(AmericanProsperity.com) – The 2019 tax season was a rude awakening for some after Congress passed sweeping tax reform legislation in 2017. The Tax Cuts and Jobs Act put some people in an odd position of owing money when they expected a refund and others got a bigger tax bill than was expected.
In 2019, the average income tax return was $2,869. That’s a little less than in 2018 when it was $2,910.
Now that last year is well behind us, you might want to consider getting an early start before the April 15 tax deadline so that you are better prepared. The good news is that 72% of tax returns received refunds in 2019, according to the IRS.
Here are some new things you may need to know or may want to consider when you file your taxes this year…
The IRS Adjusted Tax Brackets for Inflation in 2020
In November 2019, the IRS released new tax brackets for 2020. Marginal rates were adjusted for inflation as follows directly from the IRS news release:
- For tax year 2020, the top tax rate remains 37% for individual single taxpayers with incomes greater than $518,400 ($622,050 for married couples filing jointly)
- 35%, for incomes over $207,350 ($414,700 for married couples filing jointly)
- 32% for incomes over $163,300 ($326,600 for married couples filing jointly)
- 24% for incomes over $85,525 ($171,050 for married couples filing jointly)
- 22% for incomes over $40,125 ($80,250 for married couples filing jointly)
- 12% for incomes over $9,875 ($19,750 for married couples filing jointly)
Should You Itemize or Use the Standard Deduction
For the 2020 tax year, the IRS increased the standard deductions, which may reduce taxable income.
If you don’t have deductions that equal the new standard deductions, then you can’t itemize on your tax returns. However, in many cases, the standard deduction is higher than most people’s itemized deductions, so it works out in your favor.
For a single filer, the standard deduction is $12,200, a married couple filing jointly is $24,400 — that’s a $400 increase over 2018, and head of households is $18,350 — that’s a $350 increase over 2018.
There is more good news… if you’re age 65 or older, an additional deduction of $1,650 is available for those who are single or head of household, and $1,300 if married. If both spouses are 65 or older, the additional standard deduction increases by $2,600.
For those who itemize, what can you itemize includes:
- Mortgage interest
- Property taxes
- Interest on home equity loans
- Up to $10,000 (or up to $5,000 if married filing separately) for state and local real estate taxes, personal property taxes, and income taxes
Increasing Retirement Savings
If you’re thinking about retirement savings, there is a bit of good news. The IRS increased contribution limits for 401(k)’s, 403(b)’s, and the majority of 457 plans from $19,000 to $19,500.
Additionally, if you’re 50 or older, you can add an additional $6,500.
For individual retirement accounts, the contribution limits remain at $6,000, plus an additional $1,000 for those 50 and older.
~Here’s to Your Prosperity!
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