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MAKE 2021 A “STRESS LESS” KIND OF YEAR!

MAKE 2021 A “STRESS LESS” KIND OF YEAR!

September 24, 2020

Americans are facing a long list of tax changes for the 2020 tax year…and it's never too early to start thinking about your next year's tax returns!

Between deepening Washington gridlock and election-year politics, just a few months ago we were expecting 2020 to be a quiet year in terms of tax law changes. But, boy, were we wrong! The government’s funding bills signed by President Trump in December 2019 included an abundance of new tax provisions. The economic stimulus packages enacted in March 2020, intending to help boost the U.S. economy dragged down by the coronavirus, added even more. Plus, there have now been several other 2020 tweaks from new rules or annual inflation adjustments. All in all, this means American taxpayers are staring at a long list of unexpected tax changes for the 2020 tax year.

Even if you have not filed your 2019 tax return (in other words, you extended it, and it is not due until October 15th), it is never too early to start thinking about your next year's return. Proper tax planning requires an awareness of what is new—and what has changed from last year—and there are plenty of tax law changes and updates taking effect in 2020 that you need to know about. See below for some changes to the tax brackets and tax rates. Use this information now to start your tax planning this year, so you can save money next April when you file your 2020 return.

Tax Bracket Ranges

Although the tax rates didn't change, the income tax brackets for 2020 are slightly wider than for last year. The difference is due to inflation during the 12-month period from September 2018 to August 2019 that is used to figure the adjustments.

2020 Tax Brackets for Single/Married/Filing Jointly/Head of Household

Tax Rate Taxable Income (Single) Taxable Income (Married Filing Jointly) Taxable Income (Head of Household)
10% Up to $9,875 Up to $19,750 Up to $14,100
12% $9,876 to $40,125 $19,751 to $80,250 $14,101 to $53,700
22% $40,126 to $85,525 $80,251 to $171,050 $53,701 to $85,500
24% $85,526 to $163,300 $171,051 to $326,600 $85,501 to $163,300
32% $163,301 to $207,350 $326,601 to $414,700 $163,301 to $207,350
35% $207,351 to $518,400 $414,701 to $622,050 $207,351 to $518,400
37% Over $518,400 Over $622,050 Over $518,400

 

Many of the standard deduction amounts were increased for 2020. Married couples get $24,800 ($24,400 for 2019), plus $1,300 for each spouse age 65 or older. Singles can claim a $12,400 standard deduction ($12,200 for 2019)—$14,050 if they're at least 65 ($13,850 for 2019). Head-of-household filers get $18,650 for their standard deduction ($18,350 for 2019), plus an additional $1,650 once they reach age 65. Blind people can tack on an extra $1,300 to their standard deduction ($1,650 if they're unmarried and not a surviving spouse).

Tax rates on long-term capital gains and qualified dividends did not change for 2020, but the income thresholds to qualify for the various rates did go up. In 2020, the 0% rate applies for individual taxpayers with taxable income up to $40,000 on single returns ($39,375 for 2019), $53,600 for head-of-household filers ($52,750 for 2019), and $80,000 for joint returns ($78,750 for 2019).

The 20% rate for 2020 starts at $441,451 for singles ($434,550 for 2019), $469,051 for heads of household ($461,700 for 2019) and $496,601 for couples filing jointly ($488,850 for 2019).

The 15% rate is for filers with taxable incomes between the 0% and 20% break points.

The 3.8% surtax on net investment income stays the same for 2020. It kicks in for single people with modified AGI over $200,000 and for joint filers with modified AGI over $250,000.

At Cambaliza McGee LLP, we believe business strategy and tax planning are most effective when they happen throughout the year. Set your course now for a fresh start in 2021 and “stress less” when tax deadlines approach. Our creative CPA’s know innovative ways to help you get ahead of the game, so just connect with us at 949-484-8288 or email us at contact@cpa-ltc.com. We’d love to hear from you.

Author: CM Editorial