Here are a few changes the IRS has put into place for the year 2020.
1) Retirement Contribution Limits Have Increased
If you are under age 50, you can contribute up to $6,000 in your IRA annually and up to $19,000 in your 401(k). This can be a huge benefit to you
2) Higher HSA contribution limits
In previous years, if you had a high deductible health insurance plan and it was eligible for a health savings bank account, the amount that you could contribute to that bank account tax free was $3,450 for individuals, and $6,900 for families. That has increased slightly to $3,500 for individuals and $7k for families.
3) 1040-SR — a new tax form for senior citizens
If you are age 65 or older, you don’t itemize (using the standard deduction) and you are one of the few that still fill out and mail in your tax forms by paper, you are in for a treat. The IRS has created the 1040-SR which is a tax form that is greatly simplified for seniors with a more straight-forward layout, and larger text. This doesn’t really affect those who use tax filing software, and anyone who itemizes or owns a business would not be eligible for this form.
4) Higher Tax Brackets
Tax brackets remain very much the same but have adjusted for inflation. For tax year 2019, the table is:
37% tax rate: Applies to incomes of more than $510,300
35%: More than $204,100 but not more than $510,300
32%: More than $160,725 but not more than $204,100
24%: More than $84,200 but not more than $160,725
22%: More than $39,475 but not more than $84,200
12%: More than $9,700 but not more than $39,475
10%: $9,700 or less
5) Alimony has changed in the eyes of the IRS
A change that took place in 2019 is in how the IRS views allimony payments. Moving forward, any divorces that took place in 2019 and on, the IRS will no longer require or allow taxpayers to report alimony as income for the receiver or a deduction for the payer. This doesn’t apply to any divorces that took place before 2019. Divorces before 2019 are essentially “grandfathered”. At least for the time being.
6) No ACA mandate
2019 marks the first year since the healthcare law was passed where individuals who do not carry health insurance are not required to pay a penalty.
7) Medical costs are not as easy to deduct
In recent years, medical costs could be deducted if they exceeded 7.5% of your adjusted gross income. For 2019, that threshold has been raised to 10%.
8) Standard deduction has increased (slightly)
The standard deduction has gone up for single filers from $12,000 (last year), to $12,200 (this year). For those who are married filing jointly, the standard deduction has increased to $24,400 (up from $24,000).
If you have any questions or you are looking for help with your tax preparation this tax season, give us a call!