To ensure efficiency and to prevent fraud and abuse, the IRS occasionally restructures its rules and regulations.
We, at Paramount Tax Relief, also like to run a tight ship by staying in the know of these updates, which allows us to reaffirm the effectiveness of our tax services.
We’ve broken down the most notable changes mentioned for 2020 into two categories: the good news and the changes that may increase your taxes.
The Good News
Higher Standard Deduction
Many taxpayers will be delighted to hear the IRS increased the standard deduction to $12,400 for single filers and $24,800 for married couples filing jointly by $400 and $800 from the previous year, respectively.
You Can Save More For Retirement
For 401(k), 403(b), and most 457 plans, the IRS raised the employee contribution limit plans to $19,500, up from $19,000 in 2019.
Savers over the age of 50 can put away an extra $6,500 into their retirement plans – another $500 increase from last year.
Individual retirement accounts, on the other hand, are still capped at $6,000 plus an extra $1,000 for contributors over the age of 50.
You Can Put More Into Health Care
If you have access to a health savings account, you can put away up to $3,550 with self-only health coverage, up from $3,500 in 2019. Family plan contribution limits also increased in 2020 – from $7,000 to $7,100.
The Changes That May Increase Your Taxes
Stronger Enforcement On Early IRA Distribution Penalties
The Treasury Inspector General for Tax Administration’s recognized the IRS’s previous deficiencies in penalizing early withdrawals from IRA accounts. If you plan to take early distributions from your IRA, make sure you still qualify for relief to avoid owing a 10% penalty tax.
Scrutiny of the “Other” Category on Tax Forms
The “other” tax return line on various forms have been singled out as a category for abuse. In turn, you should stick to the named categories, specific credits, and individual deductions to steer clear from the IRS marking your tax returns as fraudulent.
Earned Income Tax Credit Overhaul
Like the “other” category, the effectiveness of the IRS’s Earned Income Tax Credit approval system is under question. If you’ve received an Earned Income Tax Credit, which is reserved for well-qualified low to moderate-income workers, we recommend confirming that you still qualify before filing.
Have any questions about how your taxes may be affected in 2020? Don’t hesitate to contact us at our Sacramento tax relief firm.