. It is going to reduce your income. It minimizes your taxable income. It is an alternative to itemized deduction. It does not matter whether you want to take a standard deduction or itemized deduction on your tax return. It depends on your personal choice. The stand that deduction is based on your filing status.
If you are a single filer in 2020 your standard deduction was $12,400. If you are married filing joint, your deduction was $24,800 in 2020. However, it was changed by the IRS for 2021. If you are a single filer your deduction is $12,550 and if you are married filing joint, your deduction is $25,100.
2021 Medical Expenses
You do not have to be able to take this deduction because it means your health is very poor. People who have a lot of complications to deal with can get to use this.
2021 Gift Tax Exclusion
You can give a gift per person $15,000 each without having to file a gift tax return. It has not changed this year. But if you contribute more than $15,000 per person then you have to file tax form.
Child Tax Credit
A tax deduction will reduce your taxable income however it is not as effective as a tax credit. The amount for each qualifying child you has is $2,000 per child in 2021.
We will share the developments regarding this upcoming tax rate law in more detail in the following days.