Lots of tax changes
New laws, extenders and tax reform -- never has it been a more important time to choose an Enrolled Agent to prepare your tax returns, plan your tax strategy or help resolve tax problems.
Tax Headlines
Federal taxes
A few key highlights of 2021 tax provisions:
- Standard deductions and tax brackets rose slightly. Standard deductions are $12,550 for single filers, $18,800 for heads of household and $25,100 for married couples filing jointly.
- Required minimum distributions are back for IRA’s, 401(k)s and other tax-advantaged retirement accounts. The age to start taking RMD’s is now 72 rather than 70½, and the table to calculate the distributions has been revised.
- $300 charitable deduction if you don’t itemize has been extended for 2021, but is scheduled to go away for 2022.
- The threshold for deducting medical expenses has been permanently fixed at 7½%, after having bounced up to 10% for a while. If you itemize, you can deduct medical expenses that are more than 7½% of your income.
- The child tax credit boosted to $3,000 per child age 17 and younger, and $3,600 for kids five and under. If you were one of the many parents who took payments during the last half of 2021, be aware you will need to reconcile those payments on your tax return (much like health insurance subsidies).
Arizona taxes
AZ does major tax reform
Almost quietly, the Arizona legislature included a major tax reform measure in the budget bill passed in late June.
The bill phases in a flat tax of 2.5% for nearly everyone over the next four years, eliminating the state’s progressive taxation system. Arizona taxes range from 2.59% for the first roughly $54,000 of income to 4.5% for income above about $327,000.
The Legislature’s budget analysis reports the average Arizona resident earning between $75,000 and $100,000 will save $231 a year in state income taxes, while a taxpayer earning between $500,000 and $1 million a year will save more than $12,000.
A separate bill, SB 1783, allows owners of pass-through businesses to choose to pay taxes at the entity level. This will let higher-income business owners elect to be taxed at a lower rate than non-business owners making the same
amount of income.
The new law also will reduce the property tax assessment ratio for most commercial property. The current 18% rate will drop a half percent a year to 16% in 2025 and later.
What’s news
Improving government customer service
An executive order to improve customer service at 10 major federal agencies, including IRS, was signed by President Biden on Dec. 13.
The latest Treasury Inspector General’s report notes that only 3% of the people who called IRS actually reached someone.
For more information, see the White House Fact Sheet.