Archive for the ‘2020 Tax Information’ Category

Save More for Retirement

Monday, December 7th, 2020

Retirement account rules are changing for 2020. Here are the major changes and some suggestions to help you take advantage of them.

Contribute to a traditional IRA at any age.

While you have always been able to contribute to a Roth IRA at any age, 70½ was the cut-off for making contri­butions to a traditional IRA. This age limit for traditional IRAs is now gone. If you have earned income, you and your spouse can now each contribute $6,000 to either a traditional or Roth IRA ($7,000 for those age 50 and over).

Taking advantage:

Consider getting a part-time job or do some consulting so you can earn up to $7,000 each year to contribute to your IRA. You can decide if you wish to contribute to either a Roth IRA or a traditional IRA depending on your situation.

More time before you MUST take money out.

You now have until age 72 before you are required to take minimum distributions from qualified retirement accounts. This is an increase from the old, complicated age 70½ rule. Retirement savings that need to be reported as taxable income when withdrawn can now be left to grow for an additional 18 months before distributions are mandatory and your taxable income increases.

Taking advantage:

By efficiently plan­ning your withdrawal amounts before age 72 you can often reduce the tax on these funds when withdrawn. So review the minimum distribution requirements of your IRAs, 401(k)s and other retirement savings accounts to develop a plan to take advantage of this new rule.

Inherited retirement accounts require more planning.

Beginning in 2020, the MAXIMUM allowed distribution time frame from retirement accounts is limited to 10 years for newly-inherited IRAs. IRAs inherited before 2020 can still be withdrawn over a person’ s life­ time using old stretch IRA rules.

Taking advantage:

Estate planning just got a lot more important. First, know that the limited stretch rules DO NOT apply to surviving spouses, minor children up to age 18 (but not grandchildren), disabled individuals and individuals not more than 10 years younger than the IRA owner. Second, if you receive inherited funds, know that you often have a number of distribution options available to you. They include a lump sum distribution, a five-year distribution rule, rollover options and this new 10-year rule.

Income Brackets for 2020 Tax Rates

Retirement Plan 2020 2019 Change Age 50 or older catch-up
401(k), 403(b), 457 plans $19,500 $19,000 +$500 Add $6,500
IRA: Roth $6,500 $6,000 Add $1,000
IRA: SIMPLE $13,500 $13,000 +$500 Add $3,000
IRA: Traditional $6,000 $6,000 Add $1,000

New Charitable Contribution Tax Breaks in 2020

Monday, December 7th, 2020

There are several new tax breaks for charitable donations in 2020. Here are three changes to help your favorite charity while receiving a tax break:

#300 charity deduction without itemizing

You can claim an above­ the-line deduction of up to $300 for cash donations to qualified charities. In other words, you get a deduction whether you itemize or not.

Donate up to 100% of your income

You can donate as much of your 2020 income as you feel like giving. The annual deduction for monetary donations is normally limited to 60% of your income, but this has increased to 100% in 2020.

Businesses can contribute more!

A business can give up to 25% of its taxable income, an increase from the normal threshold of 10%. Businesses also qualify for a special enhanced deduction for gifts of food from 15% of taxable income to 25%.

Item 2020 2019 Change
single $12,400 $12,200 +$200
Married Joint/Widow 24,800 18,650 +$400
Head of Household 18,650 18,350 +$300
Married Filing Separate 12,400 12,200 +$200
Elderly/Blind: Married +$1,300 +$1,300
Elderly/Blind: Unmarried +$1,650 +$1,650

Mileage Rates

Item 2020 2019 Change
Business 57.5¢/mi 58.0¢/mi -0.5¢
Medical/Moving 17.0¢/mi 20.0¢/mi -3.0¢
Business 14.0¢/mi 14.0¢/mi

Section 179 Maximums

Limits 2020 2019 Change
Section 179 $1.04 million $1.02 million +$20,000
Property Limit $2.59 million $2.55 million +$40,000

Maximum Earned Income Credit

2020 2019 Change
No Child $538 $529 +$9
1 Child 3,584 3,526 +$58
2 Children 5,920 5,828 +$92
3+ Children 6,660 6,557 +$103

Income Brackets for 2020

Monday, December 7th, 2020
tax single Married Filling Joint/Widow Head of Houshold Married Filing Separate
10% $1-9,875 $1-19,750 $1-14,100 $1-9,875
12% 9,876-40,125 19,751-80,250 14,101-53,700 9,876-40,125
22% 40,126-85,525 80,251-171,050 53,701-85,500 40,126-85,525
24% 85,526-163,300 171,051-326,600 85,501-163,300 85,526-163,300
32% 163,301-207,350 326,601-414,700 163,301-207,350 163,301-207,350
35% 207,351-518,400 414,701-622,050 207,351-518,400 207,351-311,025
37% Over $518,400 Over $622,050 Over $518,400 Over $311,025

New Tax Laws in 2020

Monday, December 7th, 2020

You may still receive a Form 1099- MISC if your income is derived from rents, royalties, fishing boat proceeds, health care payments, payments in lieu of dividends or interest, crop insurance proceeds or gross proceeds paid to an attorney.

As you begin planning to file your 2020 tax return, here are some of the new tax laws passed over the last year that could affect you.

1.Early distribution penalty waived.

The 10% early distribution penalty on up to $100,000 of retirement withdrawals for coronavirus-related reasons is waived during 2020. New reles allow tax liabilities on these distributions to be paid over a three-year period.

2.Required minimum distributions waived for 2020.

Required minimum distributions in the year 2020 for various retirement plans is suspended. The corresponding 50% penalty asso ciated with not taking a distribution is also suspended in 2020.

3. Medical deduction threshold decreases.

Qualified medical expenses that exceed 7.5% of your adjusted gross income may be used as an itemized deduction. The lower threshold (for­ merely 10%) is a carryover from a late, 2019 tax law change.

4. Mortgage forgiveness is not income.

If a bank forgives mortgage indebtedness, it is typically income to you. Qualified principal residence indebt­edness that is forgiven, however, may be excluded from income with the reactivation of this tax law.

5.Mortgage insurance premium deductions.

if your mortgage bank requires insurance on your loan and the loan qualifies, you can deduct this premium as na itemized deduction.

6.The tuituion and fees deduction is available.

The above-the-line deduction for up to $4,000 in qualified tuition and fees expenses that expired is still available in 2020. You will need to evaluate this tax break versus others like the American Opportunity Credit and the Lifetime Learning Credit.

Other new tax laws for 2020:

  • Part-time workers can participate in 401(k) plans.
  • Leftover money in a 529 education plan can be used to pay off $10,000 of student loans.
  • New parents can withdraw $5,000 out of retirement funds without penalty to pay for the cost of a birth or adoption.

Be on the Lookout for new form 1099-NEC

Monday, December 7th, 2020

If you’re self-employed, an independent contractor or a freelancer, there’s a big change coming thanks to the IRS.

For almost 40 years, you’ve received a 1099-MISC from businesses to which you provided more than $600 in services. Startingwith the 2020 tax filing season, you’ll be receiving Form 1099-NEC instead.

Here’s what you need to know about this change:

Form 1099-NEC is used exclusively to report nonemployee compensation.

Nonemployee compensation is any payment you received from a business in exchange for your products and/or services. Nonemployee compensation also includes fees, commissions, prizes and awards.

Form 1099-MISC is not going away.