Get Ready for 2020 Taxes

Get Ready for 2020 Taxes, Get Ready for 2020 Taxes

The new year is here. And like many years prior, Uncle Sam is coming to take his share of what you make. But as you prepare to file your tax return for the 2019 tax year, or you strategize as to how you will handle your 2020 tax obligations, there are a few tax changes that you might want to know about.

Change #1: Higher Standard Deduction

For those who hate itemizing their taxes, this is great news. After the passage of the Tax Cuts and Jobs Act, the standard deduction almost doubled. Now, they go up even more. They will go up a few hundred dollars, depending on your filing status. The new standard deductions for the 2020 tax year are as follows:

  • Married, filing jointly = $24,800
  • Married, filing separately = $12,400
  • Single = $12,400
  • Head of household = $18,650

Change #2: Updated Tax Brackets

Inflation is a part of life. Luckily, the IRS recognizes this. The IRS will adjust the marginal tax rates to accommodate for higher incomes that don’t actually result in greater purchasing power. There are seven (7) tax rates in 2020. They are: 10%, 12%, 22%, 24%, 32%, 35% and 37% (there is also a zero rate). Here’s how those break out by filing status:

INDIVIDUAL TAXPAYERS

If Taxable Income is Between: The Tax Due is:
0 – $9,87510% of taxable income
$9,876 – $40,125$987.50 + 12% of the amount over
$9,875
$40,126 – $85,525$4,617.50 + 22% of the amount over
$40,125
$85,526 – $163,300$14,605.50 + 24% of the amount over$85,525
$163,301 – $207,350$33,271.50 + 32% of the amount over
$163,300
$207,351 – $518,400$47,367.50 + 35% of the amount over
$207,350
$518,400$156,235 + 37% of the amount over
$518,400

MARRIED INDIVIDUALS FILING JOINT RETURNS & SURVIVING SPOUSES

If Taxable Income is Between:The Tax Due is:
0 – $19,75010% of taxable income
$19,751 – $80,250$1,975 + 12% of the amount over
$19,750
$80,251 – $171,050$9,235 + 22% of the amount over
$80,250
$171,051 – $326,600$29,211 + 24% of the amount over
$171,050
$326,601 – $414,700$66,543 + 32% of the amount over
$326,600
$414,701 – $622,050$94,735 + 35% of the amount over
$414,700
$622,051$167,307.50 + 37% of the amount
over $622,050

HEADS OF HOUSEHOLD

If Taxable Income is Between:The Tax Due is:
0 – $14,10010% of taxable income
$14,101 – $53,700$1,410 + 12% of the amount over
$14,100
$53,701 – $85,500$6,162 + 22% of the amount over
$53,700
$85,501 – $163,300$13,158 + 24% of the amount over
$85,500
$163,301 – $207,350$31,830 + 32% of the amount over
$163,300
$207,351 – $518,400$45,926 + 35% of the amount over
$207,350
$518,401$154,793.50 + 37% of the amount
over $518,400

MARRIED FILING SEPARATELY

If Taxable Income is Between:The Tax Due is:
0 – $9,87510% of taxable income

Change #3: The Eliminated Alimony Tax Deduction

For the 2019 tax year, alimony deduction is no more. This means the person paying the alimony cannot use those alimony payments as a tax deduction if made under a divorce or separation agreement executed after December 31, 2O18.

When it comes to the federal government, things will largely even out as to how much money they collect. But for individual taxpayers who are divorced, these changes could result in a massive financial change. They might even justify a call to an attorney to request a modification of spousal support.

Change #4: Raised Retirement Contribution Limits

The 2019 tax year made it easier to save more money for retirement by upping the contribution limits. In 2020, these limits go up even more. If you have a 401(k), 403(b) or most 457 plans, the contribution limit is now $19,500. This limit will go up even higher if you’re more than 50 years of age. This “bonus” limit is now $6,500 (it was $6,000 for the 2019 tax year).

Unfortunately, the contribution limits for Roth and Traditional IRAs remain the same.

Change #5: No More Individual Mandate Penalty

Through the 2018 tax year, individuals who chose not to purchase health insurance (but could afford it) had to pay the Individual Shared Responsibility Payment when they filed their federal tax returns. This penalty no longer applies starting in the 2019 tax year. Keep in mind that some states may still impose a state-based penalty if you do not have health insurance. In California the individual mandate tax penalty will be reinstated. Which means Californians who choose not to buy qualified health insurance, will face a penalty of either $695 per adult ($347.50 per child) or 2.5% of their annual income.


Do Not Ignore Your Tax Problems!

Tax Law is Our Specialty. Contact us to Get Your Life Back to Normal.


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