Tax Changes in 2020
“As time goes by, the only constant thing is change.” That was said by Heraclitus, and it still rings true today.
In 2020, there are some changes we should be aware of, particularly when it comes to your taxes. Taxes are something we all must deal with, but this year there may be some good news for us all.
It would be an obvious statement to say that we all would like to save more for retirement and trim our tax bills. Among the changes this year, the IRS has made inflation adjustments to a range of key figures from the amount you can put in a 401(k) retirement plan at work to the individual income tax brackets that help you determine your tax rate.
The Medical Expense Savings Act is a bill that could help you with healthcare bills. As it stands, any out-of-pocket health costs you are dealing with have to be more than 10 percent of your income for you to claim a medical expenses tax deduction. Republican Sen. Susan Collins of Maine sponsored a bill and co-sponsored by two Democrats, would lower your threshold from 10 percent to 7.5 percent. [2] In 2017, the threshold was temporarily reduced from 10% to 7.5% for 2017 and 2018.
Reduce your taxable income. The IRS also bumped your standard deduction for the 2020 tax year, which could be a real boon to many folks. The current standard deduction is up $200 from $12,200 to $12,400 for singles. Double that for a married joint filer to $24,800 which is up from $24,400 in 2019.
Boosting retirement savings. In 2020, the IRS has been kind to your retirement. They have raised the employee contribution limit $500 for 401(k), 403(b), and most 457 plans to $19,500, up from $19,000 in 2019.
They have also added another $500 boost for those Americans who are age 50 or older. This year you will be able to stash away an additional $6,500. That’s up from $6,000 in 2019.
Health savings account. These handy accounts are set up specifically for health care expenses. You can now save an extra $50 in 2020, which means you can now save up to $3,550 if you have self-only health coverage. If you have a family plan, you can now set aside an extra $100 compared to 2019. This takes the 2020 total to $7,100.
Knowing what changes apply to you will help you financially this year and hopefully help you get off to a good start for the new decade. If you are unsure of which tax changes you qualify for, go to www.irs.gov
IMPORTANT DISCLOSURES
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
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David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC