Tax laws and forms change every year, in an effort to keep taxpayers on their toes (and allegedly to make taxes more efficient and effective). 2020 is no exception—here are a few new changes you can expect to see on your 2020 tax forms:
Inflation Adjustments Abound
The average income might not be keeping up with inflation, but tax laws are at least making an effort! Income brackets have been widened to reflect increases of about 2%, the standard deduction has been increased by $200 for individuals and $400 for joint filers, and alternative minimum tax exemptions have also received a boost. A close look at your filing will find even more minor tweaks and changes to help provide some relief from inflation.
IRA and 401(k) Contribution Limits are Going Up
We can’t stress enough just how important it is to save for your retirement, and how powerful a tool your IRA can be for doing that. It can even help you save on taxes! The good news just keeps getting better, as annual IRA contribution limits went up to $6,000 (an increase of $500). 401(k) contributions are also up, with a new annual maximum of $19,000 (another $500 increase). Anyone age 50 or over gets an additional increase to these limits, allowing for total contributions of $20,000 to your 401(k) and $12,000 to your IRA.
If you can afford to max your annual contributions, your future self will thank you. But that isn’t necessarily easy. Set up a consultation with your favorite qualified financial advisors and they can help you create a plan to not only retire, but to do so in comfort.
No More Alimony Deductions
Alimony payments were treated differently from other payment types under previous tax laws. It used to be that alimony payments were deductible for those making the payments, and counted as income for those receiving the payments. That came to an end in 2019, when alimony payments were disregarded completely from taxes. They’re no longer deductibile, and they no longer qualify as taxable income.
This certainly makes filing simpler for people on either end of an alimony agreement, but it could mean that alimony payers are paying taxes on a higher bracket than their effective income. There is a bit of good news to go along with this, however. Many couples who divorced before the end of 2018 are generally able to continue following the old rules, so long as they haven’t specifically chosen to apply the new rules instead.
1040-SR for Seniors
For one year, we all had to use the same 1040 forms; the 1040EZ and 1040A forms were discontinued in 2019. But that didn’t last long! Starting in 2020, taxpayers 65 and over will have to use the 1040-SR form. This simplified version of the standard 1040 form is intended to help make filing easier for seniors, allowing them to avoid the forms and schedules required by the regular 1040.
So there you have it – filing your taxes does get easier, you just have to wait until you’re 65 (and hope that the powers-that-be don’t decide to make things more complicated between now and then).
As mentioned before, tax laws change every year. While you might not want to keep up with all these changes on your own, that’s where your qualified financial advisors come in! We’re always up to date on the new rules, and we’ll help you maximize your tax savings each year.