Another tax filing deadline is approaching. As you still have time to start filing your taxes as of February 2020, here are the key points you should be aware of before filing your income tax.
Luckily, not much has changed and this is some good news. If you still hold a couple of knowledgable points regarding your income tax from the previous year, you’ll handle your tax return easily. But still, even though tax changes aren’t as big as what we’ve seen in 2018, there are still a few things that you should to put into consideration.
Deductions and Tax Brackets
Before we get into more technical details, these two are what make up the two most basic tax changes for 2020. There aren’t any changes made to the figures you’ll see when itemizing your deductions. So everything remains the same as last year as far as itemized deductions go.
The standard deduction, on the other hand, saw an increase of $200 for Single filers and $350 for Head of Household. This means joint filers will get an extra $400 deduction from last year totaling it to $24,800. The same goes for qualifying widows and widowers as well.
Unless your income has shifted significantly, the tax brackets you fall in should be the same as last year. The increase in all brackets is about 1.5%. The marginal rates on tax brackets remain the same as 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent.
Related Article: Federal Tax Brackets for 2019 Taxes
Other Tax Changes for 2020
1. In previous years, the canceled debt was considered as taxable income. Now, there is an exception. The canceled mortgage debt used to buy a principal residence is now not taxable by the IRS.
2. The IRS’ annual requirement for taxpayers to inherit an IRA to withdraw a minimum amount has been eliminated. Instead, for 2020 and beyond, the inherited Individual Retirement Accounts will need to be unloaded within 10 years.
3. Another IRA change is for the age limit. American taxpayers couldn’t make new contributions to Individual Retirement Accounts once they reach the age of 70 and a half. That’s up until this year. Beyond 2020, the age limit is lifted off and taxpayers can keep contributing to their IRAs.
These changes sound all and well but it might increase your taxable income. Therefore, it can push you to a higher tax bracket. If your aim is to use the inherited IRAs for your retirement savings, be quick on your timetables. Otherwise, you may pay taxes on this money unexpectedly.
4. If your employer offers 403(b) or 401(k), you can now invest up to $19,500 which is $500 higher from the previous year. Those who are over 50 though will be able to contribute $6,500 more of this initial limit.
5. Families who pay for college tuition are now eligible for a deduction of up to $4,000. The base limit for this deduction is $2,000 so you can only claim this deduction if the amount is greater than $2,000 but it cannot exceed $4,000.
What do these changes mean?
Now, you know the major changes and whether it applies to you or not. You also know that these changes will not affect everyone. The U.S. tax code didn’t undergo a “tremendous” overhaul in 2019. So everything should remain pretty much the same if the changes don’t apply to you.
In conclusion, the overall changes aren’t going to have a big impact on your tax refund or your total tax bill. To get the best out of your taxes, you should always make your research well and claim all the available deductions and credits to you.
The best thing that you can do to maximize your tax refund or to minimize your total tax bill is to get caught up with the changes early on. While there will be other factors that go into how much tax you pay like your tax withholdings, it all comes down to how well you know the tax changes, your spendings, and savings.