Category Archives: Blog

What Tax Bracket for You in 2021?

August 26, 2021 by sodowskylaw

2021 Tax Brackets, based on Taxable Income

2021 Tax Brackets, based on Taxable Income It’s never too early to start thinking about your next tax return. For most Americans, that’ll be your federal tax return for the 2021 tax year — which, by the way, will be due on April 18, 2022 (April 19 for residents of Maine and Massachusetts). The tax rates themselves didn’t change from 2020 to 2021. There are seven tax rates in effect for both the 2021 and 2020 tax years: 10%, 12%, 22%, 24%, 32%, 35% and 37%. However, as they are every year, the 2021 tax brackets were adjusted to account for inflation. That means you could wind up in a different tax bracket when you file your 2021 return than the bracket you were in for 2020 – which also means you could be subject to a different tax rate on some of your 2021 income.

The tax bracket ranges also differ based on your filing status. The chart below shows you the ranges for the various filing statuses.

2021 Tax Brackets, based on Taxable Income

Tax Rate	Single	Head of Household	Married Filing Jointly	Married Filing Separately
10%	Up to $9,950	Up to $14,200	Up to $19,900	Up to $9,950
12%	$9,951 to $40,525	$14,201 to $54,200	$19,901 to $81,050	$9,951 to $40,525
22%	$40,526 to $86,375	$54,201 to $86,350	$81,051 to $172,750	$40,526 to $86,375
24%	$86,376 to $164,925	$86,351 to $164,900	$172,751 to $329,850	$86,376 to $164,925
32%	$164,926 to $209,425	$164,901 to $209,400	$329,851 to $418,850	$164,926 to $209,425
35%	$209,426 to $523,600	$209,401 to $523,600	$418,851 to $628,300	$209,426 to $314,150
37%	Over $523,600	Over $523.600	Over $628,300	Over $314,150

How the Tax Brackets Work

Suppose you’re single and have $90,000 of taxable income in 2021. Since $90,000 is in the 24% bracket for singles, would your tax bill simply be a flat 24% of $90,000 – or $21,600? No! Your tax would actually be less than that amount. That’s because, using marginal tax rates, only a portion of your income would be taxed at the 24% rate. The rest of it would be taxed at the 10%, 12%, and 22% rates.

Here’s how it works. Again, assuming you’re single with $90,000 taxable income in 2021, the first $9,950 of your income is taxed at the 10% rate for $995 of tax. The next $30,575 of income (the amount from $9,951 to $40,525) is taxed at the 12% rate for an additional $3,669 of tax. After that, the next $45,850 of your income (from $40,526 to $86,375) is taxed at the 22% rate for $10,087 of tax. That leaves only $3,625 of your taxable income (the amount over $86,375) to be taxed at the 24% rate, which comes to an addition $870 of tax. When you add it all up, your total 2021 tax is only $15,621. (That’s $5,979 less than if a flat 24% rate was applied to the entire $90,000.)

The Marriage Penalty

The difference between bracket ranges sometimes creates a “marriage penalty.” This tax-law twist makes certain married couples filing a joint return — typically, where the spouses’ incomes are similar — pay more tax than they would if they were single. The penalty is triggered when, for any given rate, the minimum taxable income for the joint filers’ tax bracket is less than twice the minimum amount for the single filers’ bracket.

Before the 2017 tax reform law, this happened in the four highest tax brackets. But now, as you can see in the tables above, only the top tax bracket contains the marriage penalty trap. As a result, only couples with a combined taxable income over $628,300 are at risk for this “penalty” when filing their 2021 federal tax return. (Note that the tax brackets for your state’s income tax could contain a marriage penalty.)

A New Top Tax Rate in the Future?

Will the top income tax rate go up in the near future? It will if President Biden gets his way. As part of his American Families Plan, the president has proposed increasing the highest tax rate from 37% to 39.6%, which is where it was before the Tax Cuts and Jobs Act of 2017. The 39.6% rate would apply to single filers with taxable income over $452,700 and joint filers with taxable income exceeding $509,300. Only time will tell if this change comes to pass. Meanwhile, you can use this information to plan your tax strategies for the remainder of 2021.

Patriot Day – Twenty Years

August 26, 2021 by sodowskylaw

September 11, 2021, is the twentieth anniversary of the horrific terrorist attack on several targets in the United States that killed almost 3,000 people. A year after that attack, September 11 was made a national day of remembrance and mourning, known as Patriot Day, to honor the memory of those who were killed in the attack. Although this day is not an official, public holiday, the US flag is flown at half-staff on all US government buildings.

Fortunately, I had no family or close friends injured or killed in those attacks. Unfortunately, at least one family from my church lost a loved one at the Pentagon that day.

I imagine that most people who were teenagers and older remember where they were and what they were doing that day. I know that I certainly do.

September 11, 2001, started off as a normal Tuesday. I was headed to the Fairfax County Courthouse where I had a case in Circuit Court on the 5^th floor of the Courthouse. Court was scheduled to start at 10:00 AM, but I always tried to get there plenty early to make sure I could get good parking and into the courtroom well before the judge would take the bench. That meant I was driving to the courthouse between 8:30 and 9:15.

I always listened to a talk/news radio station. So, I did hear some information on the radio about something happening in New York, but the details were sparse. I entered the courthouse and went to the courtroom on the 5^th floor as usual, waiting for the judge to come on the bench and court to start at 10:00.

Either just before or just after the judge came on the bench, a deputy came out and told us the courthouse was closing – we all were toleave immediately. So, we all vacated the courtroom and went out in the hallway. When someone pressed the deputy for more information, he simply said the Pentagon had been attacked and the courthouse was closing.

Several of us went to the end of the hall on the 5^th floor and looked out the windows in the direction of the Pentagon. I could see smoke billowing up on the horizon, which I surmised was coming from the Pentagon. Then, I went Io my car and drove home, as we had been told to do by the deputies at the courthouse.

I watched TV most of the rest of the day as coverage of the events unfolded as we all tried to make some sense of the events of the day. As we know, our country has been changed forever.

We all came together in a manner not seen since the days of World War II to fight a common enemy.

My, oh, my, how things have changed in 20 years. Does it take an attack by outside forces to bring us together? We don’t have to agree on everything, but we are “One Nation under God, indivisible, with liberty and justice for all,” are we not?

So, on this twentieth anniversary of the terrorist attack, let’s all remember those who lost their lives as both a direct and indirect result of the attack, both the initial victims and all the first responders who have suffered and died as a result of this attack. May we remember what working together for the common good is and what we can accomplish when we do work together.

— Elden Sodowsky

A Cautionary Tale: IRS Comes First – Even in Death!

July 22, 2021 by sodowskylaw

IRS tax attorney Are you named as the executor of someone’s estate? Do you expect to be a beneficiary of someone’s estate? If so, keep reading.

A woman died in December 2003, leaving her estate to her brother, who was also the executor. He transferred all the estate’s property to himself, except for $50,000 he gave to his daughter. He knew the estate owed tax to the IRS because he had been involved in the preparation of the estate tax return and the subsequent audit that resulted in additional taxes due. He tried to work out a payment plan with the IRS. He even made some significant payments on the tax debt, but never completely paid off the balance.

The brother passed away in 2008 leaving his daughter as executrix and sole beneficiary of his estate. She followed her father’s instructions and paid some of the tax due on the original estate, but she did not pay it all. She then distributed her father’s estate to herself, and ultimately used it all up.

Nearly thirteen years after the original estate tax return was filed, the IRS filed suit in federal district court to reduce the assessment to a judgment against both the brother’s estate and the original co-executor. The IRS also sought to hold the estate of the deceased executor and his daughter, the beneficiary of his estate, liable for the unpaid taxes of the original estate.

Can the IRS really do that? Yes, it can, if the facts support the claim.

Beneficiary Liability: The United States Code says that a person who receives property from a decedent’s estate (a beneficiary) is personally liable for any unpaid estate tax based on the value of the property received.

Fiduciary Liability: – The federal insolvency statute provides that when an estate has insufficient assets to pay all of its debts, priority must be given to debts due the United States. A fiduciary, e.g., an executor, may be held liable under this statute for the distribution of funds from the estate that is not, strictly speaking, the payment of a debt. The fiduciary may, for example, be held liable for “stripping” an otherwise solvent estate of all of its assets and rendering it insolvent by providing for the distribution of all of the estate assets to the heirs of the estate.

The purpose of imposing personal liability on estate representatives is to make those into whose hands control and possession of the debtor’s assets are placed, responsible for seeing that the Government’s priority is paid.

The Court found in favor of the IRS on all four of these claims. What does this mean to current and prospective executors and beneficiaries? Simply this – make sure ALL federal taxes are paid BEFORE doing or accepting a distribution from an estate.

We address IRS Tax Lien or Levy

If you are facing an IRS tax lien or levy, don’t feel that you need to handle the situation alone. Schedule a consultation today and let our experienced attorneys help you resolve your tax situation in the best way possible.

Are You a Starving Artist?

June 28, 2021 by Vikas Sharma

When it comes to deducting unreimbursed business expenses on your tax return, if you are a “starving artist,” you get a special tax break that other “regular” employees don’t. Prior to 2018, employees could deduct unreimbursed business expenses in the Miscellaneous Itemized Expense section on Schedule A, subject to the 2%-of-adjusted-gross-income threshold. The 2017 tax law ended that deduction.

However, if you qualify as a “starving artist,” you can still deduct certain unreimbursed business expense, such as vehicle expenses, parking fees, tolls, various other transportation and lodging expenses, and certain meal expenses. You use Form 2106, Employee Business Expenses, to calculate the amount, which you then report on line 11 of Schedule 1 of Form 1040.

Who qualifies as a “starving artist?” you ask. To qualify, the individual must have been employed in the performing arts by at least two employers, earned $200 or more in wages per employer, had expenses in excess of 10% of income, and their adjusted gross income cannot exceed $16,000.

So, you probably would prefer to NOT qualify as a starving artist. But, if you do, you still get this tax break that other, better paid employees no longer get.

By the way, Reservists or National Guard members can deduct overnight travel expenses for trips over 100 miles using this same Form 2106 and Schedule 1 of Form 1040.

If you have questions about qualifying as a starving artist or other tax issues, contact the Sodowsky Law Firm at 703.968.8000 to arrange a confidential meeting with one of our attorneys.

— Elden Sodowsky

COVID-19 Funeral Assistance Program | Funeral Expenses – FEMA

June 28, 2021 by Vikas Sharma

The COVID-19 pandemic made the past year quite difficult for everyone as we all struggled with significant changes in our daily lives. Learning how to work and attend school remotely. Not getting to dine out with family and friends. Not getting to visit and hug loved-ones, be they parents in nursing homes or our grandchildren living across the country. Not getting to attend in-person religious services. Loss of a job or significantly reduced income because our employer was forced to reduce hours or close entirely.

But for many families, the COVID-19 pandemic brought even greater pain and grief as their loved-ones died as a result of the virus. Along with the grief came unexpected, and frequently “budget-busting,” funeral expenses.

A new program managed by FEMA, the US government agency usually associated with providing help and relief following natural disasters, such as floods and hurricanes, started April 12, 2021.

Under the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 and the American Rescue Plan Act of 2021, FEMA is providing financial assistance for COVID-19 related funeral expenses incurred after January 20, 2020.

Who can apply for COVID-19 Funeral Assistance?

You may qualify if:

You are a U.S. citizen, non-citizen national, or qualified alien who paid for funeral expenses after January 20, 2020, and
The funeral expenses were for an individual whose death in the United States, territories or the District of Columbia, may have been caused by or was likely the result of COVID-19.

How do you apply? By phone only – No online applications will be accepted.

Call FEMA’s COVID-19 Funeral Assistance Line at 844-684-6333 | TTY: 800-462-7585 to get a COVID-19 Funeral Assistance application completed with help from FEMA’s representatives. Multilingual services are available as well. The line is open M-F, 9 a.m. to 9 p.m. Eastern time. You may have to wait on-hold for quite some time, but the application itself should take about 20 minutes to complete IF you have all the necessary information handy.

Beware of scammers claiming they can make the application for you. ONLY the individual who paid the expenses is eligible to apply. Also, do NOT respond to someone saying they are calling from FEMA if you have not yet submitted an application. FEMA will not contact anyone until after an individual has called FEMA and applied for assistance. Do not disclose information such as the name, birth date or social security number of any deceased family member to any unsolicited telephone calls or e-mails from anyone claiming to be a federal employee or from FEMA.

If you doubt a FEMA representative is legitimate, hang up and report it to the FEMA Helpline at 800-621-3362 or the National Center for Fraud Hotline at 866-720–5721. Complaints also may be made by contacting local law enforcement agencies.

For more information about this program, including details on the application process, documents required, what expenses are covered, and other FAQs, check out the FEMA website at: https://www.fema.gov/disasters/coronavirus/economic/funeral-assistance .

Our condolences are with you if you or someone you know qualifies for this program.