It’s a great time to take a look at the tax changes that will be going into effect for 2020.
Recently, the Internal Revenue Service released its latest announcement regarding what to expect and how to prepare. Remember, your current taxes are for the tax year 2019, so even though these new adjustments will be going into effect on January 1, 2020, they only apply to the taxes you’ll be filing in 2021 for the upcoming year.
At Hall & CO, we take pride in staying ahead of the newest trends breaking into the accounting world, and have compiled a few of our biggest changes to watch for in 2020.
Read below for details:
Tax Brackets and Rates:
There will be seven separate tax brackets for 2020. They are as follows: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Depending on your marital status, if you are married filing jointly, married filing separately, or the head of the household, the brackets you fall into will vary. Check out the chart below for a quick outline of how you may be categorized (Courtesy of Forbes):
A standard deduction is the portion of your income that is not subject to taxes. This is used to reduce your overall tax bill. The standard deduction can only be taken if you are not itemizing your deductions using Schedule A of Form 1040 to calculate your taxable income.
The values for standard deduction amounts will change slightly compared to last year. They will increase to $12,400 for individuals and married couples filing separately, to $18,650 for heads of the household, and $24,800 for married couples filing jointly. With that said, under the Tax Cuts and Jobs Act, there will be no personal exemption amount to file.
Additional Tax Credits and Deductions
There will also be a few additional tax credits and deductions this upcoming year. We’ve highlighted them below:
- Child Tax Credit
You can now deduct up to $2,000 per qualifying child, an increase compared to last year. This value is also refundable up to $1,400.
- Earned Income Tax Credit
For the new year, the highest value for an earned income tax credit available for married individuals filing jointly will be $6,660.
- Foreign Earned Income Exclusion
Created as a way to prevent double taxation, the foreign earned income exclusion is meant to ensure you are not unfairly treated for working outside of the country. This value has also been adjusted for 2020. You may now earn up to $107,600 abroad without having to pay for it on your domestic taxes.
Tax season is always a complex set of reforms to navigate. Every year brings with it its own set of unique challenges. If you would like to learn more about how we can help you and your business improve its accounting practices, reach out to our team. For more information on other accounting topics, check out our blog.