It’s that time of year again: 2020 is coming to an end, and you can start planning for a prosperous 2021. To give you an edge, here’s something that will make you feel good about your tax return: standard deductions are increasing for 2021!
Tax deductions reduce your taxable income and the less you pay in taxes, the more money you can keep in your pocket. If you’re trying to identify a simple way to maximize the benefits of the tax code, the standard 2021 deduction amounts are another gift to add to your tax checklist.
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Choosing the right option
The IRS offers two options for deductions for your tax return: standard or itemized deductions. Since you cannot obtain both deductions in the same year, your goal is to choose the one that is most beneficial to you.
Due to the reduction in itemized deductions available to taxpayers, the standard deduction has been the most popular choice since the implementation of the 2017 Tax Reductions and Employment Laws. It is a predetermined amount set by the IRS each year based on the status of the request and allows you to ignore the tedious record keeping required of taxpayers detailing. Standard deductions are the obvious choice for those who don’t have a lot of eligible expenses: less time and paperwork needed.
If you are running low on medical expenses, charitable contributions, home mortgage interest and other eligible expenses during the year, making the standard deduction is usually your best bet.
2021 standard deductions are slightly sweeter
Standard deductions for 2021 come with a boost that will lead to more tax savings. If your standard deduction is greater than the total of your itemized deductions, don’t be pissed off with charitable contributions that you won’t be able to deduct; take advantage of the standard deduction.
Here are the basic 2021 standard deduction amounts (for people under 65) for taxes due through April 2022.
| Archiving status | Fiscal Year 2021 | Fiscal Year 2020 |
|---|---|---|
| Single or married filing separately | $ 12,550 | $ 12,400 |
| Declaration of married or qualified widower | $ 25,100 | $ 24,800 |
| Householder | $ 18,800 | $ 18,650 |
Data source: IRS.
If you can be declared dependent on someone else’s return, the rules are the same as in 2020. The standard 2021 deduction for dependents is $ 1,100 or the sum of earnings from work plus $ 350 – whichever is greater. Remember: The total standard deduction claimed for dependents cannot be greater than the basic standard deduction for your filing status.
An extra deduction is available if you are 65 or older or blind. For single archivers or householders in this category, the additional standard deduction for 2021 is $ 1,700 (up from $ 1,650 in 2020). For married taxpayers aged 65 or over or blind, an additional $ 1,350 is available in 2021 (up from $ 1,300 in 2020). For those who are blind and are at least 65 years old, the additional amount of deduction is double.
An analysis of the benefits
Let’s say you are a single filer with an adjusted gross income of $ 25,000. Since the standard 2021 deduction is $ 12,550, you can remove that amount from your income and pay only $ 12,450 in taxes.
For married individuals filing the lawsuit together, you can deduct an even larger amount from your income: $ 25,100 in 2021. If your combined taxable income is $ 40,000, you can subtract the standard deduction and pay only taxes on $ 14,900.
Don’t take that for granted
Normally, the standard deduction is not presented as a big benefit because it happens naturally if you don’t list your taxes – just make sure you don’t fall into the category of ineligible taxpayers. This list of disqualified taxpayers in any year includes an individual married statement whose spouse specifies deductions; a non-resident alien or dual status alien (certain exceptions apply); an individual who may have filed a statement for less than 12 months; or a property, trust, trust fund or partnership.
If you qualify for the standard deduction, it is something to feel good about. Whenever you pay less taxes and make the most of your hard earned money, it’s worth celebrating!