2020 Tax Inflation Adjustments
Earlier this month, the IRS announced the annual inflation adjustments for more than 60 tax provisions for the 2020 tax year. These adjustments affect tax year 2020 which is filed by April 15, 2021.
The standard deduction jumped up $400 to $24,800 for married filing jointly taxpayers. For single taxpayers, the deduction rises to $12,400 and head of household filers will see a $18,650 standard deduction.
For 2020, the top tax rate remains 37 percent for single taxpayers with incomes higher than $518,400 ($622,050 for married filing jointly). The lowest tax rate is 10 percent for singles with incomes of $9,875 or less ($19,750 for married filing jointly).
The IRS has raised the 401(k)-contribution limit to $19,500 for 2020, up from $19,000 in 2019. The limit regarding SIMPLE retirement accounts for 2020 increased to $13,500. The limit on annual contributions to an IRA remains unchanged at $6,000. The phaseout ranges for deductible contributions to a traditional IRA for 2020 are:
- $65,000 to $75,000 for single taxpayers covered by a workplace retirement plan
- For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the range is $104,000 to $124,000.
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction becomes phased out if the couple’s income is between $196,000 and $206,000
Other important adjustment news for tax year 2020 include:
- The annual gift exclusion amount remains at $15,000
- The maximum Earned Income Credit for qualifying taxpayers who have three or more qualifying children jumps to $6,660
- As in 2018 and 2019, there remains no limitation on itemized deductions which was originally eliminated with the passing of the Tax Cuts and Job Acts tax bill
SBS is here to keep you up to date on current tax news. It is never too early to plan for taxes. Please give us a call at 260-407-5000 if you have any tax questions at all.
Tanner Roberson, CPA