IRS Increases Tax Deductions for 2020

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The IRS recently announced the list of increased tax deductions for 2020.

The Internal Revenue Service recently issued its annual inflation adjustments for dozens of tax items for the tax year 2020. The IRS increased tax deductions for 2020.  The taxman is letting you keep more of your income.

  • The IRS increased the standard deduction to $12,400 for single filers and $24,800 for married couples filing jointly.
  • An individual can transfer up to $11.58 million without being subject to the 40% federal estate and gift tax, up from $11.4 million in 2019.
  • You can save more money in your 401(k) and in your health savings account, too.

The increased standard deduction:

  • for married taxpayers who file joint tax returns will increase $400 to $24,800
  • single taxpayers and married individuals who file separately, the standard deduction will go up $200 to $12,400
  • heads of households, the standard deduction will be $18,650 for the tax year 2020, up $300tax deductions- white-sfs tax & accounting services

The tax items for the tax year 2020 that promise to hold the most interest to taxpayers :

  • The personal exemption for the tax year 2020 remains at 0, as it was for 2019. This elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.

The tax year 2020 tax brackets:

  • the top tax rate will stay at 37 percent for individual single taxpayers whose incomes exceed $518,400 ($622,050 for married couples filing jointly).
  • 35 percent for incomes over $207,350 ($414,700 for married couples filing jointly);
  • 32 percent for incomes over $163,300 ($326,600 for married couples filing jointly);
  • 24 percent for incomes over $85,525 ($171,050 for married couples filing jointly);
  • 22 percent for incomes over $40,125 ($80,250 for married couples filing jointly);
  • 12 percent for incomes over $9,875 ($19,750 for married couples filing jointly).
  • 10 percent for incomes of single individuals with incomes of $9,875 or less ($19,750 for married couples filing jointly).

For 2020, like this year and last year, there’s no limitation on itemized deductions because that limitation was eliminated by the Tax Cuts and Jobs Act.

Health care savings:

For the taxable years beginning in 2020, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements is $2,750, up to $50 from the limit for 2019.

If you choose a high-deductible plan during the open enrollment season, you might have access to a health savings account.

These accounts allow you to put away pre-tax or tax-deductible money and have it grow free of taxes. You can take a tax-free withdrawal to cover qualified health expenses.

In 2020, you can save up to $3,550 if you’re an individual with self-only health coverage. That’s up from $3,500 in 2019. Account-holders with family plans can save up to $7,100 in this account (up from $7,000 in 2019).

HSAs differ from health-care flexible spending accounts primarily in that you can rollover the HSA balance from one year to the next. Health-care FSAs generally must be used by the end of the plan year. The IRS also bumped up the amount you can save in a health-care FSA: It will be $2,750 in 2020, up from $2,700 in 2019.

Retirement Savings:

The IRS has raised the employee contribution limit for 401(k), 403(b) and most 457 plans to $19,500, up from $19,000 in 2019.

If you’re 50 or older, you can sock away another $6,500 in that workplace retirement plan. That’s up from $6,000 in 2019.

The contribution limit for individual retirement accounts, whether traditional or Roth, is holding steady at $6,000, plus another $1,000 for savers 50 and over.

Estate and Gift Taxes:

The Tax Cuts and Jobs Act also nearly doubled the amount that decedents could bequeath in death — or gift over their lifetime — and shield it from federal estate and gift taxes, which are 40%.

Before the tax overhaul, this so-called gift and estate tax exemption was $5.49 million per person.

Estates of decedents who die during 2020 have a basic exclusion amount of $11,580,000, up from a total of $11,400,000 for estates of decedents who died in 2019.

The annual exclusion for gifts is $15,000 for the calendar year 2020, as it was for the calendar year 2019.

Tax season, 2020 is almost upon us. There is still time to have us assess your current year’s tax situation and discuss possible ways to save on your tax liability.

Visit our website, sfstaxacct.com or schedule a free consultation, https://go.oncehub.com/jeffreyschneider.

 

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