Changes in Tax Law for the Upcoming Year
As we ring in the new year, many of us also dread the beginning of tax season. However, 2020 will bring some major changes in tax laws that may actually benefit taxpayers. From revised tax brackets to new deductions and credits, here are the key changes in tax law that you should be aware of for the upcoming year.
Revised Tax Brackets
The biggest change in tax law for 2020 is the revision of tax brackets. The IRS has adjusted the income ranges for each tax rate to account for inflation and to reduce the tax burden on those with lower incomes. For example, the highest tax bracket has been reduced from 37% to 35% for individuals earning over $518,400 and for married couples filing jointly with incomes over $622,050. And the lowest bracket has been lowered from 10% to 12% for individuals earning up to $9,875 and for married couples filing jointly with incomes up to $19,750.
Standard Deductions Increase
Another change that will benefit taxpayers is the increase in the standard deductions. The standard deduction for individuals will rise from $12,200 to $12,400, and for married couples filing jointly it will increase from $24,400 to $24,800. This means that more taxpayers will choose to take the standard deduction instead of itemizing their deductions, as it may result in a larger tax break.
However, for individuals over the age of 65 or blind, the standard deduction will be even higher. They can claim an extra $1,300 per individual for a total of $13,700 for single filers and an extra $1,300 per individual for a total of $27,400 for married couples filing jointly.
New Limits for Retirement Contributions
For those looking to save for retirement, the contribution limits for various retirement accounts have also increased. The maximum contribution for traditional or Roth IRAs has been raised from $6,000 to $6,500, and for 401(k)s it has been raised from $19,000 to $19,500. This means that individuals can save more for their future and potentially lower their taxable income.
Higher Health Savings Account (HSA) Contributions
Similarly, contributing to an HSA can also help reduce taxable income. For 2020, the maximum contribution has been raised to $3,550 for individuals and $7,100 for families. Plus, if you are over the age of 55, you can contribute an additional $1,000 as a catch-up contribution.
New Deductions and Credits
The tax law changes for 2020 also introduce some new deductions and credits that taxpayers can take advantage of. One of these is the qualified business income deduction, which allows self-employed individuals and small business owners to deduct up to 20% of their qualified business income. Additionally, there is a new credit for employers who provide paid family and medical leave to their employees, which can be claimed for up to 12 weeks of leave.
Conclusion
While taxes are never a fun topic, there are some changes in tax law for 2020 that may make filing a little less stressful. With revised tax brackets, increased standard deductions, and new deductions and credits, it is important for taxpayers to stay informed and take advantage of these changes. Remember to consult with a tax professional or financial advisor to ensure you are taking full advantage of these tax breaks. Here’s to a less taxing new year!