Smart Tax Planning for 2021 & Beyond: What You Need to Know.

The IRS released its breakdown of marginal tax rates for 2021 in December 2020. Consistent with the previous year’s notifications, tax rates adjust almost yearly basing on inflation. Check out these smart tax planning tips.

With COVID-19 still impacting going into 2021, inflation is likely to continue to increase due to stimulus, unemployment, and rising costs of production coupled with reducing revenues associated with the pandemic.

In 2021 there will still be seven individual marginal tax brackets- 10%, 12%, 22%, 24%, 32%, 35% and 37%. Marginal means that each dollar you earn up to a specified amount will be taxed differently. These rates are already in effect and will impact your 2021 tax return when filing in 2022. What changes can you expect?

The marginal personal tax rate brackets remain the same, but standard deductions increase slightly:

The top tax rate for the tax year 2021 remains 37% for individual single taxpayers with incomes higher than $523,600 ($628,300 for married couples filing jointly). The other rates are:

  • 35%, for single 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).
  • 10% for incomes of $9,950 or less ($19,900 for married couples filing jointly).

For 2021, as in 2020, there is no limitation on itemized deductions due to the Tax Cuts and Jobs Act.

The tax year 2021 maximum Earned Income Credit amount is $6,728, a slight increase from 2020 for qualifying taxpayers with three or more qualifying children. Other significant personal and business deductions are in the October 2020 IRS news release.

Therefore, there will be no tax increases for individuals in 2021, in addition, there are tax increases scheduled for the following six years that will impact tax, retirement, and estate planning when the following expire at the end of 2025:

  • The reduction of individual income tax rates.
  • The reduction of the alternative minimum tax.
  • The mortgage interest deduction.
  • The increase in the standard deduction
  • The reduction of the personal exemption.
  • Reduction of the doubling of the child tax credit.
  • And finally the reduction of the estate tax.

How can you prepare for potential tax increases in the future? Consider these options after consulting your tax professional:

Increase your pre-tax retirement savings contributions to reduce your personal income.

Consider converting your traditional IRAs to Roth IRAs. When you convert a traditional IRA to a Roth IRA, you pay taxes at your ordinary rate in the year you convert from a traditional IRA to a Roth IRA. If you do the conversion now, you pay taxes on the IRA at today’s tax rate. In addition, if tax rates rise in the future, your Roth IRA distributions are tax-free, avoiding the higher tax rates.

A smart tax planning tip would be to sell appreciated assets now to fund future spending needs. Selling investments at a lower tax rate allows the basis to continue to grow, and taxes are paid now versus at a higher rate. Since the basis is not taxed twice- only the accumulation is taxed. Discuss the selling of appreciated assets with your tax professional before execution.

Smart Tax Planning

Some options to help reduce your taxes in the future and provide future income include fixed-indexed annuities or whole life insurance. Considerations for taxes in retirement should always be part of financial planning with your financial and tax professionals. In addition, if you have questions about tax planning, annuities, or life insurance as part of your retirement income, contact our office at any time.

Disclosures: A Fixed Annuity is a long-term financial product designed largely for asset accumulation and retirement needs. Fixed Annuities generally contain fees and charges which include, but are not limited to, surrender charges, administrative fees, and optional contract riders and benefits. All guarantees of a Fixed Annuity are backed by the claims-paying ability of the issuing insurer.

This information is provided as general information and is not intended to be specific financial or tax guidance. The sources used to prepare this material are believed to be true, accurate, and reliable, but are not guaranteed.


In addition, Carrio Financial Group specializes in providing strategies and guidance for those who are seeking a better lifestyle in retirement. If you have retirement savings of five million dollars or $50,000, we can ensure it works as hard. As a result, we offer our experience and knowledge to help you design a custom strategy for financial independence. Contact us today to schedule an introductory meeting!

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