Late January is a time to wistfully look back at all those semi-forgotten New Year’s resolutions. It’s also a time to take stock of the coming year’s tax work. With 2019 in the books, it’s time to start putting together the pieces for a timely and well-crafted annual return. It’s also a time to reflect on last year’s tax strategies, review changes in the law, and begin shaping a refreshed plan for 2020. Contact us for all your bookkeeping and tax needs for 2020.
Every year brings a slew of changes to way taxes work. Some are relatively small, affecting only a tiny percentage of taxpayers, while others have wide-reaching consequences. In this blog, Ferguson Timar explores some of the important topics we’ll be sharing with our clients heading into 2020.
Inflationary adjustments in 2020
Every year certain key figures are adjusted to account for inflation. A full breakdown of these adjustments is available from the IRS here. These are some of the most important ones:
- The standard deduction has risen. For taxpayers who are married and filing jointly, the deduction increases $400 to $24,800. Single taxpayers and those who are married but filing separately, the deduction rises $200 to $12,400.
- Marginal rates, which progressively determine how personal income taxes are calculated, have undergone similar adjustments to the standard deduction amounts. The brackets applicable to income in 2020 are as follows:
|Rate||Income bracket (Single filers)||Income bracket (for Married Filing Jointly filers)|
|10%||$9,875 or less||$19,750 or less|
|12%||Income over $9,875||Income over $19,750|
|22%||Income over $40,125||Income over $80,250|
|24%||Income over $85,525||Income over $171,050|
|32%||Income over $163,300||Income over $326,600|
|35%||Income over $207,350||Income over $414,700|
|37%||Income over $518,400||Income over $622,050|
- Retirement plan limits sometimes rise in new tax years, and 2020 is no different. IRA contribution limits in 2020 will remain the same as in 2019: $6,000 for people under 50, or $7,000 for people who are age 50 or older. Base contribution limits for workplace retirement plans, like 401(k) or 403(b) plans, have risen by $500 to $19,500, or $6,000 for catch-up payments made by people who are 50 or older.
Important healthcare changes
Beyond inflationary adjustments, 2020 ushers in many important changes, some of which have been on the horizon for a while. In the healthcare realm, 2020 introduces two important adjustments. From 2020, the individual mandate penalty under the Affordable Care Act (ACA) will no longer apply. In previous years, people who chose not to have health insurance coverage were required to pay a penalty with their taxes. In 2020 this penalty goes to zero.
In another healthcare change, people who have high out-of-pocket medical expenses will face a higher threshold before they are permitted to deduct them. In 2019 a taxpayer could begin deducting personal medical expenses that exceeded 7.5% of their adjusted gross income. In 2020 this threshold goes up to 10%.
Ferguson Timar can get you on track for 2020.
At Ferguson Timar, we help clients make sense of how evolving tax rules affect them. For all your bookkeeping and tax needs in 2020, call us today at (714) 204-0100 or reach out through our contact page.