IRS Inflation Adjustments for Tax Year 2020
It just recently snowed, the holidays are coming up and taxes are probably not top of mind. Between the changing laws and inflation adjustments there are plenty of things that are important to know and talk about with your tax advisor.
Every year the IRS releases tax inflation adjustments for the next year. Here are a few items that you may want to talk to your advisor about:
- The standard deduction for married filing jointly rises to $24,800 for tax year 2020, up $400 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,400 in for 2020, up $200, and for heads of households, the standard deduction will be $18,650 for tax year 2020, up $300.
- The personal exemption for 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 updated marginal rates are as follows:
Individuals Married Filing Jointly Ordinary Rate $0 – $9,875 $0 – $19,750 10% $9,875 – $40,125 $19,750 – $80,250 12% 40,125 – $85,525 $80,250 – $171,050 22% $85,525 – $163,300 $171,050 – $326,600 24% $163,300 – $207,350 $326,600 – $414,700 32% $207,350 – $518,400 $414,700 – $622,050 35% over $518,400 over $622,050 37%
- For 2020, as in 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
- The Alternative Minimum Tax exemption amount for tax year 2020 is $72,900 and begins to phase out at $518,400 ($113,400 for married couples filing jointly for whom the exemption begins to phase out at $1,036,800).The 2019 exemption amount was $71,700 and began to phase out at $510,300 ($111,700, for married couples filing jointly for whom the exemption began to phase out at $1,020,600).
- The tax year 2020 maximum Earned Income Credit amount is $6,660 for qualifying taxpayers who have three or more qualifying children, up from a total of $6,557 for tax year 2019. The revenue procedure contains a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
- For tax year 2020, the monthly limitation for the qualified transportation fringe benefit is $270, as is the monthly limitation for qualified parking, up from $265 for tax year 2019.
- 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 $50 from the limit for 2019.
- For tax year 2020, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,350, the same as for tax year 2019; but not more than $3,550, an increase of $50 from tax year 2019. For self-only coverage, the maximum out-of-pocket expense amount is $4,750, up $100 from 2019. For tax year 2020, participants with family coverage, the floor for the annual deductible is $4,750, up from $4,650 in 2019; however, the deductible cannot be more than $7,100, up $100 from the limit for tax year 2019. For family coverage, the out-of-pocket expense limit is $8,650 for tax year 2020, an increase of $100 from tax year 2019.
- For tax year 2020, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $118,000, up from $116,000 for tax year 2019.
- For tax year 2020, the foreign earned income exclusion is $107,600 up from $105,900 for tax year 2019.
- 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 calendar year 2020, as it was for calendar year 2019.
- The maximum credit allowed for adoptions for tax year 2020 is the amount of qualified adoption expenses up to $14,300, up from $14,080 for 2019.
- The new 401K contribution limit for tax year 2020 is $19,500, up $500. The updated 401K catch up contribution limit is $6,500, up $500.
- Finally, there is a new failure to file penalty of $330, which will apply to 2019 1040s.
This information from IR-2019-180 could prove useful in planning for 2020 taxes. If you have questions or are curious how these changes could impact you, talk to your tax advisor or reach out to Elias Strauss CPAs, LLC and we would love to be a resource to you.