A little change can go a long way. Get familiar with ten key tax changes in 2020. While there’s no massive overhaul in the tax code, there may be few game-changing moves that can save you money.
Certain expired tax breaks were revived in December. If they apply to you, they could be a game-winning strategy.
Check out my ten, top updates and changes to be aware of:
- Victims of hurricanes, wildfires, or major floods may benefit from tax breaks such as employer credits and waivers for early withdrawals from their retirement plans.
- While the IRS typically considers canceled debt as taxable income, it’s now making an exception for canceled mortgage debt used to buy a principal residence. Other provisions allow deductions on mortgage-insurance premiums.
- Some families will be eligible for a deduction of $2,000 to $4,000 for college tuition.
- Under the Affordable Care Act, Americans without health insurance faced a tax penalty of up to 2.5% of a household’s taxable income. The Tax Cuts and Jobs Act of 2017 reduced that penalty to “$0” for 2019.
- To avoid penalties, IRS rules required people who inherit an IRA to withdraw a minimum amount each year, tied to life expectancy. But starting in 2020, inherited IRAs will need to be drained within 10 years.
- Now, an inherited IRA could push some into a higher tax bracket. People who were planning on using inherited IRAs for their retirement savings may now have to speed up their timetables, forcing some to pay taxes on distributions sooner than expected.
- Beginning this tax year, Americans can keep contributing to a traditional IRA beyond age 70½. That may be a welcome change for many, as more Americans than ever plan to work well into their golden years.
- Employees with a 401(k) or 403(b) plan can invest up to $19,500 a year. Folks over 50 can contribute up to $6,500 more. Both figures are $500 higher than last year.
- The threshold for deducting medical expenses has been lowered to 7.5% (previously 10%).
- The IRS also raised the standard deduction to $12,400 for individuals (from $12,200) and to $24,800 for married joint filers (from $24,400). The standard deduction has become more important than ever since 2018, when it rose to a high enough level that many taxpayers chose to stop itemizing.
You can still benefit from itemizing if you plan ahead. Gather your charitable contributions and medical expenses and you may be able to itemize one year and take a standard deduction the next. Remember, the biggest bang for the buck is to maximize as much of the tax-free retirement savings you can.