What Changes To Expect To Your 2020 Taxes
As the 2019 tax year is coming to end, the 2020 tax season will be upon us shortly. To ensure you get the most out of your deductions learn about the new rules that will apply to your federal income tax now.
Below is a list of the most important tax changes expected for 2020:
1.Individual Mandate Penalty
Almost all the tax code changes from the Tax Cuts & Jobs Act of 2017, went into place in 2018. However, there was one exception. The shared responsibility payment didn’t take effect until this year.
The shared responsibility payment or as it is referred to the individual mandate penalty has previously applied to those individuals who are required to have health insurance under the Affordable Care Act but who did not receive coverage and did not meet the requirements for an exemption. If you couldn’t prove you had health insurance the penalty was due at the same time you paid your taxes.
Starting this year, the 2020 tax season, there is no longer a federal penalty. So those individuals without health insurance will not face a penalty when filing their 2020 taxes.
Keep in mind that there are still some state-based penalties. You will need to be vigilant and do your research before filing your 2020 taxes.
2. Health Savings Account Contribution Limits
Health Savings Accounts are tax-advantaged accounts that have contribution limits that normally increase over the years.
The 2019 contribution limits for those with high-deductible policies, who are qualified for an HSA are:
- Individual Self-Only Coverage: $3,500 (up from $3,450)
- Family coverage: $7,000 (up from $6,900)
A high deductible policy is considered to be a health plan with an annual deductible that is not less than:
- Individual Self-Only Coverage: $1,350
- Family Coverage: $2,700
Annual out-of-pocket expenses don’t exceed $6,750 for individuals and $13,500 for families.
3. Retirement Contribution Limits
Contributions that you have made in 2019 to such accounts such as traditional 401(k) plans and traditional individual retirement accounts (IRAs) could be deductible on your next tax return.
The 2019 contribution limit changes include:
- 401(k) base contribution: $19,000 ($18,500 last year)
- IRA base contribution: $6,000 ($5,500)
The increases may seem small, however the $5oo increase in the IRA limits is incredibly important as this is the first time, we have seen an increase since 2013.
4. Medical Expense Deduction
In 2010 the Affordable Care Act raised the threshold for deductible medical and dental expenses. This was an increase of 2.5% from 7.5% to 10% of adjusted gross income.
The increase made it more difficult to qualify for the deduction. The Tax Cuts & Jobs Act brought the threshold back down to 7.5% of adjusted gross but only for 2017 & 2018. This year it will be returning to 10% of adjusted gross income.
What this means is that in order to qualify as a deduction, a taxpayer’s un-reimbursed medical and dental expenses must exceed 10% of their adjusted gross income.
5. Alimony Deduction
Another way the Tax Cuts & Jobs Act is changing taxes is through the elimination of the alimony deduction. Eliminating the alimony deduction could cost some taxpayers thousands of dollars. The elimination means that all alimony payments connected to a divorce or separation that is made this year or later are not deductible. Meaning that these cannot be written off on a tax return in 2020 or be claimed as income.