More tax changes are heading your way but don’t worry, it’s not another drastic overhaul. Many key figures were adjusted to account for inflation and a couple new tax rules are going into effect. Here’s what you need to know to get ready for 2020.
The standard deduction rates will be slightly higher
Most taxpayers claim the standard deduction when they do their taxes because it’s a lot easier than itemizing. There’s no searching for receipts for qualified expenses and trying to meet the threshold. Instead you just deduct the set amount the IRS allows for your filing status and move on. For tax year 2019, you’ll be able to save a little more money because the standard deduction rates will be slightly higher.
|Filing Status||Standard Deduction|
|Single or Married Filing Separately||$12,200|
|Head of Household||$18,350|
|Married Filing Jointly or Qualifying Widow||$24,400|
Higher income tax brackets
The income tax brackets are used to calculate how much taxes you owe. Every year they’re adjusted to account for inflation.
|Tax rate||Single||Head of Household||Married Filing Jointly or Qualifying Widow||Married Filing Separately|
|10%||Up to $9,700||Up to $13,850||Up to $19,400||Up to $9,700|
|12%||$9,701 to $39,475||$13,851 to $52,850||$19,401 to $78,950||$9,701 to $39,475|
|22%||$39,476 to $84,200||$52,851 to $84,200||$78,951 to $168,400||$39,476 to $84,200|
|24%||$84,201 to $160,725||$84,201 to $160,700||$168,401 to $321,450||$84,201 to $160,725|
|32%||$160,726 to $204,100||$160,701 to $204,100||$321,451 to $408,200||$160,726 to $204,100|
|35%||$204,101 to $510,300||$204,101 to $510,300||$408,201 to $612,350||$204,101 to $306,175|
|37%||$510,301 or more||$510,301 or more||$612,351 or more||$306,176 or more|
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You can stash more money for retirement
Are you saving enough for retirement? If you’re like most Americans, the answer is no. Fortunately, the IRS is giving you a chance to redeem yourself. They’ve increased the contribution limits for retirement so you can set aside more money. The earlier you start contributing, the more time you have to grow your wealth. Plus, you may receive a tax break. These are the new contribution limits.
- Traditional and Roth IRAs for people younger than 50 – $6,000
- Catch-up IRA contributions for people 50 and older – $1,000
- 401(k), 403(b), 457 and Thrift Savings Plan (TSP) – $19,000
- Catch-up contributions for people 50 and older – $6,000
The EITC will be more valuable
Taxpayers who qualify for the Earned Income Tax Credit (EITC) will have a little more to smile about in 2020. The credit which was designed to give low to moderate income workers a financial boost will be worth up to $6,557. To qualify, your earned income and adjusted gross income (AGI) must be less than:
|Filing Status||No Children||One Child||Two Children||Three or More Children|
|Single, Head of Household or Widowed||$15,570||$41,094||$46,703||$50,162|
|Married Filing Jointly||$21,370||$46,884||$52,493||$55,952|
Additionally, your investment income cannot surpass $3,600 for the year.
Eligible taxpayers can receive up to:
- $6,557 with three or more children
- $5,828 with two children
- $3,526 with one child
- $529 with no children
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The alimony deduction has been eliminated
In the past, alimony was reported by both the payer and the recipient. Thanks to the Tax Cuts and Jobs Act the rules have changed for some taxpayers. Alimony deductions have been eliminated for divorce and separation agreements made or modified after December 31, 2018.
No more federal penalties for being uninsured
Under the Affordable Care Act everyone was required to have health insurance, or they’d be penalized on their federal tax return. Starting this year that is no longer the case. You can skip out on coverage without the fear of being punished by the IRS. However, certain states have their own rules. Taxpayers in New Jersey, DC and Massachusetts will still be penalized if they’re uninsured. No matter how healthy you think you are it’s a good idea to keep your coverage. Without it you’ll pay a lot more for treatment if you get sick or injured. FYI, medical expenses are one of the leading causes of bankruptcy.
It will be easier to qualify for the medical expense deduction
If you itemize, you can deduct medical and dental expenses for you, your spouse, and dependents. However, you can only deduct the portion that exceeds 7.5% of your adjusted gross income.