Keeping up with the tax changes can be quite challenging as there is a lot that goes into it. Luckily, we have our tax estimator for 2021 so you don’t have to review the tax changes. The way you will calculate your taxable income is the same as any other year. Simply, take away all the deductions you can claim and adjustments you can make to your taxable income to find your adjusted gross income.
Once you know your adjusted gross income, you can then calculate what you will owe to the IRS by looking at the tax bracket you fall in.
Changes in 2021
There are a few things that may affect your overall tax situation in 2021. While most things stay the same because of the Tax Cuts and Jobs Act of 2017, there are certain changes you should be aware of. Because the changes that come with the TCJA of 2017 will remain the same until 20205. There isn’t much that has changed except the medical expenses deduction and IRA contributions deduction.
In previous years, you could deduct any amount that exceeds 7.5% of your adjusted gross income for medical expenses. This threshold has been increased to 10%. So in 2021, you can only deduct medical expenses that exceed 10% of your adjusted gross income.
Another change that you might want to look for is the IRA contributions deduction. Since the IRA contribution limits are increased every year by the Internal Revenue Service. As a by-product of that, the maximum deduction you can claim for your IRA contributions is increased every year.
These two are the most significant changes you are going to see when filing a federal income tax return in 2021. Additional information on the tax changes of 2021 can be found on our front page alongside the updated tax estimator 2021.