Every year when you prepare your taxes for filing, there are changes to the tax law that should be taken into account. Without accounting for change, you may end up surprised by a tax bill you weren’t expecting.
As your local Cedar City tax accountant, AA Tax and Accounting Services is here to give you a heads up on eight of the tax law changes that you should be aware of when it comes to your 2020 taxes.
1. Changes To Tax Brackets For 2020
To help account for inflation, the Internal Revenue Service (IRS) has made adjustments to the 2020 income tax brackets. Below are the updated tax brackets:
|Rate||Single Filer||Married Filing Jointly||Head of Household|
|10%||$0-$9,875||$0 – $19,750||$0 – $14,100|
|12%||$9876 – $40,125||$19,751 – $80,250||$14,101 – $53,700|
|22%||$40,126 – $85,525||$80,251 – $171,050||$53,701 – $85,500|
|24%||$85,526 – $163,300||$171,051 – $326,600||$85,501 – $163,300|
|32%||$163,301 -$ 207,350||$326,601 – $414,700||$163,301 – $207,350|
|35%||$207,351 – $518,400||$414,701 – $622,050||$207,351 – $518,400|
|37%||$518,401 and up||$622,050 and up||$518,401 and up|
2. Expand Tax Exemption For Gift And Estate
Previously, people could gift—or hand down to descendants—up to $5.49 million, tax exempt. However, in 2020, that exemption amount has been expanded considerably. Now, the estate and lifetime gift tax exemption has been expanded to $11.58 million per individual.
This tax exemption does not include the annual gift exclusion, which is not included toward your lifetime gift tax exemption. For the annual gift exclusion, you can give $15,000.
3. Increase 401(k) Contributions Limits
For the first time in years, you can increase your contributions to your 401(k) retirement plan as well as your individual retirement accounts (IRAs). Naturally, these contributions can be deductible on your upcoming taxes. As it stands, your retirement plan contribution limits look like this:
- IRA contributions – $6,000 limit
- Catch-up IRA contributions for individuals 50 years old or older – An additional $1,000
- 401(k) contribution – $19,000 limit
- Catch-up 401(k) contributions for individuals 50 years old or older – An additional $6,000
4. Remove Individual Mandate Penalty
With the Affordable Care Act, there was a penalty applied if you did not have health insurance, don’t qualify for an exemption or the correct level of coverage. This tax penalty was often called the individual mandate penalty.
With the Tax Cuts and Jobs Act of 2017, this penalty was set to be eliminated, but that penalty removal didn’t come in until the upcoming tax season in 2020. So, if you did not have health insurance during 2019, you won’t be penalized for it on your taxes.
5. No Alimony Deduction Or Income
Another effect of the Tax Cuts and Jobs Act was to eliminate the alimony tax deduction in 2019. That means, should you have gotten divorced in 2019 and need to pay alimony, you will not be able to deduct the amount you pay from your taxes.
It also impacts the party that receives the alimony. They will no longer be able to count the alimony payments as part of their income.
6. Greater Health Saving Account Contribution Limits
If you have a health savings account (HSA), you can increase your contributions a bit more and help reduce your tax burden. The slight changes are reflected below and only apply to these plans:
- HSA self-only – $3,500 limit
- HSA family – $7,000 limit
7. Deductions For Medical Expense Higher
For those individuals who itemize their taxes, you may find it harder to do that while preparing to file your 2019 taxes. For two years, deducting dental and medical expenses was only possible after they passed the threshold of 7.5% of your adjusted gross income (AGI).
However, when you go to file your 2019 taxes, your dental and medical expenses will only be eligible to be deducted if they surpass 10% of your AGI. This change can make it more difficult to itemize your taxes, as well as the fact that the standard deduction has risen again.
8. New Tax Filing Form For Senior Citizens
After a lot of talk of creating a simpler tax filing system, the Bipartisan Budget Act of 2018 has lead to the creation of the Form 1040-SR. This form is created for senior citizens to help simplify their tax returns. The main requirements to use this form to file your taxes are:
- Have to be 65 years old or older
- Must take the standard deduction (no itemization option)
You can check out a draft of the new Form 1040-SR on the IRS website and see what it will be like to file this form.
Let AA Tax And Accounting Services Help You File 2020 Taxes
Filing your taxes on your own can be complicated, and when you use tax software, you are always left with the nagging worry that something has been overlooked. To have the human touch and insight involved when it comes to your 2020 tax filing, you can count on our accountant.
If you would like to have our accountant’s help in preparing and filing your 2020 taxes, feel free to contact us today to schedule your appointment.