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Tax Deductions and Retirement Limits for 2020 You Should Be Familiar With

Tax Deductions and Retirement Limits for 2020 You Should Be Familiar With

| January 27, 2020

As of March 20, 2020 the US Treasury and IRS provided special Federal income tax return filing and payment relief in response to the ongoing COVID-19 pandemic. You do not have to be sick, or quarantined, or have any other impact from COVID-19 to qualify for relief. [1]

  • If you owe Federal Taxes as a result of your 2019 Tax Return, you have until July 15, 2020 to pay your Taxes penalty free.

  • Because the due date for filing Federal income tax returns has been postponed to July 15, the deadline for making contributions to your IRA, HSA, or Archer MSA for 2019 is also extended to July 15, 2020.

  • Payment of the 10% additional tax (on early distributions) also has been extended to July 15, 2020 as a result of this relief.

  • READ MORE on the official IRS site

 

TAX BREAKS[2]

The tax law changed and you may not be aware of all the tax breaks you are eligible to receive. Some standard deductions continue to climb in 2020 to $12,400 for single taxpayers and married individuals filing separately, up $200; $18,650 for heads of households, up $300; and

 $24,800 for married couples filing jointly and surviving spouses, up $400 from the prior year.

While the large increase in the standard tax deduction will allow for many Americans to forgo the task of itemizing their deductions, there are still some ‘above-the-line’ deductions you may want to claim. Most of these have no income limits so everyone is able to claim them.

  • Student Loan Interest: You can claim up to $2,500 a year in student-loan interest IF your income as a single person is under $65,000 a year or $135,000 as a married person. This can be claimed for you, your spouse, or a dependent.[3]
  • Business Expenses: A lot of the ability for employees to claim business expenses was eliminated. However, with the Educator Expense Deduction school teachers still can claim up to $250 a year, or $500 if married filing jointly and both spouses are eligible educators, but not more than $250 each. [4]
  • Funding a Health Savings Account (HSA): IF you have a high deductible health insurance policy (over $1,400 a year for individuals and $2,800 a year for family plans) you can claim your HSA contributions. Depending on your employer, you can either contribute pre-tax dollars directly from your payroll, or you can claim a deduction if you contributed with after-tax dollars. For 2020, you can contribute $3,550 for individual coverage, up from $3,500 for 2019, or $7,100 for family coverage, up from $7,000 for 2019. You will have to file a Form 8889. Check with your HR department to make sure you know what are your eligible expenses.[5]
  • Charitable Donations: There was an increase in the percentage limit for charitable cash donations to public charities increased from 50% to 60% in 2018 and 2019, and will remain at 60% for 2020.[6]

 

 

RETIREMENT PLAN LIMITS

Retirement plan contributions are tax deductible. By putting money aside in a tax advantaged retirement account, you are saving for your future and also reducing your taxable income. And remember, you now have until July 15, 2020 to make your 2019 IRA plan contributions!

 

ROTH PLANS

For Roth accounts, you can only contribute to them if you make less than a certain amount of money. This salary amount was lowered for 2020. Note that your contributions may be phased out at certain income levels so it is best to speak with your financial or tax advisor about your specific situation.

 

 

CONTACT US with any retirement planning questions you have.

 

 

None of the information in this document should be considered as tax advice. You should consult your tax advisor for information concerning your individual situation. An individual retirement account (IRA) allows individuals to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred (no capital gains or dividend income is taxed). Individual taxpayers are allowed to contribute 100% of compensation up to a specified maximum dollar amount to their Traditional IRA. Contributions to the Traditional IRA may be tax-deductible depending on the taxpayer's income, tax-filing status and other factors. Taxes must be paid upon withdrawal of any deducted contributions plus earnings and on the earnings from your non-deducted contributions. Prior to age 59½, distributions may be taken for certain reasons without incurring a 10 percent penalty on earnings. Contributions to a Roth IRA are not tax deductible and there is no mandatory distribution age. All earnings and principal are tax free if rules and regulations are followed. Eligibility for a Roth account depends on income. Principal contributions can be withdrawn any time without penalty (subject to some minimal conditions). 403(b) withdrawals are taxed as ordinary income in the year received. Tax penalties and penalties for early withdrawal may apply if funds are withdrawn prior to age 59 ½.

 

[1] PenServ Plan Services, Inc. News Alert, March 2020

[2] https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2020

[3] https://americantaxservice.org/student-loan-interest-tax-deduction/

[4] https://www.irs.gov/taxtopics/tc458

[5] https://www.forbes.com/sites/ashleaebeling/2019/05/29/irs-announces-2020-health-savings-account-limits/

[6] https://www.forbes.com/sites/kellyphillipserb/2019/11/06/irs-releases-2020-tax-rate-tables-standard-deduction-amounts-and-more/