עופר איתן Implies: The Ultimate 2020 Tax Planning Guide - Jonathan Cartu Charity Foundation
16669
post-template-default,single,single-post,postid-16669,single-format-standard,qode-quick-links-1.0,ajax_fade,page_not_loaded,,qode-theme-ver-11.2,qode-theme-bridge,wpb-js-composer js-comp-ver-5.2.1,vc_responsive
 

עופר איתן Implies: The Ultimate 2020 Tax Planning Guide

The Ultimate 2020 Tax Planning Guide

עופר איתן Implies: The Ultimate 2020 Tax Planning Guide

2020 could be a momentous year for many reasons. But if you’re trying to do tax planning for 2020, it doesn’t look like this year is going to bring much in the way of massive changes to tax laws. No matter what happens in the 2020 elections, any changes in the White House or control of Congress won’t take effect until 2021, and so this year is likely to continue the gridlock that has kept current tax laws largely unchanged since 2018’s tax reform efforts.

Even without major tax law changes, every year brings a host of smaller amendments to existing provisions. They include the following:

  • New tax brackets for ordinary income as well as qualified dividends and long-term capital gains
  • Higher standard deductions
  • Changes to key provisions for popular tax credits
  • Qualifications for common tax deductions
  • Contribution limits and income thresholds for retirement accounts
  • Increases in other tax-favored accounts for healthcare and education
  • Exemptions from gift and estate tax

Let’s take a more comprehensive look at all of these tax issues to help you create a better tax plan for 2020.

What are the tax brackets for 2020?

Tax brackets define what percentage of your income you have to pay in tax. Under our progressive tax system, the more money someone makes, the higher the percentage of tax owed on each extra dollar of income — also known as the marginal tax rate.

Image source: Getty Images.

However, you don’t pay the marginal tax rate from your top tax bracket on every dollar you earn. Instead, you receive the benefit of lower tax rates for certain parts of your income, in a graduated manner.

The only changes to the income tax brackets for 2020 reflected the usual yearly inflation adjustments to the income amounts for each bracket. Apart from that, you can expect the same basic structure as 2019, with the same seven tax rates applying to the various brackets. The actual income amounts of the brackets depend on your tax filing status. Accordingly, you’ll see five sets of 2019 tax brackets below.

If you file as a single taxpayer, the following brackets apply:

Bracket for Singles

Tax is this amount plus this percentage

Of the amount over

$0 to $9,875

$0 plus 10%

$0

$9,875 to $40,125

$987.50 plus 12%

$9,875

$40,125 to $85,525

$4,617.50 plus 22%

$40,125

$85,525 to $163,300

$14,605.50 plus 24%

$85,525

$163,300 to $207,350

$33,271.50 plus 32%

$163,300

$207,350 to $518,400

$47,367.50 plus 35%

$207,350

Above $518,400

$156,235 plus 37%

$518,400

Data source: IRS.

Those who qualify as head of household have higher income thresholds apply to each tax bracket, resulting in lower tax. To qualify as a head of household, the requirements include that you be unmarried and provide both housing and financial support for a child, parent, or other relative who lives with you for greater than half of the year. The financial support you provide must generally be more than half of all support the child or other relative received during the year.

Bracket for Head of Household

Tax is this amount plus this percentage

Of the amount over

$0 to $14,100

$0 plus 10%

$0

$14,100 to $53,700

$1,410 plus 12%

$14,100

$53,700 to $85,500

$6,162 plus 22%

$53,700

$85,500 to $163,300

$13,158 plus 24%

$85,500

$163,300 to $207,350

$31,830 plus 32%

$163,300

$207,350 to $518,400

$45,926 plus 35%

$207,350

Above $518,400

$154,793.50 plus 37%

$518,400

Data source: IRS.

Most married taxpayers file jointly. If you were married but your spouse passed away recently, then you’re also allowed to use these brackets as a surviving spouse.

Bracket for married filing jointly

Tax is this amount plus this percentage

Of the amount over

$0 to $19,750

$0 plus 10%

$0

$19,750 to $80,250

$1,975 plus 12%

$19,750

$80,250 to $171,050

$9,235 plus 22%

$80,250

$171,050 to $326,600

$29,211 plus 24%

$171,050

$326,600 to $414,700

$66,543 plus 32%

$326,600

$414,700 to $622,050

$94,735 plus 35%

$414,700

Above $622,050

$167,307.50 plus 37%

$622,050

Data source: IRS.

Some married taxpayers choose to file separate returns. These are the brackets that apply.

Bracket for married filing separately

Tax is this amount plus this percentage

Of the amount over

$0 to $9,875

$0 plus 10%

$0

$9,875 to $40,125

$987.50 plus 12%

$9,875

$40,125 to $85,525

$4,617.50 plus 22%

$40,125

$85,525 to $163,300

$14,605.50 plus 24%

$85,525

$163,300 to $207,350

$33,271.50 plus 32%

$163,300

$207,350 to $311,025

$47,367.50 plus 35%

$207,350

Above $311,025

$83,653.75 plus 37%

$311,025

Data source: IRS.

Finally, there are some trusts that get taxed as separate legal entities. The same is true of estates of someone who passes away. These brackets are also important for those whose children have enough unearned income to be subject to the kiddie tax.

Bracket for trusts and estates

Tax is this amount plus this percentage

Of the amount over

$0 to $2,600

$0 plus 10%

$0

$2,600 to $9,450

$260 plus 24%

$2,600

$9,450 to $12,950

$1,904 plus 35%

$9,450

Above $12,950

$3,129 plus 37%

$12,950

Data source: IRS.

What’s the 2020 tax rate on long-term capital gains and qualified dividends?

Investors enjoy a tax break on certain types of investment income. Dividends that certain stocks pay qualify for lower tax rates, as do the profits on investments that you sell after having held them for longer than a year. These qualified dividends and long-term capital gains are eligible to get taxed at 0%, 15%, or 20%, producing substantial savings.

A separate set of brackets applies to determine the maximum tax rate on qualified dividends and long-term capital gains, as seen below.

Tax Rate on Income

Single

Married Filing Jointly

Head of Household

Married Filing Separately

0%

Up to $40,000

Up to $80,000

Up to $53,600

Up to $40,000

15%

$40,000 to $441,450

$80,000 to $496,600

$53,600 to $469,050

$40,000 to $248,300

20%

Above $441,450

Above $496,600

Above $469,050

Above $248,300

 Data source: IRS.

To take advantage of these lower rates, taxpayers should ensure that they meet the requirements for qualified dividend income and long-term capital gains. Most dividends that U.S. stocks pay qualifies, but any dividends that don’t qualify get taxed at higher ordinary income tax rates. Selling an investment you’ve held for a year or less makes any gain short-term rather than long-term, and short-term capital gains also get taxed at ordinary tax rates. If you pick good dividend stocks and hold your investments for the long run, the tax laws reward you with lower rates.

What is the standard deduction for 2019?

The vast majority of taxpayers take the standard deduction. The current amounts are high enough that only a few taxpayers get enough extra benefit to justify itemizing their deductions instead.

Annual inflation adjustments brought a modest rise in standard deductions for 2020, as seen below.

Filing Status

Standard Deduction for 2020 Tax Year

Change from 2019

Single

$12,400

+$200

Married filing jointly

$24,800

+$400

Head of household

$18,650

+$300

Married filing separately

$12,400

+$200

Source: IRS.

In addition to these base amounts, those who are 65 or older or are blind get to take additional amounts as a standard deduction. For those who are married, the added amount is $1,300, while singles get to add $1,650. These added amounts are the same for 2020 as they were in 2019. If you’re 65 or older and blind, then you can boost your standard deduction by double the relevant amount. Moreover, for joint filers, each spouse has an opportunity to get these added amounts. So married couples in which both spouses are over 65 and are blind would see their…

Mac Computer AiroAV

No Comments

Post A Comment