2023-2024 Tax Planning Guide
Winning Back-Office Strategies to Boost Your Business Agility
VIEWpoint Issue 1 | 2023
A Refresher on the Trust Fund Recovery Penalty for Business Owner...
Valuations Can Help Business Owners Plan for the Future
SBA Lenders: Beware of BSA
The Internal Revenue Service (IRS) has recently issued the 2021 tax year’s annual tax inflation adjustments for over 60 provisions, comprising of the schedules of tax rates, standard deductions, itemized deductions, medical savings amounts and more. The document, Revenue Procedure 2020-45, gives a comprehensive look into these new adjustments for 2021, but Doeren Mayhew’s tax advisors outline the important tax inflation adjustments that taxpayers should be cognizant of.
Minimum Addition Tax Update
The amount of the minimum addition tax for failing to file a tax return within 60 days of the due date was increased by the Consolidated Appropriation Act of 2020. Starting with returns due after Dec. 31, 2019, there is now a new additional tax of $435 or 100% of the amount of tax due, whichever is less. This is an increase from the previous $330 additional tax, and the $435 tax will be adjusted for inflation.
As year-end approaches, more and more taxpayers begin to wonder what tax inflation adjustments to expect for the upcoming year. The following 2021 tax year adjustments will apply to tax returns filed in 2022 and should be taken into consideration for planning purposes.
In 2021, the top tax rate stays at 37% for individuals with incomes above $523,600 and $628,300 for married couples filing jointly. According to the IRS’s website, additional rates include:
There continues to not be a limitation on itemized deductions as the limitation was removed by the TCJA.
Alternative Minimum Tax Exemption
The 2021 Alternative Minimum Tax exemption is $73,600 and it starts phasing out at $523,600 for individuals. For married couples filing jointly, the exemption is $114,600 and starts phasing out at $1,047,200. In 2020, the exemption for individuals was $72,900 and it began to phase out at $518,400. For married couples filing jointly, the exemption was $113,400 and it began phasing out at $1,036,800.
Maximum Earned Income Credit
For taxpayers who have three or more qualifying children, the 2021 maximum Earned Income Credit is $6,728, an increase of $68 from 2020. There’s a table in the revenue procedure which provides the Maximum Earned Income Credit for additional categories, as well as income thresholds and phase-out amounts.
Monthly Limitations for Transportation
The 2021 monthly limitation for the qualified transportation fringe benefit stays at $270, as well as the monthly limitation for qualified parking.
Limitation for Employee Salary Reductions
The limitation for employee salary reductions for contributions to health flexible spending arrangements stays at $2,750 for taxable years starting with 2021. If a cafeteria plan allows for the carryover of unused amounts, the maximum is $550, a $50 increase from before.
Medical Savings Accounts
In 2021, participating individuals who have coverage for themselves only in a Medical Savings Account must have an annual deductible no less than $2,400 (formerly $2,350) but no more than $3,600 (formerly $3,550). The maximum out-of-pocket expense amount is $4,800 (formerly $4,750).
For participants with family coverage, the base for the annual deductible is $4,800 (formerly $4,750) and the maximum is $7,150 (formerly $7,100). The maximum out-of-pocket expense amount is $8,750 (formerly $8,650).
Lifetime Learning Credit
In 2021, the adjusted gross income amount taxpayers will use to determine the reduction in the Lifetime Learning Credit is $119,000, a $1,000 increase.
Foreign Earned Income Exclusion
The 2021 foreign earned income exclusion is $108,700, a $1,100 increase from the previous year.
Estate Basic Exclusion Amount
Estates of decedents who die in 2021 will have a basic exclusion amount of $11,700,000, an increase of $120,000 from 2020.
In calendar year 2021, the annual exclusion for gifts is $15,000, as it was in 2020.
The maximum credit permitted for adoptions in 2021 is the amount of qualified adoption expenses up to $14,440, a $100 increase from 2020.
With numerous new annual tax inflation adjustments, some of these provide beneficial tax breaks to individuals and families alike. If you have questions about these new adjustments and how they may affect your unique tax situation, Doeren Mayhew’s tax advisors are here to help. Contact us today for more information.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
A quick registration is required to view our resources.
You will only be asked to do this one time (unless you don't save your browser cookies).