Americans are facing a long list of tax changes for the 2020 tax year…and it’s never too early to start thinking about next year’s return.
As this year is an election year filled with politics, it was just a few months ago we were expecting 2020 to be a quiet year in terms of tax law changes. But, boy, were we ever surprised!
All in all, this means American taxpayers are staring at a long list of tax changes for the 2020 tax year.
Even if you’re still focused on filing your 2019 tax return (the final deadline being October 15), it’s never too early to start thinking about next year’s return. Proper tax planning requires an awareness of what’s new and changed from last year—and there are plenty of tax law changes and updates taking effect in 2020 that you need to know about. To help you out, we pulled together a list of the most important tax law changes and adjustments for 2020 (some related items are grouped together). Use this information now to start your tax planning this year so you can save money next April when you file your 2020 return.
- Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, most Americans received direct economic recovery rebate payments of $1,200 ($2,400 for couples filing jointly), plus $500 more for each child under age 17. Technically, the rebate is an advance payment of a special 2020 tax credit. You’ll reconcile your rebate on your 2020 return. For most people, the rebate will equal the tax credit allowed. If you did not receive the payment, not to worry. You are able to receive it as a tax credit (refundable if not taxes are due) in you yearly filing.
- Although the tax rates didn’t change, the income tax brackets for 2020 are slightly wider than for last year. This could lead to a lower overall tax bill if income has not increased drastically from 2019 to 2020.
- There are a lot of changes in 2020 for retirement plans. The SECURE Act also allows owners of traditional IRAs to make contributions past the age of 70½ starting in 2020. In addition, folks having a baby or adopting a child can now take payouts from IRAs and 401(k)s of up to $5,000 without having to pay the 10% fine for pre-age-59½ withdrawals. The rules for withdrawing money from inherited IRAs and workplace retirement accounts are also tightened by the SECURE Act—many accounts now need to be cleaned out within 10 years of the death of the IRA owner or 401(k) participant. (Inherited accounts of individuals who died before 2020 aren’t affected by this change.)
- Tax rates on long-term capital gains and qualified dividends did not change for 2020, but the income thresholds to qualify for the various rates did go up:
In 2020, the 0% rate applies for individual taxpayers with taxable income up to $40,000 on single returns, $53,600 for head-of-household filers and $80,000 for joint returns.
The 20% rate for 2020 starts at $441,451 for singles, $469,051 for heads of household and $496,601 for couples filing jointly.
The 15% rate is for filers with taxable incomes between the 0% and 20% break points.
- The lifetime estate and gift tax exemption for 2020 jumps from $11.4 million to $11.58 million—$23.16 million for couples if portability is elected by timely filing Form 706 after the death of the first-to-die spouse. The estate tax rate remains steady at 40%.
- Among other notable developments the CARES Act suspended the limitation on excess business losses for passthrough businesses and sole proprietorships for the 2018, 2019, and 2020 tax years. This allows amending previous years returns to take advantage of the look-back.
- Many of the standard deduction amounts were increased for 2020. Married couples get $24,800). Singles can claim a $12,400 standard deduction. Head-of-household filers get $18,650 for their standard deduction.
As we enter the last quarter of 2020, proper organization and planning with allow for a smooth, surprise free tax season in the coming year. For all your tax compliance and advice requirements, Grant Thornton Israel is here to help. Our office can be contacted at email@example.com or 03-710-6644.