Whether you’re resolving to cut your 2020 tax bill or save for more retirement revenue in the new year, now is as a good time as any to start planning. As hard as it may be to believe, we are rolling into the third year that we’ve been under the Tax Cuts and Jobs Act. This act is the overhaul of the tax code that took effect starting in 2018. Changes to the law called for a reduction for individuals’ income tax rates, a doubled standard deduction, and the elimination of personal exemptions. In the case that you may have not known, the IRS bumps up the individual income tax brackets every year as they adjust to the rate of inflation. There are seven brackets, ranging from 10% to 37%, and they apply to taxable income, which is your adjusted gross income after having taken into account the standard or itemized deductions. The standard deduction for 2020 is $12,400 for single filers and $24,800 for married joint filers. In addition to tax returns, there are others you can go about saving your money. Let’s go over some methods that will prove effective for the tax year of 2020.
Consistently Add to Your Retirement Savings
One major way you can save money is by resolving to save a few more dollars for your retirement account in 2020. The IRS has 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 set aside another $6,500 into your retirement plan. That’s up from $6,000 in 2019. The contribution limit for individual retirement accounts, whether traditional or not, is holding steady at $6,000, plus another $1,000 for savers 50 and over.
Saving for Health Care
If you signed up for a high-deductible health plan for 2020 by this past fall, you can expect to fund that health savings account. So-called HSAs allow for those insured by a high-deductible plan to put away pretax or tax-deductible money and have it grow tax-free. You can take a tax-free distribution to pay for qualified health expenses. In 2020, you can save up to $3,500 if you’re an individual with self-only health coverage. That’s up from $3,500 in 2019. Account-holders with family plans can save up to $7,100 in this account, which is up from $7,000 in 2019. HSAs differ from health-care flexible spending accounts primarily in the fact that you can roll over the HSA balance from one year to the next. Even further, you do not need to be in a high-deductible plan to enroll in an FSA.
Gifts and Inheritances
The Tax Cuts and Jobs Act also nearly doubled the amount that decedents could bequeath in death—or gift over their lifetime—and shield it from federal estate and gift taxes, which are 40%. Before the tax overhaul, this so-called gift and estate tax exemption was $5.49 million per person. Finally, the annual gift exclusion—the amount you can give to any other person without it counting against your lifetime exemption—will hold steady at $15,000 for 2020.
Timing Can Boost Your Tax Refund
Taxpayers who have a keen eye on the calendar improve their chances of getting a larger refund. If you can, it is recommended that you pay January’s mortgage payment before December 31st and received the added interest for your mortgage interest deduction. In addition, schedule health-related treatments and exams in the last quarter of the year to boost your medical expense deduction potential.
Most Importantly, Don’t Shy Away from Tax Deductions
The miles you drive for qualified charitable or medical purposes are deductible. Medical miles are subject to an overall threshold for total medical expenses and are worth 20 cents per mile for the year 2019. Charity miles are fully deductible at 14 cents per mile in 2019. If you drove 50 miles per week to volunteer for a charity in 2019, that’s an additional $520 deduction. As with any deduction, good record keeping is a must if you want to fully receive is what rightfully yours during tax return season.
Prepare Your Taxes with United Payroll and Bookkeeping Services
Tax laws are frequently changing, and credits come and go. The professionals at United Payroll and Bookkeeping Services are here to keep our customers informed and stay financially rewarded. Contact us today to learn more about how we can file and analyze your taxes for the year 2020.