Lions and Tigers and Taxes, Oh My! 5 Tax Changes to Be Aware of for 2020

Lions and Tigers and Taxes, Oh My! 5 Tax Changes to Be Aware of for 2020

By Solid Serenity Legal Solutions

Tax season has officially started. With a deadline of April 15, 2020 for most personal returns, now is the time to set up your appointment with your tax advisor to get your taxes in order and filed.

You may know that a tax reform bill was passed in 2018. Some of those changes affected your tax filings for 2018. But, others will affect your filings for the 2019 tax year. Here are 5 tax changes to be aware of for 2020.

(1) Increase in Income Tax Brackets

Many of you are aware that your tax rate is based on the amount of income you make.

So, for instance, if you are a single person making $100,000 per year, your tax bracket is 24%. But, that doesn’t mean you pay a straight 24% of your income to taxes. Instead, part of your income is taxed at 10%, part at 12%, part at 22%, and part at 24%.

Though the tax rates have remained the same for the 2019 tax year, the tax brackets have changed slightly. The income for this tax season has been changed by a few hundred dollars to account for inflation.

2019 Tax Rates and Brackets

2019 Marginal Tax Rates Single Married Filing Jointly Head of House-hold Married Filing Separately
10% $0 – $9,700 $0 – $19,400 $0 – $13,850 $0 – $9,700
12% $9,701 – $39,475 $19,401 – $78,950 $13,851 – $52,850 $9,701 – $39,475
22% $39,476 – $84,200 $78,951 – $168,400 $52,851 – $84,200 $39,476 – $84,200
24% $84,201 – $160,725 $168,401 – $321,450 $84,201 – $160,700 $84,201 – $160,725
32% $160,726 – $204,100 $321,451 – $408,200 $160,701 – $204,100 $160,726 – $204,100
35% $204,101 – $510,300 $408,201 – $612,350 $204,101 – $510,300 $204,101 – $306,175
37% Over $510,300 Over $612,350 Over $510,300 Over $306,175

(2) Increase for Standard Deductions

The standard deduction is an amount that you are allowed to deduct automatically from your adjusted gross income. You have the option to take the standard deduction or to itemize each and every allowable deduction from your income. Make a strategy with your tax professional to decide which is the best option for you.

This year, the standard deduction has increased to $12,200 for single filers; $24,400 for married filing jointly; $12,200 for married filing jointly; and $18,350 for head of household.

(3) No Penalty for No Health Insurance

In 2018, if you did not have health insurance you paid a penalty of about $700. For the 2019 tax year, that penalty is gone. So, if you don’t have insurance this year, taking away the tax penalty will save you some on your tax bill.

(4) Increase in Threshold for Allowable Medical Deductions

For 2018, you could deduct medical expense that exceeded 7.5% of your adjusted gross income. In 2019, that amount has increased. Now, in order to take the deduction, your medical expenses must be more than 10% of your adjusted gross income.

(5) Estate Tax Changes

For the 2020 tax season, you can inherit $11.4 million before paying the 40% estate tax. That is $200,000 more than the previous year.

Estate taxes, avoiding probate, and protecting vulnerable loved ones are all reasons to make an estate plan for your family.

If you haven’t planned your estate, now is the time. Reach out to a trusted advisor today to get started.

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