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Get Ready For Taxes
The IRS reminds tax professionals to review their e-Services account to ensure all contact information is accurate and to add or remove users. Reviewing e-Services information is just one of the tasks tax pros should complete now to get ready for 2020.
Taxpayer First Act
On July 1, 2019, The Taxpayer First Act of 2019 was signed into law, which aims to broadly redesign the Internal Revenue Service. Generally, the legislation aims to expand and strengthen taxpayer rights and to reform the IRS into a more taxpayer friendly agency by requiring it to develop a comprehensive customer service strategy, modernize its technology and enhance its cyber security.
See the Taxpayer First Act page for the latest updates.
The IRS is working on implementing the Tax Cuts and Jobs Act. This new law includes major tax legislation that will affect both individuals and businesses. Check the Tax Reform page for the latest updates.
The Tax Cuts and Jobs Act changed the way tax is calculated. The IRS encourages taxpayers to perform a quick “paycheck checkup” by using the Withholding Estimator to check if they have the right amount of withholding for their personal situation.
Consumer Alerts on Tax Scams
Note that the IRS will never:
- Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail you a bill if you owe any taxes.
- Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
- Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
- Ask for credit or debit card numbers over the phone.
Is it Really the IRS Calling?
The IRS wants you to understand how and when we contact taxpayers and help you determine whether a contact you may have received is truly from an IRS employee.
The IRS initiates most contacts through regular mail delivered by the United States Postal Service.
However, there are special circumstances in which the IRS will call or come to a home or business, such as when a taxpayer has an overdue tax bill, to secure a delinquent tax return or a delinquent employment tax payment, or to tour a business as part of an audit or during criminal investigations.
See Avoid scams: Know the facts on how the IRS contacts taxpayers for more information.
Private Debt Collection
The IRS began a new private collection program of certain overdue federal tax debts selecting four contractors to implement it. The groups are: CBE Group of Cedar Falls, Iowa; Conserve of Fairport, N.Y.; Performant of Livermore, Calif.; and Pioneer of Horseheads, N.Y. The taxpayer’s account will only be assigned to one of these agencies, never to all four. No other private group is authorized to represent the IRS.
The IRS will always notify a taxpayer before transferring their account to a private collection agency (PCA). The IRS will send a letter to the taxpayer and their tax representative informing them that their account is being assigned to a PCA and giving the name and contact information for the PCA. This mailing will include a copy of Publication 4518, What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency (PDF).
Foreign Account Tax Compliance Act (FATCA)
FATCA refers to the Foreign Account Tax Compliance Act that requires reporting on specified foreign accounts by U.S. taxpayers and foreign financial institutions. In general, federal law requires U.S. citizens to report worldwide income, including income from foreign trusts and foreign bank and securities accounts.
Here’s everything you need to know about your 2020 taxes
- The IRS increased the standard deduction to $12,400 for single filers and $24,800 for married couples filing jointly.
- An individual can transfer up to $11.58 million without being subject to the 40% federal estate and gift tax, up from $11.4 million in 2019.
- You can save more money in your 401(k) and in your health savings account, too.
Get out your pencils and calculators: The IRS has released a breakdown of what’s ahead for the 2020 tax year.
Taxpayers who’ve been paying close attention will notice that the Tax Cuts and Jobs Act overhauled the tax code.
For the 2020 tax year, the IRS tweaked the individual income tax brackets, adjusting them for inflation.
See below for your new bracket.
The additional standard deduction for older taxpayers and those who are blind are still available.
- Filers who are blind or aged 65 and over can claim $1,300. Two married filers who are both over 65 can claim $2,600, unchanged from 2019.
- Single filers who are blind or over 65 are eligible for a $1,650 additional standard deduction. This is up $50 from 2019.
The taxman is also allowing you to save a few more dollars 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 sock away another $6,500 in that workplace retirement plan. That’s up from $6,000 in 2019.
The contribution limit for individual retirement accounts (IRA’s), whether traditional or Roth, is holding steady at $6,000, plus another $1,000 for savers 50 and over.
The IRS limits high-income earners’ ability to make direct contributions to Roth IRAs — accounts in which you can save after-tax dollars, have the money grow tax-free and use it in retirement free of taxes.
In 2020, if your adjusted gross income exceeds $124,000 and you’re single ($196,000 for married couples filing jointly), you won’t be able to make a full contribution directly to a Roth IRA.
Instead, those savers might consider using a strategy known as the “backdoor Roth,” where they make a nondeductible contribution with after-tax dollars to a traditional IRA and then convert it to a Roth.
Here’s how much you can save toward retirement in 2020
- In 2020, you will be able to save as much as $19,500 in your 401(k), up from $19,000 this year.
- The limit for individual retirement accounts will stay the same at $6,000.
- If you’re 50 or over, you will be able to put away up to $6,500 more in your 401(k) and an additional $1,000 in your IRA.
The IRS has raised the limits for how much you can put away in your retirement accounts in 2020.
Next year, you will be able to save up to $19,500 in your 401(k), up from $19,000 in 2019. That same limit also applies to 403(b), the government Thrift Savings Plan and most 457 plans (which cover some non-profits and state and local government workers).
The catch-up contribution for workers ages 50 and over will increase to $6,500 for next year, up from its current limit of $6,000.
So- called SIMPLE retirement accounts will have a new savings threshold of $13,500, up from $13,000.
But the changes, which are based on cost-of-living adjustments, will not apply to individual retirement accounts. IRAs will stay at their current $6,000 limit. Catch-up contributions for individuals 50 and over also remain unchanged at $1,000.
Here is how to get the most out of a Health care savings
If you choose a high-deductible plan during open enrollment season, you might have access to a health savings account.
These accounts allow you to put away pretax or tax-deductible money and have it grow free of taxes. You can take a tax-free withdrawal to cover qualified health expenses.
In 2020, you can save up to $3,550 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 (up from $7,000 in 2019).
Your estate and gift taxes
- 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.
- For 2020, the lifetime gift and estate tax exemption will be $11.58 million per individual, up from $11.4 million in 2019.
- 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.
IRS 2019 Tax Rates, Standard Deduction Amounts And More
The Internal Revenue Service (IRS) has announced the annual inflation adjustments for more than 60 tax provisions for the year 2019, including tax rate schedules, tax tables and cost-of-living adjustments.
These are the numbers for the tax year 2019 beginning January 1, 2019. These are the numbers that you’ll use to prepare your 2019 tax returns in 2020.
If you aren’t expecting any significant changes in 2019, you can use the updated numbers to estimate your liability. If you plan to make more money or change your circumstances (i.e., get married, start a business, have a baby), consider adjusting your withholding or your Estimated Tax Payments. To check out the updated IRS withholding calculator, click here.
Tax Brackets and Tax Rates. The big news is, of course, the tax brackets and tax rates for 2019. There are still seven (7) tax rates. They are: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Here’s how those break out by filing status:
Tax rates for trusts and estates have changed, too:
- Remember to pay attention to the progressive nature of the rates when you’re making comparisons – don’t simply multiply your income by the top rate.
Standard Deduction Amounts. The standard deduction amounts will increase to $12,200 for individuals, $18,350 for heads of household, and $24,400 for married couples filing jointly and surviving spouses.
- For 2019, the additional standard deduction amount for the aged or the blind is $1,300. The additional standard deduction amount increases to $1,650 for unmarried taxpayers.
- For 2019, the standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of $1,100 or the sum of $350 and the individual’s earned income (not to exceed the regular standard deduction amount).
There will be no personal exemption amount for 2019. The personal exemption amount was set to zero (0) under the Tax Cuts and Jobs Act.
The alternative minimum tax (AMT) exemption amounts are adjusted for inflation. Here’s what those numbers look like for 2019:
The kiddie tax applies to unearned income for children under the age of 19 and college students under the age of 24. Unearned income is income from sources other than wages and salary, like dividends and interest. Taxable income attributable to net unearned income will be taxed according to the brackets applicable to trusts and estates (see above). For earned income, the rules are the same as before.
There are changes to itemized deductions found on Schedule A, including:
Medical and Dental Expenses.
The “floor” for medical and dental expenses rises to 10% (it was 7.5% in 2018), which means you can only deduct those expenses which exceed 10% of your AGI.
State and Local Taxes.
Deductions for state and local sales, income, and property taxes remain in place but are limited to a combined total of $10,000 ($5,000 for married taxpayers filing separately).
Home Mortgage Interest.
You may only deduct interest on acquisition indebtedness – your mortgage used to buy, build or improve your home – up to $750,000 ($375,000 for married taxpayers filing separately).
As a result of tax reform, the percentage limit for charitable cash donations to public charities increased from 50% to 60% in 2018 and will remain at 60% for 2019.
Casualty and Theft Losses.
The deduction for personal casualty and theft losses is repealed except for losses attributable to a federal disaster area.
Job Expenses and Miscellaneous Deductions subject to 2% floor.
Miscellaneous deductions, including unreimbursed employee expenses and tax preparation expenses, which exceed 2% of your AGI have been eliminated.
For high-income taxpayers who itemize their deductions, the Pease limitations, named after former Rep. Don Pease (D-OH) used to cap or phase out certain deductions. There are no Pease limitations in 2019.
Some additional tax credits and deductions were adjusted for 2019 or changed under the tax reform law. Here’s a look at a few of the most popular:
Child Tax Credit.
The child tax credit has been expanded to $2,000 per qualifying child and is refundable up to $1,400, subject to phaseouts. The bill also includes a temporary $500 nonrefundable credit for other qualifying dependents. Phaseouts, which are not indexed for inflation, will begin with adjusted gross income (AGI) of more than $400,000 for married taxpayers filing jointly and more than $200,000 for all other taxpayers.
Earned Income Tax Credit (EITC).
For 2019, the maximum EITC amount available is $6,557 for married taxpayers filing jointly who have three or more qualifying children. Phaseouts apply. You can check out Revenue Procedure 2018-57 (downloads as a pdf) for a table providing maximum credit amounts for other categories, income thresholds, and phaseouts.
Despite rumors of the death of the adoption credit, it’s still in place. For 2019, the credit allowed for an adoption of a child with special needs is $14,080, and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,810. Phaseouts apply.
Student Loan Interest Deduction.
Like the adoption credit, there were rumors that the student loan interest deduction had been shuttered: it was not. For 2019, the maximum amount that you can deduct for interest paid on student loans remains $2,500. Phaseouts apply for taxpayers with MAGI more than $70,000 ($140,000 for joint returns) and the deduction is completely phased out for taxpayers with MAGI of $85,000 or more ($170,000 or more for joint returns).
Lifetime Learning Credit.
For the 2019 tax year, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $116,000, up from $114,000 for tax year 2018.
Medical Savings Accounts (MSA).
For 2019, a high-deductible health plan (HDHP) is one that, for participants who have self-only coverage in an MSA, has an annual deductible that is not less than $2,350 but not more than $3,500; for self-only coverage, the maximum out-of-pocket expense amount is $4,650. For 2019, HDHP means, for participants with family coverage, an annual deductible that is not less than $4,650 but not more than $7,000; for family coverage, the maximum out-of-pocket expense limit is $8,550.
Foreign Earned Income Exclusion.
For tax year 2019, the foreign earned income exclusion is $105,900, up from $103,900 for tax year 2018.
Shared individual responsibility payment
The unpopular shared individual responsibility payment has been eliminated for the tax year 2019
Don’t forget about those changes affecting pass-throughs and business owners who file a Schedule C, including the new Section 199A deduction.