January 2021
College and Tax Planning

The IRS and the Social Security Administration have released 2021 inflation-adjusted figures for more than 50 tax provisions. Here are just a few updates and changes that have occurred for the year 2021 that you may want to be aware of:

Itemized Deductions and Standard Deduction

The standard deduction for married couples filing a joint return is slightly higher for 2021. The new standard deduction is $25,100 (up $300). For single individuals and married couples filing separate returns, the standard deduction is $12,550 for 2021 (up $150). The 2021 standard deduction for heads of household increases to $18,800 (up $150).

Estate and Gift Tax

For 2021, the lifetime exclusion from estate and gift tax has increased from $11,580,000 to $11,700,000. The annual gift tax exclusion in 2021 remains at $15,000. Gift splitting allows married couples to give up to $30,000 to a person without making a taxable gift. The exclusion for gifts to a spouse who is not a citizen of the United States increases $2,000 to $159,000 for 2021.

COLA Limits for Qualified Plans

The cost of living adjustments (COLA) affect the maximum limits for a variety of contributions and distributions for 2021, including defined benefit accounts, 401(k)s, and other defined contribution plans, as well as limits on employee stock ownership plans (ESOPs) and benefits to highly-compensated employees.

• Defined Contribution Plans - The limits on elective deferrals to 401(k), 403(b), certain 457 plans, and the federal government’s Thrift Savings Plan remains at $19,500 for 2021 (same as 2020). The limit on annual additions to defined contribution plans is increased in 2021 to $58,000 (up $1,000).

• Defined Benefit Plans and ESOPs - The maximum amount a defined benefit plan may pay a participant each year remains unchanged in 2021 at $230,000 (same as 2020).

• Individual Retirement Accounts (IRAs) - Eligible taxpayers can contribute up to $6,000 to an IRA (excluding catch-up contributions discussed below), which is unchanged for 2021. The MAGI phase-out range for taxpayers making contributions to a Roth IRA in 2021 is $198,000 to $208,000 for married couples filing jointly, up $2,000 from 2020. For single taxpayers, the income phase-out range in 2021 is $125,000 to $140,000, up $1,000 from 2020.

• SIMPLE Catch-up Contributions - The elective deferral limit for a SIMPLE plan remains unchanged at $13,500 in 2021. The $3,000 catch-up amount for SIMPLE plans also remains unchanged for 2021.

Social Security Wage Base Increases for 2021

The maximum amount of earnings subject to Social Security increased from $137,700 to $142,800 (up $5,100) in 2021. The Social Security Administration also reported that Social Security and Supplemental Security Income benefits will increase by 1.3% for 2021.

For our Arizona clients, we are sharing more detailed information on the tax credits unique to our state. These do not reduce your tax liability, just allows you to direct your taxes paid to specific organizations. For a comprehensive list of these credits, CLICK HERE to download Document.

While not monumental changes, it is important to know how each of these may impact you throughout the year, and especially as you begin to look at filing your taxes in 2022. If you have questions on how each of these changes may affect you and your tax situation, don’t hesitate to reach out to us at the office!

If you have questions, please contact us.

MARKET UPDATE
FINANCIAL PLANNING
401(K) ALLOCATION

To download the January 2021 Newsletter: CLICK HERE