Now that the July 15 extended deadline has passed for the 2019 tax filing, the 2020 tax year is already more than half finished. With only 9 months to April 15, 2020, the good news is that there are no massive tax overhauls like that ushered in by the Trump Administration’s Tax Cuts and Jobs Act of 2017.
There are, however, some changes to consider for your 2020 tax planning.
Word from Washington, DC observers is that there will be a second round of stimulus checks. According to this CNET web article, those additional checks could start hitting taxpayers’ bank accounts between by the week of September 28, or as early as the week of August 24, depending on when the House and Senate agrees on the final version. Another round of stimulus payments, however, will have no effect on anyone’s income tax liability for 2020.
Here are things that will affect your tax liability in 2020:
The Standard Deduction Has Gone Up
Most tax payers take the standard deduction. Rather keeping track of all expenses and claiming itemized deductions, most taxpayers find it simpler to just opt for the standard deduction.
For tax year 2020, the standard deduction has gone up $200 for single taxpayers, $300 for a head of household, and $400 for taxpayers who are married and filing separately. So, a married couple in 2020 can do the math. If their itemized deductions cannot reach the threshold of $24,800, the standard deduction is the way to go.
Income Tax Brackets for 2020 Adjusted
Federal income tax brackets are still at 10, 12, 22, and 24 percent. Middle income tax payers who are married and filing jointly are covered by an inflation adjusted bracket of $19,751 to $80,250. That is a change from the 2019 income bracket of $19,401 to $78,950.
So, a married couple whose taxable income is $75,000 is subject to the tax due formula of $1,975 + 12% of the amount over $19,750, for a tax amount due of $8,605.
401(k) Contribution Limits Are Going Up
In 2020, you can contribute up to $19,500 towards your 401(k), which is an increase of $500. Retirement savers past age 50 can contribute an additional $6,500 (the so-called “catch up” provision), which is an increase of $500 over 2019.
Inheritors of IRAs Need to Drain the Accounts Earlier
Children who inherit their parents’ individual retirement accounts were previously required to withdraw a minimum amount yearly, which was tied to life expectancy. Beginning with tax year 2020, inherited IRAs have to be drained within 10 years. That income could push inheritors into a higher tax bracket as well as take the tax-advantaged IRAs off the table for their own retirement savings plans.
For More Information…
The foregoing is just a sampling of the December 2019 Tax Law and how affects your tax planning. Read more on the USA.gov web page “Tax Law Changes.”
