- Posted by Kristi Cherry, CPA®
- On January 13, 2020
In November of last year, the IRS announced tax inflation adjustments and other tax changes that will go into effect for the 2020 tax season. It’s important that you take these changes into consideration as you build out your financial plan for this year.
INCOME TAX CHANGES
The 2020 tax rate for single filers with income greater than $163,300 and married couples filing jointly with income greater than $326,600 will be 32%. If you are not in that income tax bracket, refer to the chart below for your 2020 tax rate.
STANDARD DEDUCTION AND EXEMPTION CHANGES
The standard deduction for the 2020 tax season will be $12,400 for single filers and $24,800 for married couples filing jointly. Married and filing jointly taxpayers who are age 65 or older will receive an additional standard deduction of $1,300 each. Single taxpayers who are age 65 or older will receive an additional standard deduction of $1,650. Personal exemptions will remain at zero.
ITEMIZED DEDUCTION CHANGES
All state and local tax deductions will remain limited to $10,000 for the 2020 tax season. Itemized deductions can be a mixture from both the state and local levels, including local income taxes, sales tax, and property taxes.
The medical expense deduction has been reduced. The threshold will increase up to 10% of adjusted gross income, regardless of your age.
Miscellaneous deductions will remain at zero. Pilots should take note that miscellaneous deductions include unreimbursed employee business deductions, such as per diem expenses, home office expenses, tax preparation fees, and investment fees. However, a few states still allow these miscellaneous itemized deductions.
The traditional and Roth IRA contribution limits will remain the same at $6,000 for taxpayers under age 50. For taxpayers age 50 and older, there is an additional catch-up limit of $7,000. However, if you are married and your adjusted gross income exceeds $196,000, then you will not be able to make a full contribution to a Roth IRA. In this case, a backdoor Roth would offer a workaround to allow you to continue to contribute to your Roth IRA.
The 401(k) employee contribution limits will increase to $19,500 for taxpayers younger than age 50 with a$26,000 catch up for taxpayers age 50 or older. The Defined Contribution Limit (415[c]), which represents the limit of total tax-deferred dollars allowed in a defined contribution plan, will increase from $56,000 to $57,000. Keep in mind this applies to both employee and employer contributions. The Annual Compensation Limit (415[a]), which represents the salary limit that an employer can use when applying their matching formula, will increase to $285,000.
In many plans, the catch-up contribution for clients age 50 and older is a separate election.
OTHER TAX CHANGES
The estate tax threshold for the 2020 tax season will increase to $11,580,000 per taxpayer. Flexible Spending Account (FSA) contribution limits will increase to $2,750. Health Savings Account (HSA) contribution limits will increase to $3,550 for individuals and $7,100 for families.
RAA CAN FILE YOUR TAX RETURN(S)
Did you know that RAA can prepare your tax return(s) for you?
Our Tax Services Manager, Kristi Cherry, CPA®, has 20 years of tax return preparation experience, including six years of running her own CPA practice where she specialized in preparing airline pilot tax returns.
We understand that keeping up with all of the recent tax law changes can be stressful and time-consuming, so we encourage you to lean on our team of tax specialists to guide you through the 2019 tax season.
If you would like RAA to prepare your 2019 tax returns, please request a tax preparation consultation with Kristi Cherry.
Disclaimer: This blog is intended for informational purposes only and should not be construed as individual investment advice. Actual recommendations are provided by RAA following consultation and are custom-tailored to each investor’s unique needs and circumstances. The information contained herein is from sources believed to be accurate and reliable. However, RAA accepts no legal responsibility for any errors or omissions. Investments in stocks, bonds, and mutual funds may increase or decrease in value. Past performance is no guarantee of future results. Any of the charts and graphs included in this blog are not recommendations for the purchase and sale of any security.