Tax law will see changes in 2020.
Taxes are a unavoidable part of life for Americans.
You are paid for your services.
You must then pay the government for theirs.
Although there have been taxes since the founding of our country, these do not remain the same each year.
According to a recent CNBC article titled “Here’s everything you need to know about your 2020 taxes” Tax Cuts and Jobs Act brings significant changes this year.
What are they?
The first change addresses standard deductions.
This April, the deduction will be $24,800 for married couples filing jointly and $12,400 for singe filers.
One of the more significant tax reforms involved personal exemptions.
Personal exemptions no longer exist.
If you are blind of age 65 or older, the standard deduction will still be available.
How much will these be?
Singles can claim $1,300 while married couples filing jointly can claim $2,600.
If you are single and blind or over age 65, you my be eligible for an additional $1,650 standard deduction.
This is a $50 increase from last year.
Another significant change in tax law involved retirement contributions.
The IRS has raised the employment contribution limit for 401(k), 403(b), and most 457 plans by $500.
This means they are up from $19,000 to $19,500.
The catch-up contribution for those age 50 or older has also increased from $6,000 to $6,500.
The contribution limit for traditional and Roth IRAs remains unchanged.
High income earners will not be able to make direct contributions to a Roth IRA if your adjusted gross income as a single is more than $124,000 or $196,000 for a jointly filing married couple.
What is tax law regarding health savings accounts in 2020?
Health savings accounts provide an opportunity to put tax-deductible or pretax money away to grow tax-free.
Funds can be withdrawn tax-free for qualified medical expenses.
Singles with “self-only” health insurance can put away $3,550.
Those who have family plans can save $7,100 in these accounts in 2020.
Remember health savings accounts and health-care flexible accounts are not synonymous.
With health savings accounts, balances can roll over from one year to the next.
The health-care flexible spending account must be used by the end of the plan year.
The amount one can save in a health-care flexible spending account has been increased to $2,750 for the coming year.
Does the tax law reform have any changes for estate planning?
It increased the amount one could bequeath in death or transfer with warm hands via lifetime giving without triggering federal estate or gift taxes.
Individuals can transfer slightly more this year without being subject to the 40 percent federal estate and gift tax.
The lifetime gift and estate tax exemption is now $11.58 million rather than $11.4 million.
The annual gift exclusion is has remained the same at $15,000.
Depending on your situation, tax law changes may impact your estate plan or retirement plan.
Work with an experienced estate planning attorney and financial advisor to ensure you are taking advantage of changes in tax law.
Reference: CNBC (November 7, 2019) “Here’s everything you need to know about your 2020 taxes”