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made to it reflect tax code revisions that impact how much
tax is owed.
The charitable deduction for those who itemize is a
good example. Married joint filers who take the standard
deduction can deduct up to $600 of cash donations made
to qualified charitable organizations in 2021. Single filers
and married individuals filing separate returns who do
not itemize can deduct to up $300 in 2021. A draft of the
2021 Form 1040 places this deduction after adjusted gross
income (AGI) is calculated.
In 2020, up to $300 of cash donations to qualified chari-
ties could be deducted by both joint and single filers. This
deduction appeared before AGI was calculated.
Put another way, the deduction reduced AGI last year,
but it will not reduce it this year. This seemingly subtle
difference could push some taxpayers into higher brack-
ets for determining things like how much of their Social
Security benefits are taxed or how much they will pay in
2023 Medicare Part B premiums. A line for determining
how large of a recovery rebate (aka stimulus check) you
might be owed in 2021 is also listed on the Form 1040. If
your 2021 income is lower than the 2019 or 2020 income
used to determine your eligibility earlier this year, you
can potentially claim additional stimulus money on your
tax return. If your income rose in 2021 or you otherwise
received more than you should have, you do not have to
pay back the difference.
The stimulus check does not count as income and is not
taxable.
The child tax credit for 2021 is $3,600 for each child
under age 6 and $3,000 for each child ages 6 to 17. The full
credit can be claimed by married joint filers with modified
adjusted gross income (MAGI) of up to $150,000, single fil-
ers with MAGI of up to $75,000 and heads of household
with MAGI of up to $112,500.
Advance child tax credit payments started being sent in
July and will end this month, December 2021, if not extended
by legislation. Taxpayers who did not opt out of receiving
the monthly advance payments and have higher MAGI
this year than last year may have to repay excess amounts
received. This would happen if your MAGI rose above one
of the phaseout thresholds. (A decline in MAGI could result
in a larger credit.) The adjustment will be made on your
2021 tax return. The IRS’ Advance Child Tax Credit Eligibil-
ity Assistant can help you determine what your payments
The Individual
Investor’s Guide to
Personal Tax Planning
2021
The tax rules this year are staying largely
unchanged, with modest ination adjustments.
BY AAII STAFF
Following the significant changes we’ve seen made
to the tax code over the past few years, this years changes
have been limited in scope. Another round of stimulus
checks was issued early this year, the child tax credit
was increased, advance child tax credits were sent out
monthly (for just 2021, so far) and cash charitable deduc-
tions can once again be taken by taxpayers who do not
itemize. Next year we will see larger inflation adjust-
ments made to both tax brackets and various line items
than this year.
The one asterisk is President Bidens Build Back Bet-
ter proposal. The legislation was still being debated in
the House of Representatives as we went to press. The bill
could raise the current $10,000 cap for deducting state
and local taxes (SALT) and extend both the increased and
advance child tax credits. Taxes could potentially be raised
on the wealthiest Americans, though in what form and by
how much remains to be seen. Should the bill pass both
the House and the Senate and then be signed into law, we
will update this guide on our website at www.aaii.com/
guides/tax-guide.
Form 1040 is being slightly revised for the 2021 tax year.
Even though the more than 90% of taxpayers who file elec-
tronically may not directly fill out the form, the changes
AAII staff Charles Rotblut, CFA, Matthew
Bajkowski, Jean Henrich, Annie Prada and
Anine Sus contributed to this guide.
A special note of thanks goes out to Mark Luscombe,
a principal analyst at Wolters Kluwer Tax & Accounting,
for previous assistance in answering detailed questions
about the tax code. Sources of information used for this
year’s guide also include the Internal Revenue Service,
Healthcare.gov, Medicare, the Social Security Adminis-
tration, the Federal Register, The Kiplinger Tax Letter and
The New York Times.
© 2021 by the American Association of Individual Investors, 625 N. Michigan Ave., Chicago, IL 60611; (312) 676-4300.
6 A A I I J o u r n A l D E C E M B E R 2 0 2 1
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should have been: https://www.irs.gov/
credits-deductions/advance-child-tax-
credit-eligibility-assistant.
The dependent care credit was also
increased to $4,000 for one child and
$8,000 for two or more children for the
2021 tax year. The phaseout level for the
full credit starts at $125,000 for mar-
ried, joint filers.
The ability to deduct mortgage insur-
ance premiums was extended into 2021
by the Consolidated Appropriations Act
of 2021. It has yet to be extended into
2022 or beyond.
The reduced tax rates and expanded
tax brackets for individual taxpayers put
into place by the Tax Cuts and Jobs Act
(TCJA) are set to expire at the end of 2025.
It is possible that this expiration could be
addressed before the 2024 elections. Any
proposed change would likely require
bipartisan compromise in an environ-
ment that has largely lacked it.
If you worked remotely or resided in
a state other than your primary work/
residence state, you may owe state taxes.
Whether you do depends on how you
worked or resided in a different state.
If you owed more than expected or
received a larger-than-expected refund
for the 2020 tax year and haven’t
adjusted your withholding, consider
doing so. The IRS’ Tax Withholding
Estimator (www.irs.gov/individuals/irs-
withholding-calculator) can help
you run the numbers. Make note of
any changes in your income for this
year attributable to the coronavirus
pandemic.
Early statistics from CapGains-
Valet show 2021 not being friendly to
those holding mutual funds in taxable
accounts. As of November 12, 471 mutual
funds have announced estimated distri-
butions over 10% of net asset value. In
comparison, 137 and 154 mutual funds
announced distributions over 10% at
similar points in 2020 and 2021, respec-
tively. Mark Wilson, who runs the Cap-
GainsValet website, thinks we could see
the largest number of funds with capital
gains distributions higher than 10% in
at least eight years.
TABLE 1
An Overview of Tax Changes in the Coming Years
2021 2022 2023*
Long-Term Capital Gains Rate
Maximum Taxable Income Breakpoints for Married Filing Jointly
0% Below $80,800 Below $83,350 Below $83,350
15% $80,800$501,600** $83,350$517,200** $83,350$517,200**
20% Above $501,600** Above $517,200** Above $517,200**
Qualied Dividends Rate
Maximum Taxable Income Breakpoints for Married Filing Jointly
0% Below $80,800 Below $83,350 Below $83,350**
15% $80,800$501,600** $83,350$517,200** $83,350$517,200**
20% Above $501,600 Above $517,200** Above $517,200**
2021 2022 2023*
Marginal Income Tax Rates
First Bracket 10% 10% 10%
Second Bracket 12% 12% 12%
Third Bracket 22% 22% 22%
Fourth Bracket 24% 24% 24%
Fifth Bracket 32% 32% 32%
Sixth Bracket 35% 35% 35%
Top Bracket 37% 37% 37%
Child Tax Credit
$3,600/$3,000 $2,000 $2,000
Standard Deduction
Married Filing Jointly $25,100 $25,900 $25,900
Single $12,550 $12,950 $12,950
Personal Exemption Phaseouts
Limitation on Itemized Deductions
AMT Exemption
Single $73,600 $75,900 $75,900
Married Filing Joint $114,600 $118,100 $118,100
Head of Household $73,600 $75,900 $75,900
Estate Tax
Exemption $11.70 mil $12.06 mil $12.06 mil
Maximum Rate 40% 40% 40%
*Subject to change based on inflation.
**3.8% net investment income tax (NII) surtax applies when MAGI is above $250,000/$200,000.
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These distributions are taxable for shares held in a
taxable account—even if you don’t sell your shares of the
mutual fund issuing the distribution or choose to have the
distributions reinvested. You can find the tax-cost ratio—
the percentage of returns given up to taxes—for a mutual
fund or an exchange-traded fund (ETF) on our mutual fund
and ETF evaluator pages. To access the evaluator, just type
a funds name or ticker symbol into the search box located
at the top of any page on AAII.com.
The TCJA mandated the use of the chained consumer
price index (CPI) for measuring inflation. The impact of
using this measure can be seen in the inflation adjust-
ments made for 2022 tax brackets and thresholds. While
the traditional CPI reflected a 12-month increase of 6.2%
as of October 2021, the tax brackets and many line items
will only increase by 3.1% in 2022. This is because the
chained CPI is a slower measure than the traditional CPI.
The actual impact will depend on how close you are to vari-
ous thresholds.
Revised life expectancy tables used to calculate
required minimum distributions (RMDs) will go into effect
in 2022. They assume longer life-spans and will lead to
modestly smaller RMDs. Many retirees may not notice
a change, however. This is because RMDs are calculated
based on account balances. To the extent that a retiree’s
balance increased for an account subject to the RMD rules,
the amount of the mandatory distribution will increase as
well.
Those of you who were affected by hurricanes, wild-
fires, tornados, flooding or drought may be eligible for
some form of tax relief. The IRS has a dedicated section on
its website with links to specific pages for each disaster:
www.irs.gov/newsroom/tax-relief-in-disaster-situations.
No matter how the tax laws (and tax forms) evolve in
the future, one thing is constant: You will still have to pay
taxes. Even with the simplifications made by the TCJA, the
tax code is complex, hence the need for tax guides. As has
been the case in years past, our tax guide provides an over-
view of the tax rates and deductions likely to impact the
majority of AAII members. Since there are many details,
loopholes and pitfalls within the tax code, it is impossible
for this guide to provide enough details to cover specific
tax situations. If you have questions, consult a tax pro-
fessional. It is your tax return, and the IRS will hold you
responsible for any errors made on it.
Estimate Your Taxes on AAII.com
You can estimate your 2021 and 2022 tax liabilities on
our Tax Forecasting Worksheet. This downloadable Excel
spreadsheet will calculate the results based on the data you
enter and can be saved for your records. See page 18.
What’s New?
The TCJAs revised marginal tax brackets remain in
effect. They are 10%, 12%, 22%, 24%, 32%, 35% and 37%.
These reduced rates are presently set to expire after 2025.
As discussed, Form 1040 has undergone further revi-
sion. A draft of the 2021 form shows the $600/$300 chari-
table deductions for those who take the standard deduc-
tion as not reducing AGI. Taxpayers will also now be asked
if they received, sold, exchanged or otherwise disposed
of any cryptocurrency. The currency may be virtual but
the taxes—and the penalties from not reporting gains on
cryptocurrency sales—are real.
The cap on deducting cash charitable donations for
those who itemize has been suspended again for 2021.
Cash donations up to one’s contribution base (typically
AGI) can be deducted. The 60% of AGI cap will return in
2022 and will be in effect through 2025.
The limit on IRA contributions will be unchanged in
2022. It was last raised in 2019. A total of up to $6,000 can
be contributed to a traditional and/or Roth IRA for 2021
and again in 2022. The additional catch-up contribution
limit is not indexed to inflation and remains at $1,000.
The SECURE Act removed the age limit on making IRA
contributions, but you must have earned income to make
a contribution.
Allowable contributions to a 401(k) plan and similar
types of employer-sponsored retirement accounts will
increase to $20,500 in 2022 from $19,500 in 2021. The
catch-up contribution will stay at $6,500 in 2022 after
being last raised in 2020. The total allowable amount for
qualifying workers age 50 or older will be $27,000 in 2022.
The deduction for state and local taxes remains capped
at $10,000. The limit applies to state and local income,
property and sales taxes. The TCJA put this limit into effect
in 2018 and it is not indexed to inflation. It will remain at
this level through 2025, barring a legislative change. Rais-
ing the cap has been discussed as part of the negotiations
for the Build Back Better legislation, but no change has
been made as of press time.
The Social Security tax is 6.2% for employees and 12.4%
for those working in self-employed positions on the first
$142,800 of wages. In 2022, the cap on maximum taxable
earnings will rise to $147,000, an increase of 2.9%. Retirees
younger than full retirement age who have claimed Social
Security benefits can earn up to $18,960 without benefits
being withheld. This limit will rise to $19,560 in 2022.
The alternative minimum tax (AMT) exemption is
$114,600 for married couples filing jointly and $73,600
for single filers in 2021. In 2022, the exemption will rise to
$118,100 and $75,900, respectively. The phaseout levels for
2021 are $1,047,200 for married filing jointly and $523,600
for singles. They will increase to $1,079,800 and $539,900,
8 A A I I J o u r n A l D E C E M B E R 2 0 2 1
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The American Rescue Plan Act of 2021 raised the child
tax credit to $3,600 for children under the age of six and
$3,000 for children between age 6 and 17 in 2021. It is
phased out for joint filers with modified adjusted gross
income (MAGI) above $150,000 and single filers with
MAGI above $75,000. The credit is fully refundable in
2021. Without new legislation being passed, the $2,000
maximum child tax credit will return in 2022. It was
phased out for married couples filing jointly with MAGI
above $400,000 ($200,000 for all other filers). Both the
credit and the phaseout amounts are in effect for 2022
through 2025 and are not indexed to inflation. The credit
is refundable up to $1,500 in 2022. The refundable portion
only applies when the full $2,000 credit cannot be used to
offset the taxpayer’s tax liability. Qualifying children must
have a Social Security number for the $2,000 credit to be
claimed. See IRS Publication 972 for more information.
The rate at which your long-term capital gains and divi-
dends will be taxed depends on your taxable income and
not your marginal tax bracket. Under the TCJA, married
respectively, in 2022. The TCJAs higher levels are in effect
through 2025 and are indexed to inflation.
The TCJA eliminated the personal exemption for the
period of 2018 through 2025.
Married couples filing jointly can claim a standard
deduction of $25,100, and single filers can claim a standard
deduction of $12,550 on their 2021 tax returns. In 2022,
the standard deduction will rise to $25,900 and $12,950
for married and single filers, respectively. The additional
standard deduction for those who are aged or blind and are
married or a qualifying widow will increase from $1,350
in 2021 to $1,400 in 2022. It will rise from $1,700 in 2021
to $1,750 in 2022 for those who are also single and not a
qualifying widow. The standard deduction was raised con-
siderably by the TCJA with the adjustment for the so-called
“marriage penalty” maintained. The higher level simpli-
fies reporting for some taxpayers by making it more dif-
ficult to claim individual deductions. Depending on family
size, it may or may not make up for the loss of the personal
exemption.
Health Care Reforms Impact on Taxes
The tax impact of the Affordable Care Act includes sur-
charges, higher limits on medical expense deductions and
changes to flexible savings account contributions and carry-
overs. All of these will remain in effect unless repealed by new
legislation.
A 0.9% additional Medicare tax applies to wages, com-
pensation and self-employment income above $250,000
for married persons filing jointly and qualifying widow(er)s,
$200,000 for single persons and heads of household and
$125,000 for those who are married but filing separately.
The tax applies to wages that are subject to the Medicare tax
and does not depend on adjusted gross income. Should the
additional tax not be withheld from wages (a situation that
could occur for dual-income couples or individuals working
more than one job), the tax could be subject to a penalty if
not paid with estimated taxes or through additional withhold-
ings (you can request that your employer increase the income
tax withholding on your W-4). More information about the
additional Medicare tax can be found on the IRS website at
www.irs.gov/businesses/small-businesses-self-employed/
questions-and-answers-for-the-additional-medicare-tax.
A 3.8% surtax on net investment income (NII) applies to
the lesser of NII or modified adjusted gross income (MAGI)
exceeding $250,000 for married persons filing jointly and
qualifying widow(er)s, $200,000 for single persons and heads
of household and $125,000 for those who are married but fil-
ing separately. (These thresholds are not indexed to inflation.)
Investment income subject to the tax includes, but is not limited
to, taxable interest, dividends, non-qualified annuities, rents
and royalties, capital gains and passive income from partner-
ships. Capital gains from the sale of one’s primary residence
are subject to the tax to the extent that the income exceeds the
applicable home sale exclusion ($500,000 for joint filers and
$250,000 for single filers). Excluded are tax-exempt interest
(e.g., municipal bond interest payments), distributions from
individual retirement accounts (IRAs) and distributions from
qualified retirement plans [e.g., 401(k) plans]. The IRS has
answers to common NII surtax questions at www.irs.gov/uac/
Newsroom/Net-Investment-Income-Tax-FAQs.
The 2021 Appropriations Act made the 7.5% of adjusted
gross income floor for deducting medical expenses perma-
nent. The floor applies to all individuals regardless of age.
Flexible savings arrangement contributions for 2021 are
limited to $2,750 annually. This limit is indexed to inflation
and will increase to $2,850 in 2022. At the election of their
plan sponsors, employees can either carry over unused bal-
ances into the next plan year or take a grace period of up to
two and a half months. The carryover amount is indexed to
inflation and will increase from $550 in 2021 to $570 in 2022.
As part of the coronavirus pandemic relief included in the
2021 Appropriations Act, employers can alternatively opt to
give employees up to 12 months to spend any FSA or depen-
dent care funds left over from 2021.
A provision included in the TCJA essentially eliminates the
individual mandate to have qualifying health insurance start-
ing in 2019. The former penalty no longer exists but could be
reinstated by new legislation.
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self-employment income above $250,000 for married per-
sons filing jointly and $200,000 for single persons for both
2021 and 2022. More information about these taxes can be
found in the box on page 8.
Medical Expenses
The 2021 Appropriations Act made the 7.5% of adjusted
gross income floor for deducting medical expenses perma-
nent. The 7.5% floor will remain in effect until changed by
legislation.
Medical insurance premiums for the self-employed
are deductible and can be used to reduce adjusted gross
income on Form 1040.
Workers participating in flexible savings accounts
(FSAs) can carry over up to $550 ($570 beginning in 2022)
of unused amounts into the next plan year if their plan
sponsor allows them to. Plan sponsors have the choice of
either offering employees the ability to carry over up to
$550 ($570 beginning in 2022) or allowing employees a
grace period of up to two and a half months. Dependent
care is also eligible for the grace period option, but not
the carryover option. As part of the coronavirus pandemic
relief included in the 2021 appropriations act, employers
can alternatively opt to give employees up to 12 months
to spend any FSA or dependent care funds left over from
2021.
Contributions to a health savings account (HSA) are
allowed for those covered by a high-deductible health
care plan (HDHP) and not enrolled in Medicare. The mini-
mum annual deductible for self-only coverage is $1,400;
it is $2,800 for family coverage. These amounts will stay
unchanged in 2022.
The maximum limits for annual deductible and other
out-of-pocket expenses in 2021 are $7,000 and $14,000,
respectively. They will rise to $7,050 and $14,100, respec-
tively, in 2022.
HSA contributions cannot exceed $3,600 for indi-
vidual coverage and $7,200 for family HDHP coverage in
2021. In 2022, the maximum contributions will be $3,650
and $7,300 for individual and family coverage, respec-
tively. See “Health Savings Accounts” in the July 2016 AAII
Journal for more information about these accounts.
Ination Adjustments for 2022
As previously stated, many deductions, exemptions and
limits that are indexed to inflation under current tax law
either will or are projected to increase by approximately 3.1%.
couples filing joint returns with taxable income below
$80,800 ($40,400 if single) will not owe taxes on capi-
tal gains or qualified dividends. Couples with incomes of
$80,800 to $501,600 ($40,400 to $445,850 for singles) will
pay a 15% tax rate. Filers with income above those levels
will pay a 20% tax on long-term capital gains and divi-
dends. These levels are indexed to inflation and will rise
in 2022: 10% tax up to $83,350/$41,675 for married and
single filers, respectively; 15% up to $517,200/$459,750 for
married and single filers; and 20% for those with taxable
income above those levels.
To be eligible for the long-term capital gains rate, you
must have owned the eligible asset for at least 12 months.
The discounted qualified dividend tax rate applies to stock
dividends and requires a holding period of at least 61 con-
secutive days during a 120-day period beginning 60 days
before the ex-dividend date. (There is no capital gains
tax or dividend taxes for securities held within a retire-
ment account, such as an IRA. See Robert Carlsons article,
“Dos and Don’ts of IRA Investing,” in the March 2010 AAII
Journal for investments that can cause an unexpected tax
problem; the article is available at AAII.com.)
Cryptocurrency is treated as property for tax purposes.
According to the IRS, A taxpayer generally realizes capital
gain or loss on the sale or exchange of virtual currency.
Collectibles, which include gold coins and bars, are
taxed at a maximum 28% rate. Funds investing in precious
metals, including ETFs, may also be subject to the collect-
ibles tax rate. Check with the fund company if you have
questions about the tax status.
Short-term capital gains are taxed as ordinary income.
Married couples filing joint returns with net investment
income (NII) and modified adjusted gross incomes (MAGI)
above $250,000 and single filers with NII and MAGI above
$200,000 also must pay the additional 3.8% NII surtax on
capital gains and dividends. Collectibles are also eligible
for the 3.8% surcharge as well. The $250,000/$200,000
thresholds are not indexed to inflation and will remain the
same in 2022.
The Affordable Care Act’s Impact
The shared responsibility mandate of the Affordable
Care Act that required adults and children to have mini-
mum essential health coverage expired on December 31,
2018. Since the start of 2019, there is no tax penalty for not
having qualifying health insurance. Visit www.irs.gov/aca
and www.healthcare.gov for more information. The latter
website also has a calculator for determining whether or
not a person or family qualifies for Medicaid or subsidies
for purchasing insurance.
Though the mandate has been repealed, the NII and the
additional Medicare tax remain in effect. The 0.9% addi-
tional Medicare tax applies to wages, compensation and
For a complete tax guide to the buying and selling of
your personal investments, go to our Personal Invest-
ments 2021 Tax Guide in the online version of this
article.
10 A A I I J o u r n A l D E C E M B E R 2 0 2 1
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bought a stock, fund, option or bond before the aforemen-
tioned dates, your broker is not required to report the cost
basis.
Certain debt instruments, particularly those that are
more complex than traditional bonds, purchased after Jan-
uary 1, 2016, fall under the cost basis reporting rules. These
include variable-rate bonds (including inflation-adjusted
bonds), stripped bonds and convertible bonds. Excluded
from this rule are debt instruments where the principal is
subject to acceleration (e.g., mortgage-backed securities)
and debt instruments with a fixed maturity date not more
than one year from their date of issue.
If you sold a capital asset in 2021, you will need to fill
out Form 8949. See the special write-up in the “Cost Basis”
box for details on the reporting rules.
Some items will increase more on a percentage basis
because of how adjustments are incremented. The exclu-
sion for gifts exemption will rise 6.7% from $15,000 in
2021 to $16,000 in 2022.
Pay attention to the details because the inflation adjust-
ments are not being made uniformly. This can be particu-
larly apparent when adjustments are made in round num-
bers. Plus, not all items are indexed to inflation.
Capital Gains Reporting
Brokers are required to report the cost basis for stocks
purchased after January 1, 2011; mutual fund, ETF and divi-
dend reinvestment program (DRP) shares purchased after
January 1, 2012; and options and traditional bonds bought
and sold by their clients on or after January 1, 2014. If you
Cost Basis Reporting for Stocks, Bonds, Funds and Options
Brokers are required to report cost basis for stocks pur-
chased on or after January 1, 2011; mutual fund, exchange-
traded fund (ETF) and dividend reinvestment plan (DRP) shares
purchased on or after January 1, 2012; and options and tradi-
tional bonds purchased on or after January 1, 2014. Brokers
are also required to state whether any gain or loss on a sale is
short-term or long-term. The rules do not apply to securities
and funds purchased before the aforementioned dates.
Traditional bonds and debt instruments purchased on or
after January 1, 2014, are subject to the reporting rules. The
cost basis of and the proceeds for variable-rate bonds, inflation-
indexed bonds, convertible bonds, stripped bonds and other
complex debt instruments purchased on or after January 1,
2016, fall under the same reporting rules. Excluded are debt
instruments where the principal is subject to acceleration (e.g.,
mortgage-backed securities) and debt instruments with a fixed-
maturity date not more than one year from their date of issue.
Investors have the option of notifying their broker as to how
market discounts or interest are treated. Brokers will follow a
default method of amortizing bond premiums if not otherwise
notified. The rules are complex and we suggest speaking with
your brokerage firm about the application of the rules, as well
as with a tax professional about the best tax treatment to use.
The type of option owned alters how cost basis is reported.
Index options may be subject to different cost basis reporting
rules. Again, we suggest speaking with your broker if you have
questions about how the cost basis is reported.
A default accounting methodology known as first-in, first-
out (FIFO) is used when the purchase of securities (other than
a mutual fund or DRP shares) involves more than one transac-
tion. The FIFO method treats the first shares purchased (“first
in”) as also being the first shares sold (“first out”). Depending
on how the stock has performed, this treatment can result in
a larger tax bill (the shares appreciated in value) or a bigger
capital loss (the shares fell in value).
For mutual funds and DRP stocks, the adjusted basis must
be reported in accordance with the broker’s default method—
average cost basis—unless you specify otherwise. As the
name implies, the average purchase price for your shares,
regardless of when they are acquired, is used to determine the
cost basis. You can specify FIFO instead of average cost basis.
Another option is specific identification. The specific identifica-
tion method allows you to choose the specific shares that are
sold. This treatment can also result in a larger or a smaller tax
bill, depending on how the fund has performed relative to the
purchase price of the selected shares. You may be able to use
other methods such as highest-in, first-out (HIFO) or last-in,
first-out (LIFO). Contact your broker, fund family or DRP pro-
gram to determine what their default methodology is and what
choices you have for selecting methodologies.
If you want your broker or fund family to use a specific
methodology other than their default methodology (e.g., FIFO
for stocks or average cost for mutual funds), you must notify
them. In order to do this, you must provide written instructions
to your broker or fund administrator detailing your intentions
before the order is executed, not afterward.
Dustin Stamper at Grant Thorton’s National Tax Office
emphasized the importance of providing these instructions in
writing. If you give your broker or fund family specific instruc-
tions and they report a different methodology to the IRS, the
only way you can dispute what is on Form 1099-B is to provide
a dated copy of your instructions. Stamper said that investors
will not be able to retroactively determine which shares were
sold; they must provide written instructions at or before the
time the shares are sold.
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federal tax purposes if they were married in a U.S. or a
foreign jurisdiction whose laws authorize the marriage
of individuals of the same sex. As such, same-sex spouses
must file using either married filing separately or married
filing jointly status (certain exceptions apply).
Those in common-law marriages are treated as being
married for federal tax purposes if they are living together
in a common law marriage recognized in the state where
they now live or in the state where the common law mar-
riage began.
Couples in domestic partnerships, civil unions or other
similar formal relationships recognized but not denomi-
nated as marriage under state law are not considered to be
married for federal tax purposes.
Effective January 1, 2019, divorced spouses making ali-
mony and separate maintenance payments can no longer
deduct them, while the payee spouse no longer will report
the payments as income. This change applies to divorces
Tax Software, Books and
Guides
If you use a software program (e.g.,
TurboTax), a book (e.g., “J.K. Lassers Your
Income Tax 2022”) or a related aid, check
for updates before filing. Doing so will
help to ensure that you are using the most
up-to-date forms and information.
Specic Tax Guidelines
Part of the complexity of the tax code
is determining how taxes will be affected
by certain situations. This section gives
information on scenarios that poten-
tially may be experienced by many indi-
vidual investors.
Medicare Part B
The rule of thumb for how taxable
income determines Medicare Part B pre-
miums is that your modified adjusted
gross income from two years prior will
determine your premiums for the cur-
rent tax year (e.g., 2022 premiums will
be determined by 2020 income). See the
box to the right for information about
2022 premiums.
Marriage, Widowhood and Divorce
Under the tax code, a couple is con-
sidered married for the whole year if, on
the last day of the tax year, both people
are married and living together, living
together in a recognized common law marriage, married
and living apart without being legally separated under a
decree of divorce or separate maintenance or separated
under an interlocutory (not final) decree of divorce.
Widow(er)s are considered married for the whole year
in which their spouse died and can file a joint return with
their deceased spouse. (If there is a dependent child, other
filing statuses may be preferable.) For widow(er)s who
remarry before the end of the same tax year, a joint return
can be filed with the new spouse. The deceased spouse’s
filing status would be married filing separately in this case.
A person’s filing status may be single if they were wid-
owed before the start of the calendar year and did not
remarry before the end of the calendar year.
A person who becomes divorced under a final decree by
the last day of the year is considered to be unmarried for
the whole year.
Same-sex couples are treated as being married for
Income, Medicare Part B and Social Security
Percent of
Combined Income SS Benefits Taxed
Below $25,000 Single & Head of Household 0%
Below $32,000 Married Filing Jointly
$25,000 to $34,000 Single & Head of Household up to 50%
$32,000 to $44,000 Married Filing Jointly
Above $34,000 Single & Head of Household up to 85%
Above $44,000 Married Filing Jointly of benefits + other income
The premiums for Medicare Part B are determined by the amount of modified
adjusted gross income (MAGI) reported. MAGI is adjusted gross income plus
tax-exempt interest (e.g., interest from municipal bonds). Adjusted gross income
(AGI) can be found on IRS Form 1040. AGI includes the taxable portion of Social
Security benefits plus taxable distributions from retirement accounts such as
required minimum distributions (RMDs).
Medicare Part B premiums are determined by MAGI from two years prior.
In 2022, the standard Medicare Part B premium will be $170.10 for indi-
viduals filing married joint returns with 2020 household MAGI of $182,000 or
less. The monthly premium for 2022 rises to $544.30 for 2020 MAGI above
$340,000 but less than $750,000. Couples with MAGI of $750,000 or more will
pay $578.30 per month. Individuals filing as singles with 2020 MAGI of $91,000
or less will pay the standard premium of $170.10. Premiums rise to $544.30 for
singles with 2020 MAGI of $170,000 up to $500,000 and top out at $578.30 for
MAGI of $500,000 or higher. The premiums for various income levels can be
found at www.medicare.gov (click on “Your Medicare Costs”).
The calculation for how much of your Social Security benefits are taxed is
based on combined income for the current tax year. The Social Security Admin-
istration defines combined income as: MAGI + tax-exempt interest + one half of
your Social Security benefits. The amount of benefits subject to taxation for the
2021 tax year is determined by your 2021 combined income. The table below
shows how much of Social Security benefits are taxed.
12 A A I I J o u r n A l D E C E M B E R 2 0 2 1
A A I I . C O M / J O U R N A L
are given to the plan administrator in advance of the distri-
bution. See IRS Notice 2014-54 for more information and
examples of various scenarios.
The IRS’ Rollover Chart shows the types of retirement
savings accounts that funds can be rolled over from and
into a different type of retirement savings account. The
chart was recreated in the July 2016 AAII Journal (“IRA Roll-
over Chart: Rules Regarding Rollovers and Conversions”).
Be Vigilant About Tax Scams
The IRS continues to warn about tax scams. One newer
scam is tied to the stimulus payments. Prospective victims
are told they have received a direct deposit from a corona-
virus pandemic fund and are asked to disclose their bank
account information. The IRS is asking those who receive
such a message to send a photo of it along with the caller ID
and their phone number to phishing@irs.gov.
An ongoing common scam is a phone call requesting
immediate payment, commonly via prepaid debit cards
and/or a money wire. The fraudster will often threaten a
lawsuit, to call the police or involve federal authorities.
Hang up if you receive such a call even if your caller ID sug-
gests the phone number is from emergency services or a
law enforcement agency; the IRS never initiates contact
via a phone call or an email. If the IRS wants to contact you
about a tax matter, you will receive a physical letter sent
through the U.S. postal service.
Always restrict access to your Social Security number,
monitor your credit reports regularly, consider freezing
your credit report and use antivirus and firewall software
on your computer. Filing your tax return as early as is rea-
sonably possible can also help. For additional protection,
consider signing up for an Identity Protection PIN at www.
irs.gov/ippin. The IRS expanded this program to all taxpay-
ers in January 2021. Those in their retirement years should
be especially on guard, as the fraudsters are targeting your
demographic group. See the box on page 26 for more infor-
mation on how to protect yourself against fraud attempts.
Useful Tax Numbers
Here is a list of the tax rates, deductions, exemptions,
credits and other related items that may apply to your 2021
and 2022 taxes. These numbers reflect the changes made
by the American Taxpayer Relief Act of 2012 (ATRA), the
2017 TCJA, the American Rescue Plan Act of 2021, the Con-
solidated Appropriations Act of 2021 and the 2022 adjust-
ments released by the IRS as of November 10, 2021.
Standard Deduction
For 2021, the standard deduction is $25,100 for married
and legal separations executed after December 31, 2018,
and to previously executed agreements modified after
December 31, 2018, that expressly state that the tax law
change applies to the modification.
Money Market Funds With Floating NAVs
The U.S. Securities and Exchange Commission
(SEC) requires some money market funds, particularly
institutional prime money market funds and tax-free
institutional money market funds, to use floating net asset
values (NAVs). This means that their NAVs are not pegged
to $1 per share, but rather can move above or below that
benchmark.
The IRS responded to the SEC’s ruling by saying “No
gain or loss is determined for any particular redemption of
a taxpayer’s shares in a floating-NAV money market fund.
Without a determination of loss, a particular redemption
does not implicate the wash-sale rules. The wash-sale
rules disallow a loss being claimed for tax purposes when
an investment is sold and a substantially identical invest-
ment is purchased within 30 days of the sale.
IRA Rollovers
IRA rollovers are restricted to one per person per
year. The limitation does not apply to trustee-to-trustee
transfers, meaning you can move funds from broker to
broker as many times as you would like. The key is that the
funds are transferred directly from one broker to another
without the assets being distributed to you. A check pay-
able to you instead of the receiving custodian would trig-
ger the 12-month rule.
Rollovers to or from a qualified plan [e.g., a 401(k) plan]
are excluded from the rule. Roth IRA conversions are not
subject to the one-year limitation and the IRS will disre-
gard them in terms of applying the one-rollover-per-year
limitation to other rollovers. Moving funds between Roth
IRAs would, however, trigger the one-year waiting period
if a check is made payable to you. (Roth IRA recharacteriza-
tions, which undid Roth IRA conversions, were banned by
the TCJA effective at the start of 2018.)
There is a 60-day deadline for completing a rollover.
Waivers to the deadline will be allowed if certain condi-
tions are met, including, but not limited to, an error by the
financial institution making or receiving the contribution,
a misplaced distribution check, severe damage to the tax-
payer’s principal residence and serious illness. Written
certification to a plan administrator or IRA trustee must be
submitted by the taxpayer within 30 days after being able
to make the contribution to take advantage of the waiver.
See IRS Rev. Proc. 2016-47 for more information.
Pretax and aftertax contributions from defined-
contribution plans [e.g., 401(k), 403(b) and 457(b) plans]
can be assigned to different accounts as long as directions
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credit is equivalent to 50%, 20% or 10% of retirement plan,
IRA or Achieving a Better Life Experience (ABLE) account
contributions totaling no more than $4,000 for married fil-
ing jointly, $2,000 for single filers. While the income thresh-
olds are indexed to inflation, the credit itself is not.
Qualied Plan Contributions
In 2021, the maximum annual contribution for quali-
fied plans, including SEP and Keogh plans, is $58,000 or
25% of your compensation, whichever is less; in 2022, the
maximum contribution will rise to $61,000 or 25% of your
compensation, whichever is less.
Estate and Gift Tax Limits
The estate tax exemption is both portable and indexed
to inflation. The exemption is $11.70 million in 2021. The
exemption will rise in 2022 to $12.06 million. The basic
exclusion amount will remain at the higher level through
2025, though increasing by the chained CPI, a slower
inflation measure. This is a per-spouse exclusion and it is
portable, meaning that if one spouse dies, the surviving
spouse can claim the deceaseds exclusion, resulting in a
total effective exclusion of $23.4 million in 2021 and $24.12
million in 2022.
The large figures will prevent most families from hav-
ing to pay estate taxes.
The maximum estate tax rate is 40%. The step-up basis
rule applies when an inherited asset is sold: The capital
gain resulting from the sale is calculated as the difference
between the proceeds at the time of the sale transaction
and the value of the assets at the time of the inheritance.
Executors have to report the fair value of the property
included in the gross estate to both the IRS and to the heirs.
Beneficiaries claiming a basis for inherited property above
the reported value may be subject to a 20% penalty.
The annual gift tax exclusion in 2021 is $15,000 and
$30,000 for consenting couples. (The IRS says “you prob-
ably must file Form 709 for gifts exceeding these lim-
its.) These limits are indexed to inflation and will rise to
$16,000 and $32,000, respectively, in 2022.
Required Minimum Distributions (RMDs)
The SECURE Act raised the age for taking mandatory
distributions from retirement accounts. Distributions are
mandatory from most retirement accounts by December
31 for those who are age 72 or older (70½ or older if born
before July 1, 1949). A person who turned 72 in 2021 can
wait until April 1, 2022, to take their first RMD but must
take their second one no later than December 31, 2022.
Accounts subject to RMDs include 401(k) plans, 403(b)
plans, 457(b) plans, traditional IRAs, SEP IRAs, SARSEP
IRAs, SIMPLE IRAs and Roth 401(k) plans. RMDs from
couples filing a joint return, $12,550 for those who are
single or married filing separate returns and $18,800 for
heads of household.
For 2022, the standard deduction will increase to
$25,900 for married couples filing a joint return, $12,950
for those who are single or married filing separate returns
and $19,400 for heads of household. The now higher
standard deduction is adjusted for inflation (in $50 incre-
ments) but will revert back to pre-TCJA levels at the end of
2025 if the legislation is not renewed.
The additional standard deduction for the elderly and
the blind who are married will increase to $1,400 in 2022
from $1,350 in 2021. For single taxpayers who are elderly
or blind and not a surviving spouse, the additional stan-
dard deduction will increase to $1,750 in 2022 from $1,700
in 2021.
Personal Exemptions
The TCJA suspended the personal exemption for the
years of 2018 through 2025.
Individual Retirement Accounts and 401(k) Plans
The maximum allowed IRA contribution for 2021 is
$6,000 ($7,000 for individuals age 50 or older). The con-
tribution limits will be unchanged in 2022 even though
they are indexed to inflation. The additional catch-up
contribution limit of $1,000 is not indexed to inflation. The
contributions can be fully deducted for modified adjusted
gross incomes (MAGI) below $105,000 and $66,000 for
married filing joint and single household returns, respec-
tively, for the 2021 tax year. The 2021 exemption is $198,000
for a person filing a married joint return who is not cov-
ered by a workplace retirement plan but whose spouse is.
In 2022, the phaseout levels for deducting contributions
will increase to $109,000 for married filing jointly and
$68,000 for singles. It will be $204,000 for those married
filing a joint return not covered by a workplace retirement
plan but whose spouse is.
In 2021, the maximum annual contribution limit to a
401(k) plan or similar type of defined-contribution plan is
$19,500 ($26,000 if you are age 50 or over). The maximum
contribution limit will rise to $20,500 and the catch-up
contribution will remain at $6,500 in 2022.
In 2021, the maximum annual contribution for SIMPLE
(savings incentive match plan for employees) plans is
$13,500 (those age 50 or over can make a maximum catch-
up contribution of $3,000). The contribution limit will rise
to $14,000 (plus the $3,000 catch-up) in 2022.
Married couples with adjusted gross incomes (AGI)
below $66,000 and singles with AGI below $33,000 in 2021
can qualify for the Saver’s Credit. Those limits are indexed to
inflation and will rise to $68,000 and $34,000 in 2022. The
14 A A I I J o u r n A l D E C E M B E R 2 0 2 1
A A I I . C O M / J O U R N A L
(continued on page 17)
defined-contribution plans, such as 401(k) plans, can be
postponed beyond age 72 for those who are still working,
contributing to a defined-contribution plan and own less
than 5% of the company. Roth IRA plans are exempt from
the RMD rules while the owner is alive.
The CARES Act suspended RMDs for 2020 only. RMDs
restarted in 2021.
According to the IRS, “Generally, an RMD is calculated
for each account by dividing the prior December 31st bal-
ance of that IRA or retirement plan account by a life expec-
tancy factor that the IRS publishes in tables in Publication
590-B, Distributions From Individual Retirement Arrange-
ments (IRAs).
Child Tax Credit
The child tax credit for 2021 is $3,600 for each child
under age 6 and $3,000 for each child ages 6 to 17. The
credit was also made fully refundable in 2021. The child
tax credit will revert back to the maximum of $2,000 set
by TCJA in 2022 and through 2025 without new legislation
being passed. The refundable portion is indexed to infla-
tion and will be at $1,500 in 2022.
Kiddie Tax
The “kiddie tax” applies to children up to age 18 and
could apply to children up to age 23—depending on how
much earned income they have and whether or not they
are full-time students.
Under the kiddie tax rules, children with 2021 or 2022
investment income above a certain amount may have part
or all of their investment income taxed at their or their
parent’s tax rates, whichever is higher. (The SECURE Act
repealed the provision in the TCJA pegging the kiddie tax
to the trust and estate tax rates. The change was retroactive
to 2018.)
The kiddie tax applies if the child is age 17 or younger
by the end of the year. In 2021, the kiddie tax will apply if
the childs total investment income exceeds $2,200. The
exemption is indexed to inflation and will increase to
$2,300 in 2022.
In addition, the kiddie tax can apply to older children,
depending on how much earned income they have and
whether or not they are full-time students.
» Starting in the year that your child turns 18, the
kiddie tax will apply if your childs earned income
The Tax Impact of Investing for and in Retirement
Various parts of the tax code govern how much can be
saved for retirement, when withdrawals can be made and
how much has to be withdrawn.
There are three big birthdays you should be aware of. At age
50, the maximum amount allowed to be contributed to retire-
ment savings accounts increases (“catch-up contributions”).
At age 59½, you can take withdrawals from all retirement
accounts without incurring the 10% early withdrawal pen-
alty. Finally, once you reach age 72 (70½ if born before July
1, 1949), you must begin taking required minimum distri-
butions (RMDs). The age limit on making contributions to
an IRA was repealed by the SECURE Act but you must have
earned income to contribute.
The tax code incentivizes savings for retirement. Workers
can contribute up to $19,500 in 2021 and $20,500 in 2022 in
a defined-contribution plan [e.g., a 401(k) plan]. A higher limit
of $26,000 in 2021 $27,000 and 2022 exists for workers age
50 or older. Taxpayers and spouses covered by an employer
retirement plan can contribute up to $6,000 ($7,000 for those
age 50 or older) to a traditional IRA in 2021 and 2022, though
the deductions are subject to income phaseouts. Contribu-
tions to a tax-deferred retirement savings account reduce
adjusted gross income (and thereby your tax liability) as long
as they are within the designated limits.
Contributions to Roth IRAs and Roth 401(k) plans are not
tax-deductible. Like traditional IRAs, up to $6,000 ($7,000
for those age 50 or older) can be contributed to a Roth IRA
in 2021 and 2022. The maximum contribution is subject to
income phaseouts that start at 105,000 for married couples
filing jointly and $66,000 for singles for 2021. (The phaseouts
will increase to $109,000 and $68,000, respectively, in 2022.)
Contributions to IRAs and Roth IRAs for the 2021 tax year
can be made as late as April 15, 2022. When making a con-
tribution for the previous calendar year, ensure your broker
registers the deposit correctly.
Withdrawals from retirement accounts are considered
to be taxable income unless taken from a Roth IRA, a Roth
401(k) or similar types of accounts. RMDs are required from
most retirement accounts starting at age 72 (70½ if born
before July 1, 1949). [The first RMD can be taken as late as
April 1 of the calendar year following the year you turned age
72 (70½ if born before July 1, 1949), though the second RMD
must be taken by December 31 of that same year.] The per-
centage of retirement savings subject to the RMD increases
every year. Roth IRAs are exempt from RMDs, but Roth
401(k) plan savings are not. [A Roth 401(k) can be rolled to
a Roth IRA.] Those who are still working, contributing to an
employer-sponsored retirement plan and own less than 5%
of the company they work for can delay the first RMD from
a defined-contribution plan until April of the year they retire.
The CARES Act suspended RMDs for 2020; RMDs
returned in 2021 and will continue going forward.
A discussion of all the tax aspects of investing for and in
retirement is beyond the scope of this guide. Those seeking
greater detail should read IRS Publications 590-A and -B on
Individual Retirement Arrangements.
A A I I J o u r n A l D E C E M B E R 2 0 2 1 15
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For Single Taxpayers
Taxable Income The Tax Is
But Not Of the Amount
Over Over Over
$0 $9,950 $0 + 10% $0
$9,950 $40,525 $995 + 12% $9,950
$40,525 $86,375 $4,664 + 22% $40,525
$86,375 $164,925 $14,751 + 24% $86,375
$164,925 $209,425 $33,603 + 32% $164,925
$209,425 $523,600 $47,843 + 35% $209,425
$523,600 $157,804.25 + 37% $523,600
For Married Taxpayers Filing Separate Returns
Taxable Income The Tax Is
But Not Of the Amount
Over Over Over
$0 $9,950 $0 + 10% $0
$9,950 $40,525 $995 + 12% $9,950
$40,525 $86,375 $4,664 + 22% $40,525
$86,375 $164,925 $14,751 + 24% $86,375
$164,925 $209,425 $33,603 + 32% $164,925
$209,425 $314,150 $47,843 + 35% $209,425
$314,150 $84,496.75 + 37% $314,150
For Married Taxpayers Filing Joint Returns
and Surviving Spouses
Taxable Income The Tax Is
But Not Of the Amount
Over Over Over
$0 $19,900 $0 + 10% $0
$19,900 $81,050 $1,990 + 12% $19,900
$81,050 $172,750 $9,328 + 22% $81,050
$172,750 $329,850 $29,502 + 24% $172,750
$329,850 $418,850 $67,206 + 32% $329,850
$418,850 $628,300 $95,686 + 35% $418,850
$628,300 $168,993.50 + 37% $628,300
For Individuals Filing as Head of Household
Taxable Income The Tax Is
But Not Of the Amount
Over Over Over
$0 $14,200 $0 + 10% $0
$14,200 $54,200 $1,420 + 12% $14,200
$54,200 $86,350 $6,220 + 22% $54,200
$86,350 $164,900 $13,293 + 24% $86,350
$164,900 $209,400 $32,145 + 32% $164,900
$209,400 $523,600 $46,385 + 35% $209,400
$523,600 $156,355 + 37% $523,600
Income Tax
Capital Gains and Qualied Dividends
2021 Tax Rates
Maximum Taxable Income
Single Below $40,400 $40,400$445,850* Over $445,850*
Married Filing Joint Below $80,800 $80,800$501,600* Over $501,600*
Married Filing Sep Below $40,400 $40,400$250,800* Over $250,800*
Head of Household Below $54,100 $54,100$473,750* Over $473,750*
Short-Term Capital Gains taxed as income taxed as income taxed as income
Long-Term Capital Gains** 0% 15% 20%
Qualified Dividends 0% 15% 20%
Collectibles*** 28% maximum 28% maximum 28%
Real Estate Unrealized Gain
(Section 1250 Property) 15% maximum 25% maximum 25% maximum
*May also be subject to the 3.8% net investment income (NII) surtax.
**For investments held longer than one year.
***Includes art, rugs, jewelry, precious metals or gemstones, stamps or coins, fine wines and antiques.
Estates and Trusts
Tax Rates
First $2,650 10%
$2,650$9,550 24%
$9,550$13,050 35%
Over $13,050 37%
16 A A I I J o u r n A l D E C E M B E R 2 0 2 1
A A I I . C O M / J O U R N A L
Standard Deduction
Under Age 65
Married, Filing Joint $25,100
Single $12,550
Married, Filing Separate $12,550
Heads of Household $18,800
AdditionalAge 65 or Older
Married (or Qualifying Widow $1,350
Single $1,700
AdditionalBlind
Married (or Qualifying Widow $1,350
Single $1,700
Personal Exemption
$0
Maximum Child Tax Credit
$3,600/child under age 6; $3,000/child ages 6 to 17 at the end
of the year
Standard Mileage Deductions
Business Standard Mileage Rate 56 cents
Medical Standard Mileage Rate 16 cents
Moving Standard Mileage Rate 16 cents
Charitable Serv Standard Mile Rate 14 cents
Deductible IRA Contribution
If taxpayer and spouse NOT covered by
employer-sponsored plan:
If younger than 50 $6,000
If 50 or older $7,000
Maximum 401(k) Employee Contribution
If younger than 50 $19,500
If 50 or older $26,000
Self-Employed Medical Insurance
Premium Deduction
100%
Annual Gift Tax Exclusion (per person)
$15,000
Estate Tax Exclusion
$11.70 million
2021 Other Tax Items
2021 Social Security Tax Rates
Employers Self- Wage
& Employees Employed Limits
Social Security 6.20% 12.40% $142,800
Medicare 1.45% 2.90% no limit
Total 7.65% 15.30%
2021 Itemizable Deductions
Among other items they include:
» Interest and taxes on your home
» Uninsured medical expenses above 7.5% of AGI
» Uninsured casualities attributable to a federally de-
clared disaster above 10% of AGI
» Contributions to qualified charities
» State and local income, property and sales taxes total-
ing up to $10,000
2021 Safe Harbor for Underpayment Penalty
Avoid underpayment penalties by paying (through witholding or
estimated tax payments):
AGI $150,000 or less ($75,000 married filing separate)
» 100% of prior tax liability or
» 90% of current year tax liability
AGI $150,000 or greater ($75,000 married filing separate)
» 110% of prior year tax or
» 90% of current year tax liability
2021 AMT Exemption Amount
Single $73,600
Married, Filing Joint $114,600
Married, Filing Separate $57,300
Head of Household $73,600
2021 Allowable Tax Benets
A A I I J o u r n A l D E C E M B E R 2 0 2 1 17
A A I I . C O M / J O U R N A L
(continued from page 14)
(continued on page 21)
(including salaries and wages, commissions, pro-
fessional fees and tips) does not exceed half of the
childs overall support.
» Starting in the year your child turns 19, the kiddie
tax will apply if your child is a full-time student.
» The kiddie tax will stop applying in the year your
child turns 24.
» The kiddie tax will also not apply if your child is mar-
ried filing jointly.
Charitable Donations
Donations of clothing and other personal items must be
in “good condition” or better in order to be deducted. Form
8283 must be filled out if your total deduction for all non-
cash contributions exceeds $500.
In addition, charitable contributions of cash (regard-
less of the amount) to any qualified charity must be sup-
ported by a dated bank record (such as a canceled check) or
a dated receipt from the charity that includes the name of
the charity and date and amount of contribution.
Married joint filers taking the standard deduction can
deduct up to $600 worth of cash donations to qualified
charitable organizations in 2021. The limit is $300 for
single filers and married individuals filing joint separate
returns. This deduction has not been carried over to 2022.
Those age 70½ or older can distribute up to $100,000
from their traditional IRA to qualified charities in 2020
and 2021. The cap on donations is not indexed to inflation.
Qualified charitable distributions (QCDs) reduce required
minimum distributions. If no RMD was taken in 2020, a
QCD can still be taken. It will not impact 2020 taxes but
will reduce the account’s balance and thereby the basis
for determining future RMDs. See “The Tax Advantages
of Qualified Charitable Distributions From IRAs” in the
October 2016 AAII Journal for more information.
2021 Tax Benet Phaseout Levels
Personal Exemption
Eliminated Through 2025
AGI Phaseout Level
Married, Filing Joint na
Single na
Married, Filing Separate na
Head of Household na
Itemized Deduction (“Pease” Limitation)
Eliminated Through 2025
AGI Phaseout Level
Married, Filing Joint na
Single na
Married, Filing Separate na
Head of Household na
Coverdell Education Account
$2,000 maximum nondeductible contribution per beneficiary;
withdrawals are tax-free for qualified education expenses;
phaseouts are not indexed to inflation
Modified AGI* Phaseout Levels
Married, Filing Joint $190,000 to $220,000
Single $95,000 to $110,000
Married, Filing Separate $95,000 to $110,000
Head of Household $95,000 to $110,000
IRA Deductibility
For those covered by employer retirement plan
[$6,000 maximum contribution per taxpayer;
if 50 or older, maximum is $7,000]
Modified AGI* Phaseout Levels
Married, Filing Joint $105,000 to $125,000
Single $66,000 to $76,000
Married, Filing Separate $0 to $10,000
Head of Household $66,000 to $76,000
Married, Filing Joint not covered by
Pension plan, but spouse is $198,000 to $208,000
Roth IRA Eligibility
Maximum $6,000 nondeductible contribution; if 50 or older,
maximum is $7,000
Modified AGI* Phaseout Levels
Married, Filing Joint $198,000 to $208,000
Single $125,000 to $140,000
Married, Filing Separate $0
Head of Household $125,000 to $140,000
*Modified AGI starts with your AGI (adjusted gross income) and adds
back certain tax-exempt amounts including any IRA deductions.
18 A A I I J o u r n A l D E C E M B E R 2 0 2 1
A A I I . C O M / J O U R N A L
Income 2021 2022
1. Salaries per Form W-2 1. __________ __________
2. Non-qualified dividends and interest income 2. __________ __________
3. Net business income (losses) 3. __________ __________
4. Net capital gains and qualified dividend income
a
4. __________ __________
5. Other gains (losses) 5. __________ __________
6. Passive income (losses) (subject to limitations) 6. __________ __________
7. Other income, including 85% of Social Security benefits, if applicable 7. __________ __________
8. Total income
(sum of lines 1 – 7) 8. __________ __________
Adjustments
9. Keogh contributions 9. __________ __________
10. Deductible IRA contributions 10. __________ __________
11. Moving expenses (active duty military only, subject to limitations) 11. __________ __________
12. Other _______________ 12. __________ __________
13. Adjusted gross income (AGI)
(subtract lines 9 – 12 from line 8) 13. __________ __________
Deductions
14. Medical and dental expenses [excess over 7.5% of line 13; regardless of age] or
self-employed health insurance 14. __________ __________
15. Lower of sum of lines 15a and 15b_________ or $10,000 15. __________ __________
15a. State and local income taxes (or sales taxes) _______
15b. Real estate and property taxes (non-business property) _________
16. Home mortgage interest (for acquisition debt only, capped at $750,000 through 2025) 16. __________ __________
17. Investment interest (limited to investment income) 17. __________ __________
18. Charitable contributions if you itemize 18. __________ __________
19. Casualty losses (federally declared disasters only) 19. __________ __________
20. Total deductions (sum of lines 14 – 19) 20. __________ __________
OR 20a. Standard deduction
b
, if greater (lines 14 – 19 must all show $0.00) 20.a __________ __________
21. Charitable contributions (enter as negative value) if you take the standard deduction
(max $300 single/$600 for married filing joint in 2021 only) 21. __________ __________
22. Regular taxable income (subtract line 20and line 21 in 2021—from line 14) 22. __________ __________
23. Regular tax (see tax rate tables)
a
23. __________ __________
24. Tax credits 24. __________ __________
25. Regular tax (net) (subtract line 24 from line 23) 25. __________ __________
26. Alternative minimum tax
c
26. __________ __________
27. Other taxes (self-employment tax, household help, and so forth) 27. __________ __________
28. Total tax (sum of lines 25, 26 and 27) 28. __________ __________
29. Total withholding and estimated tax payments 29. __________ __________
30. Recovery rebate credit (2021 only) 30. __________ __________
31. Balance due (refund) (subtract line 29and line 30 in 2021—from line 28) 31. __________ __________
__________ __________
Tax Forecasting Worksheet
a. If your taxable income includes net capital gain and qualified dividend income, you may be eligible for a tax rate on that income that is lower than the tax
rate that applies to your other income. Refer to IRS Form 1040, Schedule D.
b. The standard deduction is not allowed when calculating the alternative minimum tax (AMT).
c. Use IRS Form 6251 as a worksheet and review the discussion on AMT in the online version of this article.
This worksheet is designed for estimation purposes only and does not cover all the possible adjustments that may be required to
arrive at actual taxable income or to compute final income tax liability.
Go to the online version of this article to download the Excel worksheet and use the calculating functionality.
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A A I I J o u r n A l D E C E M B E R 2 0 2 1 19
A A I I . C O M / J O U R N A L
For Single Taxpayers
Taxable Income The Tax Is
But Not Of the Amount
Over Over Over
$0 $10,275 $0 + 10% $0
$10,275 $41,775 $1,027.50 + 12% $10,275
$41,775 $89,075 $4,807.50 + 22% $41,775
$89,075 $170,050 $15,213.50 + 24% $89,075
$170,050 $215,950 $34,647.50 + 32% $170,050
$215,950 $539,900 $49,335.50 + 35% $215,950
$539,900 $162,718 + 37% $539,900
For Married Taxpayers Filing Separate Returns
Taxable Income The Tax Is
But Not Of the Amount
Over Over Over
$0 $10,275 $0 + 10% $0
$10,275 $41,775 $1,027.50 + 12% $10,275
$41,775 $89,075 $4,807.50 + 22% $41,775
$89,075 $170,050 $15,213.50 + 24% $89,075
$170,050 $215,950 $34,647.50 + 32% $170,050
$215,950 $323,925 $49,335.50 + 35% $215,950
$323,925 $87,126.75 + 37% $323,925
For Married Taxpayers Filing Joint Returns
and Surviving Spouses
Taxable Income The Tax Is
But Not Of the Amount
Over Over Over
$0 $20,550 $0 + 10% $0
$20,550 $83,550 $2,055 + 12% $20,550
$83,550 $178,150 $9,615 + 22% $83,550
$178,150 $340,100 $30,427 + 24% $178,150
$340,100 $431,900 $69,295 + 32% $340,100
$431,900 $647,850 $98,671 + 35% $431,900
$647,850 $174,253.50 + 37% $647,850
For Individuals Filing as Head of Household
Taxable Income The Tax Is
But Not Of the Amount
Over Over Over
$0 $14,650 $0 + 10% $0
$14,650 $55,900 $1,465+ 12% $14,650
$55,900 $89,050 $6,415 + 22% $55,900
$89,050 $170,050 $13,708 + 24% $89,050
$170,050 $215,950 $33,148 + 32% $170,050
$215,950 $539,900 $47,836 + 35% $215,950
$539,900 $161,218.50 + 37% $539,900
Income Tax
Capital Gains and Qualied Dividends
2022 Tax Rates
Maximum Taxable Income
Single Below $41,675 $41,675$459,750* Over $459,750*
Married Filing Joint Below $83,350 $83,350$517,200* Over $517,200*
Married Filing Sep Below $41,675 $41,675$258,600* Over $258,600*
Head of Household Below $55,800 $55,800$488,500* Over $488,500*
Short-Term Capital Gains taxed as income taxed as income taxed as income
Long-Term Capital Gains** 0% 15% 20%
Qualified Dividends 0% 15% 20%
Collectibles*** 28% maximum 28% maximum 28%
Real Estate Unrealized Gain
(Section 1250 Property) 15% maximum 25% maximum 25% maximum
*May also be subject to the 3.8% net investment income (NII) surtax.
**For investments held longer than one year.
***Includes art, rugs, jewelry, precious metals or gemstones, stamps or coins, fine wines and antiques.
Estates and Trusts
Tax Rates
First $2,750 10%
$2,751–$9,850 24%
$9,851$13,450 35%
Over $13,450 37%
2 0 A A I I J o u r n A l D E C E M B E R 2 0 2 1
A A I I . C O M / J O U R N A L
Standard Deduction
Under Age 65
Married, Filing Joint $25,900
Single $12,950
Married, Filing Separate $12,950
Heads of Household $19,400
AdditionalAge 65 or Older
Married (or Qualifying Widow $1,400
Single $1,750
AdditionalBlind
Married (or Qualifying Widow $1,400
Single $1,750
Personal Exemption
$0
Maximum Child Tax Credit
$2,000 per child under age 17
Standard Mileage Deductions
Business Standard Mileage Rate 58.5 cents*
Medical Standard Mileage Rate 18 cents*
Moving Standard Mileage Rate 18 cents*
Charitable Serv Standard Mile Rate 14 cents*
*Updated 12/29/2021.
Deductible IRA Contribution
If taxpayer and spouse NOT covered by
employer-sponsored plan:
If younger than 50 $6,000
If 50 or older $7,000
Maximum 401(k) Employee Contribution
If younger than 50 $20,500
If 50 or older $27,000
Self-Employed Medical Insurance
Premium Deduction
100%
Annual Gift Tax Exclusion (per person)
$16,000
Estate Tax Exclusion
$12.06 million
2022 Other Tax Items
2022 Social Security Tax Rates
Employers Self- Wage
& Employees Employed Limits
Social Security 6.20% 12.40% $147,000
Medicare 1.45% 2.90% no limit
Total 7.65% 15.30%
2022 Itemizable Deductions
Among other items they include:
» Interest and taxes on your home
» Uninsured medical expenses above 7.5% of AGI
» Uninsured casualities attributable to a federally de-
clared disaster above 10% of AGI
» Contributions to qualified charities
» State and local income, property and sales taxes total-
ing up to $10,000
2022 Safe Harbor for Underpayment Penalty
Avoid underpayment penalties by paying (through witholding or
estimated tax payments):
AGI $150,000 or less ($75,000 married filing separate)
» 100% of prior tax liability or
» 90% of current year tax liability
AGI $150,000 or greater ($75,000 married filing separate)
» 110% of prior year tax or
» 90% of current year tax liability
2022 AMT Exemption Amount
Single $75,900
Married, Filing Joint $118,100
Married, Filing Separate $59,050
Head of Household $75,900
2022 Allowable Tax Benets
A A I I J o u r n A l D E C E M B E R 2 0 2 1 2 1
A A I I . C O M / J O U R N A L
(continued from page 17)
limitation) was suspended for the years 2018 through 2025
by the TCJA.
State, Local and Sales Taxes
Taxpayers who itemize deductions have the option of
choosing between a deduction of sales taxes or income
taxes when claiming a state and local tax deduction.
Taxpayers cannot deduct both. A $10,000 limit ($5,000
for married filing separate returns) on state and local
tax deductions is in effect through 2025. This cap is not
indexed to inflation.
Tax-Exempt Interest Reporting
State and local governments are required to report
interest paid on tax-exempt state and local bonds on Form
1099-INT, Interest Income. This amount must be shown
on your tax return. While this income is generally exempt
from federal income tax under the current tax law, it is
Medicare
Taxpayers who itemize deductions can deduct (as a
medical expense) the premiums they pay for Medicare Part
B supplemental insurance and Medicare Part D prescrip-
tion drug insurance. Premiums for voluntary coverage
under Medicare Part A are only deductible by those over
the age of 65 and not covered by Social Security.
Medicare Part B premiums are based on MAGI as
reported on returns from two years ago. As such, the Medi-
care Part B premium will be $170.10 in 2022 for taxpayers
who file married joint returns with 2020 MAGI of $182,000
or less and single filers with 2020 MAGI of $91,000 or less.
The floor for deducting medical expenses is 7.5% of
adjusted gross income for 2021 and 2022. It will stay at this
level until changed by legislation.
Itemized Deduction Phaseouts
The phaseout of itemized deductions (the “Pease”
2022 Tax Benet Phaseout Levels
Personal Exemption
Eliminated Through 2025
AGI Phaseout Level
Married, Filing Joint na
Single na
Married, Filing Separate na
Head of Household na
Itemized Deduction (“Pease” Limitation)
Eliminated Through 2025
AGI Phaseout Level
Married, Filing Joint na
Single na
Married, Filing Separate na
Head of Household na
Coverdell Education Account
$2,000 maximum nondeductible contribution per beneficiary;
withdrawals are tax-free for qualified education expenses;
phaseouts are not indexed to inflation
Modified AGI* Phaseout Levels
Married, Filing Joint $190,000 to $220,000
Single $95,000 to $110,000
Married, Filing Separate $95,000 to $110,000
Head of Household $95,000 to $110,000
IRA Deductibility
For those covered by employer retirement plan
[$6,000 maximum contribution per taxpayer;
if 50 or older, maximum is $7,000]
Modified AGI* Phaseout Levels
Married, Filing Joint $109,000 to $129,000
Single $68,000 to $78,000
Married, Filing Separate $0 to $10,000
Head of Household $68,000 to $78,000
Married, Filing Joint not covered by
Pension plan, but spouse is $204,000 to $214,000
Roth IRA Eligibility
Maximum $6,000 nondeductible contribution; if 50 or older,
maximum is $7,000
Modified AGI* Phaseout Levels
Married, Filing Joint $204,000 to $214,000
Single $129,000 to $144,000
Married, Filing Separate $0
Head of Household $129,000 to $144