Tax Planning

Inflation Updates for 2021

Inflation Updates for 2011

Every year the Internal Revenue Service publishes a list of inflation adjustments. You can find them on the IRS website in Revenue Procedure 2020-45. Here are the important inflation updates for 2021 that relate to Gift and Estate Taxes and others that are just useful:

Federal Estate & Gift Tax Inflation Updates for 2021

  • 2021 Annual Gift Tax Exclusion will stay at $15,000. This means a person can give any other person at least $15,000 before it is subject to the federal gift tax. Also, a husband and wife may split a $30,000 gift for tax purposes before there is a gift tax.
  • 2021 Annual Gift Tax Exclusion for Gifts to Non-Citizen Spouses will be $159,000. This is the maximum amount a person may transfer to a non-citizen spouse before the gift is subject to a gift tax. In order for US law to apply, we will usually be talking about a gift being made to a permanent resident alien spouse. One place where this gets triggered unexpectedly by many is retitling of real estate. Give careful thought to adding a non-citizen spouse to a deed. This exemption is up from $157,000 in 2020.
  • The 2021 Federal Estate Tax Exemption will be $11,700,000. This means that if you die in 2021, the federal government will not tax on the first $11,700,000 that you pass on (unless you have made large gifts in previous years). US Citizens and permanent resident aliens are entitled to the federal estate tax exemption.
  • The 2021 Federal Lifetime Gift Tax Exemption will also be $11,700,000. This is in addition to the annual gifts that a person can make. Be careful that you do not gift highly appreciated assets!
  • 2021 Reporting Requirements for Large Gifts Received from Foreign Persons: If you receive a gift or an inheritance from a foreign person, you may be required to report it. Recipients of gifts from certain foreign persons are required to report gifts under §6039F if the aggregate value of gifts received in a taxable year exceeds $16,815.

Income Tax Brackets – Inflation Updates for 2021

  • Marginal Rates: For tax year 2021, the marginal tax rates will be:
    • top tax rate remains 37% for individual single taxpayers with incomes greater than $523,600 ($628,300 for married couples filing jointly);
    • 35%, for incomes over $209,425 ($418,850 for married couples filing jointly);
    • 32% for incomes over $164,925 ($329,850 for married couples filing jointly);
    • 24% for incomes over $86,375 ($172,750 for married couples filing jointly);
    • 22% for incomes over $40,525 ($81,050 for married couples filing jointly);
    • 12% for incomes over $9,950 ($19,900 for married couples filing jointly).
    • The lowest rate is 10% for incomes of single individuals with incomes of $9,950 or less ($19,900 for married couples filing jointly).

Section 199A Qualified Business Income Deduction Inflation Updates for 2021

  • 2021 Section 199A Qualified Business Income Deduction: If you have a pass through business, such as an LLC, S-Corporation, or a partnership, you may be entitled to a 20% deduction. If you are a professional or a consultant, there is usually a cap on how much income you can earn in order to take advantage of this deduction. For 2021, the income limits are:
    • $329,800 for married filing joint returns,
    • $164,925 for married filing separate returns, and
    • $164,900 for all other returns.

Mileage Reimbursement Inflation Updates for 2021

  • 2021 Mileage Reimbursement Rates: The standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
    • 56 cents per mile for business miles driven
    • 16 cents per mile driven for medical or moving purposes
    • 14 cents per mile driven in service of charitable organizations

Source: IRS Rev.Proc. 2020-45 & IR-2020-279 & IRC Section 2001

2 thoughts on “Inflation Updates for 2021

  1. Useful points, thank you. Is it not true in regards to your Point 2 about the annual gift limit to non-US citizen spouses that above and beyond this $136,000/year, US Citizens can also gift additional lifetime amounts of up to $5mm (as noted in your Point 4) in 2011 and 2012. Therefore, a US citizen can transfer a significant amount of an estate over tax-free to a non-US citizen spouse during these next two years? That is an important point worth making as well.

  2. Ezriel,

    Thank you for your comment. You are correct that a US Citizens and resident aliens can, in addition to the annual exclusion amount, up to $5,000,000 to a spouse. This is usually not done though because most people wish to pass the money downstream to children and grandchildren without taxes. If they use up their tax exemption on gifts to the spouses, it could come at a very high price later. Also, if one spouse does wish to give a substantial sum to the other spouse, we try to convince the non-citizen spouse to become a citizen so that he/she will be eligible for the unlimited marital deduction.

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