As the new year rolls in, tax seasons draws ever closer. With a new year comes a new number of tax laws to consider. As you get ready to prepare for tax season, keep the following information in mind:
1. The Standard Deduction Will Rise
When filing in 2020, you’ll have two choices for your yearly returns. According to Rex Burgdorfer Chicago, you’ll be able to opt-in for the standard deduction or you can choose to itemize your deductions to get more from your tax savings. The standard deduction is the go-to for most taxpayers and in 2020, taxpayers can take advantage of the newly risen standard deduction.
2020’s standard deduction for single tax filers starts at $12,400. For married couples that file joint taxes, the standard deduction starts at $24,800 and at $18,650 for the heads of households. If you stick to using the standard deduction, you’ll be able to use the simpler filing process.
2. There are Higher Contribution Limits for 401(k)s
Every year, the IRS changes its limits for contributions to retirement plans. Though limits for IRAs aren’t changing this year, taxpayers that save using a 401(k) will have a better opportunity to start growing their wealth for the future. Rex Burgdorfer Chicago shares that as of this year, the annual limits for 401(k)s are $19,500 for individuals under 50 and $26,000 for taxpayers that are 50 or older. Compared to 2019, this represents a $500 difference for younger workers, as well as an $1,000 increase for taxpayers that are 50 years old or older.
3. Contribution Limits for HSAs Have Increased
An HSA or health savings account is an effective way for anyone to save money for potential medical emergencies while taking advantage of tax benefits as contributions to HSAs are tax-free. Should HSA funds go unused, they carry forward indefinitely and can be invested for more tax free growth. Additionally, withdrawals from an HSA fund are tax-free, as long as they’re used to fund qualified medical expenses.
This year, taxpayers can contribute $3,550 to their HSA funds if they have health coverage. Rex Burgdorfer LinkedIn shares that taxpayers with family health coverage can take advantage of the $7,100 contribution limit. Taxpayers that are 55 and older are eligible for a $1,00 catch-up, quite like the one available with an IRA.
4. Roth IRAs See Higher Income Limits
Taxpayers with Roth IRAs enjoy tax-free investment growth, tax-free withdrawals during retirement, and no requirement for minimum distributions. Though higher earners with Roth IRAs are typically barred from making direct contributions, 2020 brings an increase in income thresholds.
As of now, contributions won’t phase out for single filers until they’ve reached $124,000 in income. According to Rex Burgdorfer LinkedIn, contributions will only be barred for tax filers with incomes of $139,00 or higher. Married couples won’t see their contributions phase out until they reach a joint income of $196,000. Married filers will be barred once they’ve passed $206,000 in joint income.
Tax season is on its way. Make sure your finances are adequately prepared by putting these strategies into practice before it comes time to file
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