On Monday, the IRS issued the 2021 annual inflation adjustments for many provisions in the Internal Revenue Code, together with the 2021 tax rate tables for individuals and for estates and trusts. Rev. Proc. 2020-45 increased the standard deduction for married individuals filing jointly or surviving spouses to $25,100. For heads of households, the standard deduction will be $18,800, and for unmarried individuals and married individuals filing separately, the standard deduction will be $12,500.
The basic exclusion amount for determining the unified credit against estate and gift tax will be $11,700,000 for decedents dying in 2021, up from $11,580.000 in 2020. The annual exclusion amount for gifts not subject to gift taxation remains at $15,000 per year.
The 2021 AMT exemption amount will be $114,600 for married individuals filing joint returns and surviving spouses, $73,600 for unmarried individuals, $57,300 for married individuals filing separately and $25,700 for estates and trusts. All AMT exemptions have been increased from the 2020 amounts.
The Section 179 deduction for tax years beginning in 2021 will be $1,050,000 with a phaseout threshold of $2,620,000, slight increases from the 2020 numbers.
The qualified business income threshold under Section 199A(e)(2) will increase to $329,000 for married individuals filing joint returns and to $164,925 for married individuals filing separate returns and will increase to $164,900 for single individuals and heads of households.
The Tax Rate Tables are as follows beginning in 2021:
TABLE 1 – Section 1(j)(2)(A) – Married Individuals Filing Joint Returns and Surviving Spouses
| If Taxable Income Is: | The Tax Is: |
| Not over $19,900 | 10% of the taxable income |
| Over $19,900 but | $1,990 plus 12% of |
| not over $81,050 | the excess over $19,900 |
| Over $81,050 but | $9,328 plus 22% of |
| not over $172,750 | the excess over $81,050 |
| Over $172,750 but | $29,502 plus 24% of |
| not over $329,850 | the excess over $172,750 |
| Over $329,850 but | $67,206 plus 32% of |
| not over $418,850 | the excess over $329,850 |
| Over $418,850 but | $95,686 plus 35% of |
| not over $628,300 | the excess over $418,850 |
| Over $628,300 | $168,993.50 plus 37% of |
| the excess over $628,300 |
TABLE 2 – Section 1(j)(2)(B) – Heads of Households
If Taxable Income Is: The Tax Is:
| Not over $14,200 | 10% of the taxable income |
| Over $14,200 but | $1,420 plus 12% of |
| not over $54,200 | the excess over $14,200 |
| Over $54,200 but | $6,220 plus 22% of |
| not over $86,350 | the excess over $54,200 |
| Over $86,350 but | $13,293 plus 24% of |
| not over $164,900 | the excess over $86,350 |
| Over $164,900 but | $32,145 plus 32% of |
| not over $209,400 | the excess over $164,900 |
| Over $209,400 but | $46,385 plus 35% of |
| not over $523,600 | the excess over $209,400 |
| Over $523,600 | $156,355 plus 37% of |
| the excess over $523,600 |
TABLE 3 – Section 1(j)(2)(C) – Unmarried Individuals (other than Surviving Spouses and Heads of Households)
If Taxable Income Is: The Tax Is:
| Not over $9,950 | 10% of the taxable income |
| Over $9,950 but | $995 plus 12% of |
| not over $40,525 | the excess over $9,950 |
| Over $40,525 but | $4,664 plus 22% of |
| not over $86,375 | the excess over $40,525 |
| Over $86,375 but | $14,751 plus 24% of |
| not over $164,925 | the excess over $86,375 |
| Over $164,925 but | $33,603 plus 32% of |
| not over $209,425 | the excess over $164,925 |
| Over $209,425 but | $47,843 plus 35% of |
| not over $523,600 | the excess over $209,425 |
| Over $523,600 | $157,804.25 plus 37% of |
| the excess over $523,600 |
TABLE 4 – Section 1(j)(2)(D) – Married Individuals Filing Separate Returns
If Taxable Income Is: The Tax Is:
| Not over $9,950 | 10% of the taxable income |
| Over $9,950 but | $995 plus 12% of |
| not over $40,525 | the excess over $9,950 |
| Over $40,525 but | $4,664 plus 22% of |
| not over $86,375 | the excess over $40,525 |
| Over $86,375 but | $14,751 plus 24% of |
| not over $164,925 | the excess over $86,375 |
| Over $164,925 but | $33,603 plus 32% of |
| not over $209,425 | the excess over $164,925 |
| Over $209,425 but | $47,843 plus 35% of |
| not over $314,150 | the excess over $209,425 |
| Over $314,150 | $84,496.75 plus 37% of |
| the excess over $314,150 |
TABLE 5 – Section 1(j)(2)(E) – Estates and Trusts
If Taxable Income Is: The Tax Is:
| Not over $2,650 | 10% of the taxable income |
| Over $2,650 but | $265 plus 24% of |
| not over $9,550 | the excess over $2,650 |
| Over $9,550 but | $1,921 plus 35% of |
| not over $13,050 | the excess over $9,550 |
| Over $13,050 | $3,146 plus 37% of |
| the excess over $13,050 |
For taxable years beginning in 2021, the $2,500 maximum deduction for interest paid on qualified education loans under § 221 begins to phase out under § 221(b)(2)(B) for taxpayers with modified adjusted gross income in excess of $70,000 ($140,000 for joint returns), and is completely phased out for taxpayers with modified adjusted gross income of $85,000 or more ($170,000 or more for joint returns).
Note that the penalty under § 6651(a) for failure to file a tax return within 60 days of the due date of such return (determined with regard to any extensions of time for filing) shall not be less than the lesser of $435 or 100 percent of the amount required to be shown as tax on such returns.
Also note that failure to file an FBAR, an informational return to report foreign financial accounts, can result in penalties of up $10,000 per violation for non-willful violations. For willful violations, the penalty can be up to the greater of $100,000 or 50 percent of the account balance; per violation. Criminal penalties may have fines of up to $500,000 and imprisonment of up to 10 years along with civil penalties.