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Inflation-based tax changes for FY 2020 announced

The IRS has announced inflation adjustments in dozens of areas, some prompted by the Taxpayer First Act of 2019. Taxpayers should use the new amounts when planning for their 2020 taxes. For example, starting in 2020, the penalty for failing to file a return goes up to $330.

The change with perhaps the most impact on the average taxpayer is an increase in the standard deduction. The Tax Cuts and Jobs Act of 2017 increased the standard deduction to the point where many taxpayers no longer see an advantage in itemizing. The standard deduction is further increasing in 2020:

  • Single/married, filing separately – increasing by $200 to $12,400
  • Married, filing jointly – increasing by $400 to $24,800
  • Head of household – increasing by $300 to $18,650

Other highlights of the changes

Also due to the Tax Cuts and Jobs Act, the personal exemption has been eliminated, as it was for 2019. For those who do benefit from itemizing, there is no longer any limitation on itemized deductions.

In 2019, the Alternative Minimum Tax exemption was $71,700. In 2020, it will go up to $72,900. The AMT begins phasing out at $518,400.

For tax year 2020, the maximum Earned Income Credit will be $6,660 for people with three or more qualifying children – up from $6,557 in 2019.

The maximum credit for adoptions is also going up in 2020, from $14,080 to $14,300.

You can now give up to $15,000 to a loved one without causing them to owe taxes, in both 2019 and 2020.

In 2019, the estate tax exclusion was $11,400,000. In 2020, it will be $11,580,000. The estate owes no taxes unless its value exceeds the exclusion amount.

If you contribute pre-tax money from your salary to a health flexible spending account, you can contribute $50 more than you did in 2019, or a total of $2,750. This money can be used to pay qualifying medical expenses, such as co-pays and deductibles.

The IRS makes inflation adjustments to a wide variety of rules. If you need more information about the 2020 changes for your tax planning, discuss your needs with an experienced tax attorney.

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