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Archive for October, 2020

IRS Releases 2021 Inflation Adjustments

Posted by taxguru on October 26, 2020

The Tax Game never ends.  As 2020 nears its end, people are starting to look ahead to what we can expect for 2021.  Every year, many items in the Tax Code are adjusted to reflect the official increase in the Cost of Living since the prior year. 

There are also a lot of things in the Tax Code that have been set in concrete by our Rulers in DC and have not been increased for decades, such as the measly $3,000 of net capital loss that can be used to offset other kinds of income.  I long ago gave up any hope for such concepts as Fairness or Consistency in the Tax Code in order to hold onto my sanity in this profession.

While some tax publishers had already released what they calculated as the inflation adjustments a few weeks ago, it’s not really official until IRS makes its calculations known, which has happened today.

They have a good summary of the changes in their news release:

IRS provides tax inflation adjustments for tax year 2021

 

All of the nitty-gritty specifics are spelled out in much more detail in the official 28 page Revenue Procedure 2020-45

Besides adjustments that affect Income taxes, there are some that affect Estate and Gift taxes.  One item that is closely watched is the change in the annual amount that can be gifted without the need to file a Gift Tax return (Form 709).  Many people have gifting plans that utilize this allowance in the amounts that are gifted each year.  Unlike the other inflation adjusted items, which normally increase every year and result in “odd-looking” numbers, the Gift tax allowance can only be increased when the cumulative inflation since the previous adjustment is close to an even $1,000.  That’s not happening in 2021.  The annual exemption will remain at $15,000 per donor (giver) per donee (recipient).

[Update 10-28-2020] – As they have done each year, the folks at TheTaxBook have posted this very handy one-page summary of the 2021 figures side by side with what they were for 2019 and 2020.

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