It’s a new year and what better way to get off on the right foot than to make sure you’re ready for maximum tax savings and retirement planning? We’ve put together a list of items that every taxpayer should be aware of.
Individuals that do not have health insurance policies are no longer subject to a tax penalty. The penalty has been eliminated and will not apply when preparing 2019 and future tax returns.
Individuals that itemize deductions can deduct medical expenses that exceed 7.5% of adjusted gross income (AGI). This limit was previously 10% of AGI.
The tuition and fees deduction has been reinstated. You may deduct up to $4,000 for qualified education expenses.
The mortgage insurance deduction has also been restated. This deduction is claimed as an itemized deduction in addition to mortgage interest.
The exclusion from gross income of discharge of qualified principal residence indebtedness has been reinstated.
Kiddie tax rates are no longer subject to trust and estate tax rates, but have reverted back to the parent’s tax rate. (Begins in 2020, but election available to for 2018 and 2019)
Eligible distributions from Section 529 plans (qualified tuition plans) now include education loan repayments of up to $10,000 (restrictions apply) and fees, books, and supplies for a registered apprenticeship program (Effective in 2019)
QUALIFIED BUSINESS INCOME (QBI) DEDUCTION:
The TCJA provided a new deduction known as the Qualified Business Income (QBI) Deduction. Taxpayers can deduct on their tax return up to 20% of qualifying business income, real estate investment trust dividends, and publicly traded partnership income. The IRS has provided guidance relating to income from rental real estate. In order to qualify for the deduction, you must be regarded as being in a trade or business of rental real estate. As a trade or business, the requirements to issue forms 1099-MISC will apply. Failure to issue the 1099s would give the IRS opportunity to dispute the QBI deduction and could expose the taxpayer to penalties for failing to file 1099s.
FORM W-4
The IRS has provided a new Form W-4 for 2020 to calculate withholding taxes from employee’s pay more accurately. The IRS did not simplify this form. Individuals are finding it difficult to complete and might need your assistance.
Keep it simple: If the employee is single and has only one job or is married but is the only spouse with income, the employee completes step one and signs the form. Tax withholding will be computed based on the filing status’s standard deduction and tax rates.
The following circumstances will require additional steps to be completed:
· Working more than one job
· Spouse also works
· Income from other sources that is subject to tax
· Eligible for income tax credits or deductions other than the standard deduction
There is a Tax Withholding Estimator on the IRS website at https://www.irs.gov/individuals/tax-withholding-estimator that employees can use to assist in determining the correct withholding amount.
CHARITABLE CONTRIBUTIONS
The TCJA raised the standard deduction amounts, resulting in less taxpayers itemizing deductions. Taxpayers questioned how they can get a deduction for their charitable contributions. There are 2 options: Front load pledges by paying them in one year vs over a period of years, and make the contribution directly from IRA required minimum distributions.
RETIREMENT PLAN LIMITS FOR 2020
|
|
2019
|
2020
UNDER AGE 50
|
2020
AGE 50 AND OLDER
|
|
IRA
|
$ 6,000
|
$ 6,000
|
$ 7,000
|
|
401(k) & 403(b)
|
$ 19,000
|
$ 19,500
|
$ 26,000
|
|
SIMPLE
|
$ 13,000
|
$ 13,500
|
$ 16,500
|
|
Keogh or SEP-IRA
|
25% of compensation up to $56,000
|
25% of compensation up to $57,000
|
25% of compensation up to $63,500
|
|
Defined Contribution Plan
|
25% of compensation up to $56,000
|
100% of compensation up to $57,000
|
100% of compensation up to $63.500
|
2020 MILEAGE RATES
Business 57.5¢ / mile Moving 17¢ / mile
Medical 17¢ / mile Charitable 14¢ / mile
2020 TAX BRACKETS
|
Tax Rate
|
Taxable Income
(Single) |
Taxable Income
(Married Filing Jointly) |
Taxable Income
(Married Filing Separately) |
Taxable Income
(Head of Household) |
|
10%
|
Up to $9,875
|
Up to $19,750
|
Up to $9,875
|
Up to $14,100
|
|
12%
|
$9,876 to $40,125
|
$19,751 to $80,250
|
$9,876 to $40,125
|
$14,101 to $53,700
|
|
22%
|
$40,126 to $85,525
|
$80,251 to $171,050
|
$40,126 to $85,525
|
$53,701 to $85,500
|
|
24%
|
$85,526 to $163,300
|
$171,051 to $326,600
|
$85,526 to $163,300
|
$85,501 to $163,300
|
|
32%
|
$163,301 to $207,350
|
$326,601 to $414,700
|
$163,301 to $207,350
|
$163,301 to $207,350
|
|
35%
|
$207,351 to $518,400
|
$414,701 to $622,050
|
$207,351 to $311,025
|
$207,351 to $518,400
|
|
37%
|
Over $518,400
|
Over $622,050
|
Over $311,025
|
Over $518,400
|
|
Filing Status
|
Standard Deduction
|
|
Single; Married Filing Separately
|
$12,400
|
|
Married Filing Jointly
|
$24,800
|
|
Head of Household
|
$18,650
|