It’s Time to Start Planning for 2020 Taxes
If there has ever been a time to plan early for tax season, that time is now. The past few months have brought many financial changes that may affect your 2020 taxes, so you want to make sure you avoid surprises at tax time. Here are a few things to consider.
There may be some tax considerations for businesses that received a Paycheck Protection Program (PPP) loan. 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.
CARES Act Considerations
- Taxpayers who donated to charity during the COVID-19 pandemic but take the standard deduction will be able to apply for an “above the line” charitable donation credit of up to $300. Taxpayers who itemize deductions can continue to do so.
- There have been many questions raised about whether stimulus checks will count toward taxable income for 2020 taxes. Since the stimulus checks are 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.
- Required Minimum Distributions (RMDs) will not be required to be distributed for 2020. However, RMDs that have already been distributed in 2020 will be taxable as before.
Changes to Income Brackets, Deductions, and Credits
- The standard deduction increases:
- 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
- Income tax brackets increase for 2020.
- The minimum adoption credit increases from $14,080 to $14,300.
- The earned income tax credit increases from $6,557 to $6,660
- AGI limits increase from $55,952 to $56,844 for taxpayers who are married filing jointly and from $50,162 to $50,594 for all other filers.
- Social Security payroll tax income limits increase to $137,700 from $132,900.
Retirement Account Changes
- Contribution limits for some types of retirement accounts will increase. These accounts include 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, after-tax 401(k) contributions, SIMPLE retirement accounts, and defined benefit plans. IRA contribution limits did not change.
- Contribution limits will also increase for Health Savings Accounts (HSAs). The individual coverage limit for individuals is $3,550 and family coverage is $7,100 for 2020; these will increase to $3,600 and $7,200, respectively, for 2021.
- More taxpayers will be eligible for the Retirement Savings Contribution Credit, also known as the Saver’s Credit, due to increased income limits.
These are just a few possibilities that may be different for 2020 taxes, and every situation is different. Contact your advisor at Rodefer Moss to start planning today!