Details

Category: TAX: Year 2021

Tax credits reduce your tax bill dollar-for-dollar, making them more valuable than deductions. Some of the most popular credits include the earned income tax credit, the child tax credit, the saver's credit, and two educational tax credits.

The earned income tax credit gives sizable reductions in taxes to workers with low- or mid-level incomes. The credit amount varies by family size and income, with maximums of $6,728 for those with three or more children (up $68 from 2020), $5,980 for those with two children (up $60), $3,618 for those with one child (up $34), or $543 for those with no children (up $5). The income limits below indicate which taxpayers are eligible for at least some of the earned income credit, but bear in mind that the top credit amount phases out gradually over a large portion of the income range. The income amounts are up slightly from last year.

DATA SOURCE: IRS.

A special thing about the earned income tax credit is that even if you don't owe anything in taxes, you can still get the credit amount back from the IRS in the form of a refund. As you can imagine from the chart, a credit of several thousand dollars for workers earning less than $57,000 -- in some cases, much less -- can make a big financial difference for families struggling to make ends meet.

The saver's tax credit pays as much as $1,000 per person to encourage retirement contributions. It's designed for low- to middle-income taxpayers. Depending on your income, you can get a credit for 10%, 20%, or 50% of up to $2,000 in contributions to an IRA, 401(k), or similar retirement account. The following income limitations apply, and above the top amount, no credit is available. The income limits below are up slightly from year-ago levels.

DATA SOURCE: IRS.

Finally, among two educational tax credits, one is seeing minor changes. The Lifetime Learning tax credit offers additional educational tax breaks even beyond traditional college. A 20% credit on up to $10,000 in eligible expenses every year is available to taxpayers making less than $59,000 in 2021 if they're single or $119,000 if they're filing jointly, with reduced credits available up to $69,000 in income for singles and $139,000 for joint filers. This credit is available for graduate school, vocational training, and certain other nontraditional educational expenses. Those numbers are unchanged for singles but up $1,000 from 2020 levels for joint filers.

Details

Category: TAX: Year 2021

For high net worth individuals, the gift and estate tax lifetime exclusion amount is a key figure of how much wealth you can pass on to the next generation without paying tax. In 2021, this amount rises to $11.7 million, up from $11.58 million in 2020.

More people focus on the annual gift tax exclusion amount. That lets people give up to $15,000 per year to as many different recipients as they want in 2021. That amount is unchanged from 2020's level.

Details

Category: TAX: Year 2021

Most people take the standard deduction rather than itemizing. It's far less work, and the amounts are now high enough that only a small percentage of taxpayers gets a bigger break by itemizing their deductions.

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

SOURCE: IRS.

In addition to these base standard deductions, those who are 65 or older or are blind get an extra add-on. For those who are married, the added amount is $1,350, while singles get to add $1,700. Both of those figures are $50 higher in 2021 than they were in 2020. If you're 65 or older and blind, then you can boost your standard deduction by double the relevant amount. Moreover, for joint filers, each spouse has an opportunity to get these added amounts. So married couples in which both spouses are over 65 and are blind would see their standard deduction increase by $5,400 -- or $1,350 times four.

The standard deduction amount for those minor children who have to file income tax returns remained the same in 2021 as it was in 2020. Children always get at least $1,100 as a standard deduction, and if they get more than $750 in earned income from work, then the standard deduction is their total earned income plus $350 more up to the regular standard deduction in the table above.

Details

Category: TAX: Year 2021

There are other ways to save on your taxes. In the educational realm, 529 plans and Coverdell ESAs let you set money aside for educational purposes, with tax-free treatment as long as you use the money on qualifying expenses. There are no income limits on 529 plans, but income limits of $95,000 to $110,000 for single filers and $190,000 to $220,000 for joint filers apply to reduce or eliminate the ability to make the maximum Coverdell contribution of $2,000 per year.

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. Catch-up contributions of $1,000 are available if you're 55 or older, but a qualifying plan must have maximum out-of-pocket expenses of $7,000 for self-only policies or $14,000 for family coverage.