As the year comes to an end, it's important to start planning your 2021 taxes to reduce your obligations wherever possible. Thinking about your taxes before it's time to file will allow you to make the most of the deductions and strategies available to you so you can minimize your tax burden. After another unprecedented year of the continued pandemic and an uncertain economy comes to a close, it’s important to keep up with policy changes that could affect your tax rates in the future.
President Biden's Build Back Better plan has yet to be finalized, but the current version includes several provisions that will impact taxes for both higher and lower-income Americans. The expanded Child Tax Credit will continue in 2022, as will expanded eligibility for the Earned Income Tax Credit. The limit for the state and local tax deduction will increase substantially from $10,000 to $80,000, and this increase will apply to the 2021 tax year as well. Those with high incomes should be aware of the proposed 5% surcharge on income greater than $10 million. The plan also includes decreased contributions and increased minimum distributions for IRAs with balances greater than $10 million.