2021 inflation-adjusted income tax brackets
Retirement plan inflation adjustments for 2021

Standard & itemized tax deductions for the 2021 tax year

Welcome to Part 2 of the ol' blog's series on 2021 tax inflation adjustments. 
We started with a look at next year's income tax brackets and rates.
That item also has a directory, at the end of the post,
of all of next year's tax-related inflation updates.
Today we look at standard and itemized deductions,
certain limitations on some Schedule A claims
and the sort-of still around personal exemption amount.
Note: The 2021 figures in this post apply to that tax year's returns to be filed in 2022.
For comparison purposes, you'll also find 2020 amounts that apply to this year's taxes, due April 15, 2021.


 

Itemized vs standard deductions

Tax year in and tax year out, most folks claim the standard deduction instead of itemizing.

The option has always been appealing because it's easy. There are no receipts to save. Even better, the Internal Revenue Service provides the standard amount you can claim, based on your filing status, right there on the Form 1040.

This deduction trend has increased, to more than 85 percent by one estimate, thanks to the Tax Cuts and Jobs Act (TCJA). That tax reform law essentially doubled the standard amounts.

One thing, however, has remained even after TCJA became law in late 2017. Those standard deduction amounts still are adjusted annually for inflation.

Inflation deduction increase: The Internal Revenue Service announced the 2021 standard deduction adjustments this week.

For 2021 tax returns due in 2022, the standard deduction amounts for most taxpayers younger than 65 are:

  • $12,550 for single taxpayers and married taxpayers filing separate returns, $150 more than in 2020;
  • $18,800 for heads of household, $150 more than this year; and
  • $25,100 for married filing jointly couples and surviving spouses, $300 more than in 2020.

I know it's easy math, but so you don't have to bother, the table below show the differences in this and next year's standard deduction amounts are:


Filing Status
    

2020
Standard Deductions
Use these amounts
to file 2020 taxes in 2021

2021
Standard Deductions
Use these amounts
to file 2021 taxes in 2022

Single 

$12,400

$12,550

Head of  Household 

$18,650

$18,800

Married Filing Jointly 

$24,800

$25,100

Qualifying Widow or Widower (Surviving Spouse) 


$24,800


$25,100

Married Filing Separately 

$12,400 

$12,550 


Age adds to deductions:
 I've been doing this long enough now to know that readers of the ol' blog caught my earlier reference to "most taxpayers younger than 65" when it comes to standard deduction amounts.

The age distinction is important because tax code allows older filers and those who are visually impaired to claim additional standard deduction amounts. You do so by ticking a checkbox on your tax return.

Each added standard deduction amount option is separate for each filer, meaning that an older married couple could check up to four boxes on their joint return. The total number of boxes checked then is used to determine the filer(s) standard deduction amount.

For the 2021 tax year, aged or blind filers get an additional standard deduction amount of $1,350. That's $50 more than the 2020 bump.

This added standard deduction amount goes to $1,700 next year if the individual also is unmarried and not a surviving spouse. Again, that's a $50 increase over this year's amount.

And if you're a tax filer who also can be claimed as a dependent of another taxpayer, in 2021 your standard deduction amount cannot be more than the greater of either $1,100 or $350 plus your earned income. This is the same standard deduction requirement as for 2020 tax returns.

Itemized deduction issues: Part of your annual tax planning is determining whether you'd be better off claiming the standard deduction or itemizing all the expenses you can claim on Schedule A.

While the TCJA changes mean most filers will take the easier standard deduction route, don't assume. You know that old tax saying: Assuming can get your a$$ kicked by the IRS in the form of a higher tax bill.

OK, maybe that's just my personal old tax saying, but you get the idea. Double check your deduction choice so that you don't cheat yourself at filing time.

Basically, and even the IRS says this, you always want to use the deduction method that gives you the larger amount to offset your income. You're not locked into any one way. It's a decision you make each tax year. One year, itemizing might be better. The next year, it's wise to take the standard deduction.

Knowing what's available on the standard side gives you a baseline to use in measuring your potential itemized expenses.

For some folks, even under the new tax law, their total itemized deduction amount will still be more than their standard deduction amount. In these cases, by all means itemize.

Medical expenses remain deductible as long as they exceed 7.5 percent (for 2020 tax year filings) of your adjusted gross income (AGI).

And while the TCJA has limited to $10,000 the amount of state and local taxes (SALT) you can claim on Schedule A, there is no overall limit on your other, overall itemized expenses. This so-called Pease limitation, one of several laws named after their advocates, in this case the late Rep. Don Pease (D-Ohio) who championed the deduction limits on higher-income taxpayers, is suspected for tax years 2018 through 2025.

Exemptions, sorta, still around: Another tax reduction option eliminated, at least through 2025, by the TCJA was the personal exemption.

Exemptions were a specific dollar amount, adjusted annually for inflation, that taxpayers could claim for themselves, their spouses if filing jointly and dependents. The exemptions total helped reduce the amount of filers' income subject to tax.

TCJA supporters say the exemption elimination isn't a big deal, although some filers with larger families disagree. The exemption loss is offset, they argue, by the previously discussed larger standard deduction amounts and the expanded child tax credit and the credit for other dependents.

However, an exemption amount still is used in other parts of the tax code. It comes into play, for example, in determining whether a relative qualifies for family tax credit purposes.

Since the tax law changes didn't mean to invalidate other tax situations where a personal exemption amount is involved, the IRS continues to calculate the officially now zero exemption amount based on pre-TCJA exemption data.

For the 2021 tax year, that means the deemed exemption amount is $4,300. That's the same as in 2020.

More inflation info on the way: Well, this has turned into a numbers-heavy post for a tax deduction that's supposed to be simple and easy. But that's the way taxes go sometimes.

I'll continue breaking out and down more 2021 inflations adjustments, with the upcoming Part 3 focusing on tax-related retirement amounts, an area that I'm increasing anticipating!

As noted in the box intro to this post, you can find a directly of the 2021 inflation series at the end of the series' first post on tax rates and income brackets. As the featured areas are covered, I'll put the post links in that index.

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