For taxes due in April 2020, the IRS has upped the standard deduction to $12,400 for single filers and $24,800 for married couples filing jointly. As far as gift taxes, a person can transfer up to $11.58 million without being subject to the 40% federal estate and gift tax, up a little from $11.4 million in 2019.
CNBC’s recent article, “Here’s everything you need to know about your 2020 taxes” says that the Tax Cuts and Jobs Act overhauled the tax code.
With the tax reform, personal exemptions were eliminated, and for the 2020 tax year, the IRS modified the individual income tax brackets, adjusting them for inflation. The additional standard deduction for older taxpayers and those who are blind will still be available. Those who are blind or aged 65 and over can claim $1,300. Two married filers who are both over 65 can claim $2,600. That’s unchanged from 2019. Single filers who are blind or over 65 are eligible for a $1,650 additional standard deduction—an increase of $50 from 2019.
The IRS has also raised the employee contribution limit for 401(k), 403(b) and most 457 plans to $19,500, up from $19,000 in 2019. If you’re 50 or older, you can save an additional $6,500 in your workplace retirement plan, up from $6,000 in 2019. The 2020 contribution limit for IRAs (both traditional and Roth) is unchanged at $6,000, plus another $1,000 for savers 50 and over.
The IRS restricts high-income earners’ ability to make direct contributions to Roth IRAs, and in 2020, if your adjusted gross income is more than $124,000 and you’re single ($196,000 for married couples filing jointly), you won’t be able to make a full contribution directly to a Roth IRA.
A health savings account lets you put away pretax or tax-deductible money and have it grow free of taxes. You can take a tax-free withdrawal to cover qualified health expenses. In 2020, you can save up to $3,550, if you’re an individual with self-only health insurance coverage, up from $3,500 in 2019. Account holders with family plans can save up to $7,100 in this account (up from $7,000 in 2019).
It is important to note that HSAs differ from health-care flexible spending accounts. The big difference is that you can roll over the HSA balance from one year to the next. Health-care FSAs typically must be used by the end of the plan year. In addition, the amount you can save in a health-care FSA is up to $2,750 in 2020, up from $2,700 in 2019.
The Tax Cuts and Jobs Act also significantly increased the amount that decedents could bequeath in death—or gift over their lifetime—and shield it from federal estate and gift taxes, which is 40%. Before the tax legislation, this gift and estate tax exemption was $5.49 million per person. However, in 2020, the lifetime gift and estate tax exemption will be $11.58 million per individual, up from $11.4 million in 2019. The annual gift exclusion, which is the amount you can give to any other person without it counting against your lifetime exemption, will remain at $15,000 for 2020.
Tax changes are common for year to year and it is important that your estate plan is updated regularly to reflect changes as well with an estate planning attorney. Schedule your annual appointment today so that we can guide you through the planning process.
Reference: CNBC (November 7, 2019) “Here’s everything you need to know about your 2020 taxes”