The past few months have brought many financial changes. And some of these changes may affect your 2020 taxes. With the continual release of new government guidance, it’s hard to know what to expect. This year, possibly more than ever, it’s important to plan ahead for tax season.
Here are a few things to start thinking about now.
- Due to the CARES act, required minimum distributions (RMDs) will not be required to be distributed in 2020. If a taxpayer has already taken their required minimum distribution for this year, it will be taxable as before. There is a limited period of 60 days after a distribution that a taxpayer can re-contribute the amounts back into the retirement account if it would otherwise qualify for rollover treatment.
- Standard deductions will change for 2020. The IRS reports the following amounts:
- Married filing jointly will go up by $400 to $24,800.
- Married filing separately will go up by $200 to $12,400
- Head of household will go up by $300 to $18,650
- Single will go up by $200 to $12,400
- As a result of the CARES act, donations to charity up to $300 will be allowable as an “above the line” deduction for taxpayers who normally take the standard deduction. Taxpayers who itemize their deductions will still be able to take their charitable deductions as before.
- While it doesn’t apply to all accounts, there will be increases to the contribution limits for some types of retirement accounts, including 401(k)s, 403(b)s, most 457 plans, and the federal government’s Thrift Savings Plans. The increased limits will also include 401(k) catch-ups, SEP IRAs and Solo 401(k)s, aftertax 401(k) contributions, SIMPLE retirement accounts, and defined benefit plans. IRA contribution limits will not change from 2019.
- Health savings accounts (HSAs) will also have increased contribution limits. For 2020, the individual coverage limit is $3,550 and family coverage is $7,100. These amounts will increase to $3,600 and $7,200 for 2021.
- Due to increased income limits, more taxpayers will be eligible for the Retirement Savings Contribution Credit, also known as the Saver’s Credit.
- The minimum adoption credit will go up from $14,080 to $14,300.
- The earned income tax credit will go up from $6,557 to $6,660 and the AGI limits have gone up from $55,952 to $56,844 for taxpayers who are married filing jointly and up from $50,162 to $50,594 for all other filing statuses.
- Social Security payroll tax income limits will go up to $137,700 from $132,900.
For individuals who received stimulus money, many questions
have been raised about whether the payments will count toward taxable income
for 2020 taxes. As a prepayment on a tax credit, the payments will not be
taxable. In fact, taxpayers who have a drop in income in 2020 may even be
eligible for a remaining stimulus payment. On the other side, taxpayers who
will have a significantly higher AGI for 2020 than for 2018 and 2019, some of
the stimulus money may need to be repaid.
Unemployment Insurance Benefits
Unemployment benefits are generally taxable, so this is
also something to consider when planning for the upcoming tax season.
For businesses who received a PPP loan, there may be some
tax considerations. Due to the ever-changing guidelines, there will probably be
many questions surrounding tax filing. It will be important to consult a
professional who can answer those questions.
These are just a few possibilities that may be different for
2020 taxes. There are additional considerations depending on your unique
The tax professionals at BSB are following the changing guidance and staying updated on current tax policies to help you properly plan for the upcoming tax season. Don’t wait! Contact us sooner, rather than later, to plan for 2020 taxes.