Federal tax outlook for 2021-2022

There are a lot of factors affecting the federal tax outlook for 2021-2022: a global pandemic and recession; business closures and job losses; both houses of Congress controlled by the Democrats; and a significant policy shift in the Executive Branch. We can expect some major changes in tax laws, which will affect the finances of all Americans in one way or another.

While Congress and the Biden White House are still in the process of ironing out the details, some general trends are emerging, which will likely characterize the operations of the federal tax system for at least the next four years. Without spending too much time on the details of the laws and regulations, let’s consider what you need to do to lower your tax bill in light of the new fiscal outlook.

Make the most of the standard deductions

While some of the deduction guidelines and limits are set to change, your approach should remain the same: always strive to get the maximum benefit. If your total itemizable deductions are close to your standard deduction amount, consider accelerating any charitable deductions in the current year to exceed the standard deduction. In this way, you will be making payments that will lower this year’s tax bill.

Be mindful of the Biden administration’s proposed changes

President Biden will be introducing a number of changes to the tax laws that are set to favor lower-income earners while placing heavier obligations on the wealthy. Those who earn in excess of $400,000 per year will have to pay more in taxes. Tax breaks on real estate and inheritances will fall away, and more stringent limits will be placed on itemized deductions.

Individuals and families in lower to middle-income brackets will receive a few additional tax breaks. Speak to a certified public accountant about how these will affect your situation and how you can adjust to accommodate the changes, and either soften their impact or make the most of the potential benefits.

A certified public accountant can help you navigate the changes to tax laws, manage your gains and losses and get the most of the deductions and benefits while maintaining 100% compliance with shifting regulations. Contact Georgen Scarborough to see we can assist you with your federal tax outlook for 2021 and 2022.

President Biden’s proposed tax laws – what they mean to you

How are President Biden’s tax laws likely to affect your finances for the next four years?

When he was on the election trail in 2020, the president made his tax policy quite clear in a series of statements and speeches. Even before he spelled out the specifics, it was apparent which way his administration would go: higher taxes for corporations and the very wealthy and some much-needed relief for everybody else. Now that he is beyond his first 100 days, it is time to look at how these general policy statements will translate into actionable laws and how they will affect you. Here are five of the most important tax plans that the Biden administration has in store:

1. Higher maximum rate

Biden said that he would raise tax rates on all individuals earning more than $400,000 a year. In more concrete terms, the top individual tax rate on ordinary income has increased to 39.6% from the 37% rate that has been in effect since 2017. So, if you fall into that tax bracket, you can expect to pay 2.7% more on your federal taxes.

2. Itemized deductions

The president intends to limit the tax benefit of itemized deductions to 28% for high-income individuals. This means that, if you fall into the 39.6% tax bracket, every dollar of allowable itemized deductions will reduce your tax bill by no more than 28 cents.

3. New credits for home buyers

Eligible first-time homebuyers are set to be entitled to a new refundable tax credit of the lesser of 10% of the purchase price or $15,000. A major plus is that qualified individuals can collect the credit at the time of the purchase of the home, rather than waiting until they file their tax returns.

4. Increased corporate federal income tax

The Tax Cuts and Jobs Act (TCJA) of 2017 reduced the corporate income tax rate from a maximum of 35% to a flat 21%. The Biden administration will not return this rate to its pre-TCJA level, but will raise it to 28%.

5. Increased child and dependent care credits

The Biden tax plan includes provisions to double the minimum refundable child care tax credit from $2,000 to $4,000 for one child. This applies to families earning less than $125,000 a year. Families that earn between $125,000 and $400,000 per year will receive reduced credits.

There are several other tax reforms forthcoming from the Biden administration. To understand how each of them affects you (or doesn’t, as the case may be), you should enlist the help of certified public accounts. Based in Vienna, Virginia, Georgen Scarborough helps individuals, families, estates, and trusts to manage their tax affairs. Contact us for more information on our services and how we can assist you with your taxes in light of President Biden’s new tax laws.