Things are in constant flux – especially when it comes to tax requirements. This fiscal year, the Internal Revenue Service adjusted several tax laws and many of the changes yield large benefits if you are prepared. Stableford has created a free eGuide Tax Planning Tax Code Reforms that details the 2020 tax changes. Here’s an overview of the helpful information in the guide.
New Benefits for Families
The typical American family will see a lot of benefit in the 2020 federal tax laws. A nice benefit is there is no longer a marriage penalty for married couples who make under $400,000. And they’ll receive double the child credit, which is $2,000 for children under the age of 17.
Now, families who want to send children to private school can take advantage of the tax-advantaged 529 investment plans. In 2020, the plans now include tuition for kindergartners to college-aged students.
2020 Tax Changes for Individuals
Personal tax exemptions have been eliminated for 2020. Exemptions that are higher than the $12,000 standard deduction for individuals; or $24,000 for couples, are itemized additions to the standard deduction.
And the alternative minimum tax has been increased to a $1 million threshold.
Secure Act Increases 401K Enrollment Caps
This new reform helps anyone who is saving for future retirement. Not only has the 401K automatic enrollment cap been raised to 15% of eligible income, but workers can contribute longer. The automatic contributions to a 401K can continue until 70 ½.
This is an important benefit anyone who wants to work several years beyond their standard retirement age to build up retirement savings.
The Secure Act offers a new tax benefit to help growing families welcome new arrivals. Families can withdraw up to $5,000 per person from retirement plans without incurring a penalty–free when a child is born or adopted.
Individuals, Watch for These Changes
The 2020 tax changes adjusted the amount of mortgage interest deduction that can be claimed from $1 million to $750,000. And only $10,000 of income and real estate taxes can be deducted.
Although this may sound like bad news, some additional adjustments such as moving out of the alternative minimum tax threshold helps to reduce the negative impact. An experienced tax planner can help.
Several job-related fees can no longer be deducted, including CPA, and moving fees are no longer deductible. Other areas have been impacted, including IRA withdrawals. Download the free eBook, Tax Planning with Tax Code Reforms for more information.
Business Tax Benefits
The tax changes spell big benefits for big business. In 2018, the tax rate for “C” corporations was cut from 35% to 21% and the minimum tax rate for corporations was repealed. The tax reduction allows companies to share their wealth with their employees and the community, benefiting them both.
Small business owners that make $150,000 or less have a 9% tax rate, while those who make more than $260,000 will now pay 25% instead of 30%. Unfortunately, service or consultant benefits do not benefit from this lower tax rate.
Equipment depreciation has changed. Instead of depreciating over the years, business owners planning expensive equipment purchases in 2021, 2022 and 2023 can write off 100% of the expense in 2020, which can offset a year when revenue has been impacted by the pandemic.
2020 Tax Changes Tips
There are tax tips that should be applied every year. Maximizing retirement savings is always a good idea because you can defer taxes. While funding a health savings account offers a tax-free way to pay for medical expenses.
Another great tip to ensure you are not paying too much, overlooking deduction opportunities or missing out on 2020 tax changes is to work with a skilled tax planning professional. Click here or the button below!
Make a Plan
If you want to maximize tax savings and leverage tax planning in your financial investment plan, choose an individual with financial knowledge and experience. While a tax preparer can certainly help you take advantage of tax planning to ensure that your overall financial plan is working for you.
Stableford Capital’s tax planning experts can help you maximize savings, deductions and create a long-term strategy that can maximize your tax plan for many years to come. Contact a Stableford financial advisor or call 480.493.2300.