Audit defense service TaxAudit has released its annual list of tips taxpayers should know for…
Audit defense service TaxAudit has released its annual list of tips taxpayers should know for the 2020 tax filing season to minimize their tax burden and avoid owing back taxes — along with survey results that reveal continued confusion about tax laws.
As Americans face the second tax year since most of the changes of the Tax Cuts and Jobs Act (TCJA) went into effect, taxpayers have additional new rules to understand, including retroactively extended tax deductions, a raise in the standard deduction, a larger refundable amount of the Earned Income Tax Credit, higher limits for Roth IRAs, a credit amount increase for adoption, and more.
A survey conducted by TaxAudit this month of over 1,000 taxpayers revealed that there’s still plenty of confusion surrounding TCJA.
- Nearly half of taxpayers (45%) stated they are still confused about filing their taxes under TCJA.
- The majority of taxpayers (56%) are unsure whether TCJA has made it easier or harder for them to do their taxes while almost a quarter (23%) believe that it has made it harder.
- Almost half of taxpayers (45%) are unsure whether TCJA is better than the old tax law, though 25% disagree that it’s better.
- When asked what part of filing taxes they find most confusing, taxpayers ranked understanding tax credits, deductions, and whether or not to itemize as the highest.
- Nearly three-quarters (73%) of taxpayers are unaware of recent bills that have been enacted since TCJA including the Further Consolidated Appropriations Act in 2020, the SECURE Act in 2020, the Taxpayer First Act of 2019, and the Bipartisan Budget Act of 2018.
TaxAudit’s list of some of the changes for 2019 tax returns include:
The standard deduction has been raised. The standard deduction for single taxpayers and those married filing separately is $12,200 for 2019 tax returns. For married taxpayers filing jointly, it has been raised to $24,400 and for heads of households, the new deduction is $18,350. The new amounts for the 2020 tax year will be $12,400, $24,800, and $18,650.
New thresholds for contributing to traditional IRA and health savings accounts. This year’s IRA base contribution is $6,000 and the “catch-up” is $1,000, again for those 50 and older.
Health savings accounts (HSA) contribution limits have also increased for both self-only coverage and family coverage. The deadline to make contributions for the 2019 tax year is April 15th, 2020.
Higher limits for contributions to Roth IRAs. For 2019, single taxpayers with incomes below $122,000 and joint filers with incomes below $193,000 can contribute up to $6,000, or $7,000 for those over 50, directly to a Roth IRA.
The deadline for the 2019 tax year is April 15th, 2020. This income limit and deadline does not affect 401(K) Roth accounts.
Earned Income Credit has a larger refundable amount for tax years 2019 and 2020. The tax year 2019 maximum Earned Income Credit for lower income families will have a higher maximum amount of credit available at $6,557 for qualifying taxpayers who have three or more qualifying children. For 2020, the maximum credit amount will be $6,660.
Higher income thresholds for Child Tax Credit. The income limitation has been raised to above $200,000 for a single person and $400,000 for joint filers.
The credit per child under 17 years of age is now up to $2,000 of which $1,400 is a refundable credit. Even if your child turns 17 or you have other dependents, this is a $500 Other Dependent Credit.
- Credits and deductions extended retroactively to 2018. New legislation signed by the president late in December 2019 retroactively extended several popular tax breaks to 2018, such as the deductions for tuition and fees and mortgage insurance premiums.
There are also changes to the following tax rules which should be explored with your tax professional if applicable:
Higher limits for qualified transportation fringe benefits.
Higher credit amount for adoptions.
For U.S. taxpayers working abroad there is a higher exclusion amount.
Please note: This is only a short list of some of the tax changes in 2020. Please spend time learning about the rules at IRS.gov so you are knowledgeable about qualifying deductions, exemptions, and more that may help to reduce your tax burden.
Find out more at www.taxaudit.com.