With the calendar year now being 2020, there are a number of federal tax changes that taxpayers should know. Those changes are as follows:
- Individuals will be able to defer up to $19,500.00 in their 401(k) plans, plus another $6,500.00 if you are 50 years of age or older.
- An individual can contribute $3,550.00 to a single coverage health savings account and $7,100.00 for a family health savings account.
- The standard deduction will increase to $12,400.00 for single taxpayers and $24,800.00 for married couples filing jointly. A married individual who is blind or 65 years of age or older can claim an additional $1,300.00 standard deduction. This is the same as it was for 2019. A single individual who is blind or 65 years of age or older is eligible for an additional $1,650.00 standard deduction. This is increased from $1,600.00 in 2019.
- There are currently seven income tax brackets, from 10% to 37%, and those percentages apply to your adjusted gross income, which is your income minus your standard deduction or your itemized deductions. A married couple filing jointly whose adjusted gross income is less than $44,550.00 will be in the 10% tax bracket and may not have to pay any taxes after applying their $24,800.00 standard deduction. On the opposite end of the spectrum, a married couple whose adjusted gross income is $622,051.00 or above will pay taxes at a 37% rate.
- The contribution limit for IRA accounts will remain the same, at $6,000.00 per taxpayer, plus another $1,000.00 for individuals who are 50 and over. This remains unchanged from 2019.
- The federal estate tax exemption will increase to $11,580,000.00 per individual, which is an increase of $180,000.00 from 2019.
- Also, the annual gift tax exclusion will remain at $15,000.00 per person for 2020, as it was in 2019.
For additional information on these various changes, please contact your local CPA.
NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.