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2020 TAX CHANGES: WHAT YOU NEED TO KNOW

Overview
In November 2019, the Internal Revenue Service announced inflation
adjustments for more than 60 provisions for the 2020 tax year. The following is
a guide for changes that will affect the greatest number of taxpayers.
“While it’s been more than a year since the Tax Cuts and Jobs Act went
into full effect, many Americans are still relatively uncertain of how these
changes impact them. The 2020 tax season could be the season that we
see old problems resurface and a set of new issues emerge.”1

Income Brackets

In 2020, the top income tax rate remains 37%. Here are 2020
income brackets:

In 2020, the top income tax rate remains 37%. Here are 2020
income brackets:

As you file your tax
return for 2019, it’s
worth reviewing what
changes are on the
docket for 2020 so
you can fine-tune your
tax plan for the year
and make beneficial
adjustments now.

Alternative Minimum Tax

The Alternative Minimum Tax (AMT) was created to ensure that high-income
taxpayers couldn’t use too many loopholes to avoid paying taxes altogether.
However, a certain amount of income is exempted from the AMT, which phases
out for higher-income taxpayers. Here are the amounts for 2020:

Capital Gains Income Threshold

The 2020 income thresholds for long-term capital gains rates increased:

Deductions

The standard deduction for single taxpayers and married individuals filing
separately in 2020 is $12,400, a $200 increase. The married filing jointly
deduction is $24,800 — up by $400, while heads of household enjoy a $300
increase at $18,650.
You may be better off itemizing your deductions if their sum total is more than
the standard deduction for your filing status. While eligible deductions are not
changing in 2020, be sure to consider the wide range of options available, from
student loan interest to medical expenses to charitable donations. Speak with
your tax advisor to explore the itemized deduction option more fully.

Credits

For 2020, the maximum earned income credit (EIC) is $6,660 (a $103 increase).
The threshold for claiming the Lifetime Learning Credit has increased in 2020
to $118,000 and phases out at $138,000 (a $2,000 increase on both ends) for
married taxpayers filing jointly. For single filers and heads of household, the
modified adjusted income range is $59,000 to $69,000, up $1,000 for each
amount. Married individuals who file separately may not claim the credit.

Retirement Plans

The contribution limit for employer-sponsored retirement plans has increased to
$19,500. The catch-up contribution for employees age 50 and older increased
by another $500 to $6,500, which means they may contribute a total of
$26,000 per year.
While contribution limits for traditional and Roth IRAs remain the same as last
year ($6,000; $7,000 for age 50 and older), the limit for SIMPLE retirement
accounts increased to $13,500 (a $500 increase). The phase-out ranges for IRA
contributions by people covered by a workplace retirement plan also increased
for 2020:

Single taxpayers: $65,000 to $75,000
• Married filing jointly: $104,000 to $124,000
• IRA contributor not covered by a workplace retirement plan but married
to someone who is: The deduction is phased out if the couple’s combined
income is between $196,000 and $206,000
• Married individual filing separately: Remains $0 to $10,000
The income phase-out ranges for Roth IRA contributions increased and
are now:
• Single and head of household: $124,000 to $139,000
• Married couples filing jointly: $196,000 to $206,000
The 2020 income limit for the saver’s credit (also called the retirement savings
contributions credit) is $65,000 for married couples filing jointly; $48,750 for
heads of household; and $32,500 for singles and married individuals
filing separately.

SECURE Act

The Setting Every Community Up for Retirement Enhancement (SECURE) Act
went into effect on Jan. 1. The bill’s provisions that impact individual retirement
plans include the following:
• Eliminates the age limit for traditional IRA contributions
• Delays required minimum distributions (RMD) until age 72; applies only to
people who turn 70½ in 2020 and beyond
The SECURE Act also limited to 10 years the amount of time a non-spouse IRA
beneficiary can spread out distributions following the death of the
account owner.

Estate Plans

The estate exemption in 2020 increases to $11.58 million, up from $11.4 million.
The exclusion for gifts remains the same at $15,000 per year per person.

Final Thoughts

There are also 2020 tax law changes in 35 states, so it’s important to work
with a local tax advisor to find out what may affect your state tax return. For
example:10
• Individual income tax rates are reduced in Arkansas, Tennessee
and Massachusetts.
• There are notable changes to individual income tax bases in Iowa, Kansas,
Maine, North Carolina and Ohio.
• Connecticut, Minnesota, Vermont and New York have increased their
estate tax exemptions, while Hawaii’s estate tax will become
more burdensome.
Despite the fact that no major tax bill passed last year, clearly there are quite
a number of changes that can create complications in filing returns. It’s a
good idea to meet with a professional advisor early in the year so you can
position your finances to minimize the impact on your 2020 tax obligations.

1Ralph Carnicer. Accounting Today. 2019. “The most common tax problems for 2020.”
https://www.accountingtoday.com/list/the-most-common-tax-problems-for-2020.
Accessed Jan. 21, 2020.
2Libby Wells. Bankrate. Jan. 6, 2020. “2019-2020 federal income tax brackets.” https://
www.bankrate.com/finance/taxes/tax-brackets.aspx. Accessed Jan. 29, 2019. 3 Jeff Stimpson. Investopedia. Jan. 28, 2020. “What You Need to Know About Your
2020 Taxes.” https://www.investopedia.com/everything-to-know-about-individual2020-taxes-4775907. Accessed Jan. 29, 2020.
4 Ibid.
5 Ibid.
6 Ibid.
7Ibid.
8 Stephen Miller. Society for Human Resource Management. Jan. 7, 2020. “SECURE Act
Alters 401(k) Compliance Landscape.” https://www.shrm.org/ResourcesAndTools/hrtopics/benefits/Pages/SECURE-Act-alters-401k-compliance-landscape.aspx. Accessed
Jan. 21, 2020.
9 IRS. Nov. 6, 2019. “IRS provides tax inflation adjustments for tax year 2020.” https://
www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2020.
Accessed Jan. 21, 2020.
10 Katherine Loughead. Tax Foundation. Dec. 20, 2019. “State Tax Changes as of
January 1, 2020.” https://taxfoundation.org/2020-state-tax-changes-january-1/.
Accessed Jan. 21, 2020.

 

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