Tax Day 2020: 5 Important Things to Know

Last year was the first tax season affected by the recently passed Tax Cuts and Jobs Act of 2017, meaning taxpayers are still getting used to the changes this legislation brought on. But since last year's filing, a few additional changes have occurred, which we’ll discuss below.

1. 2019 Filing Deadline Moved to July 15

The Tax Filing Relief for America Act extended the 2019 tax filing deadline from April 15, 2020 to July 15, 2020.¹ For those who pay quarterly estimated taxes, federal taxes for Q1 and Q2 are both also due on July 15.  Most states are following the federal changes, but not all.   Check for your state’s deadlines here².

2. Increased 401k and IRA Contribution Limits

The contribution limits for both IRAs and 401(k)s increased for the 2019 tax year. Eligible employees interested in contributing to their employer-sponsored 401(k), 403(b), 457 or Thrift Savings Plan can contribute up to $19,000 - an increase of $500 compared to the 2018 limit of $18,500.³  Those over 50 can make an additional “catch-up” contribution of $6,000, for a total of $25,000.  (The contribution limit increases to $19,500 for the 2020 tax year, and the catch-up moves to $6,500, for a total of $26,000.)⁴

IRA contribution limits for 2019 have also increased, for the first time since 2013. Compared to the previous limit of $5,500, individuals can now contribute up to $6,000 to their IRA account starting with the 2019 tax year. Catch-up contributions for those over the age of 50 remain at an additional $1,000, or $7,000 total.³ (2020 IRA limits are the same as for 2019.)⁵

3. Higher Standard Deductions

One of the more notable changes brought on by the Tax Cuts and Jobs Act of 2017 was that the standard deductions were roughly doubled. This has let millions of taxpayers avoid the hassle of itemizing their deductions. The Tax Foundation estimates that only 13.7% of taxpayers will itemize in 2019, whereas before the TCJA about 31.1% would have itemized.⁶ The standard deductions increased slightly for 2019 to the following amounts:

• Single or married filing separately: $12,200
• Married filing jointly or qualifying widow(er): $24,400
• Head of household: $18,350⁷

Taxpayers must decide if the standard deduction is larger than their individually itemized deductions, which may include:

• Interest on mortgages up to $750,000
• Interest on mortgage of $1 million or less if incurred before Dec. 16, 2017
• Charitable contributions
• Medical and dental expenses (over 7.5% of AGI)
• State and local income, sales, and personal property taxes up to $10,000
• Gambling losses
• Investment interest expenses⁸

There are, however, certain “above the line” deductions that you can still claim even if you use the standard deduction:

• Cash donations to charity up to $300 (from the CARES Act of 2020)
• Contributions to IRAs or HSAs (if not deducted from payroll)
• Self-employed contributions to a SEP, SIMPLE  or solo 401(k) retirement plan
• 50% of self-employed Social Security and Medicare taxes paid
• Self-employed health insurance premiums
• Alimony payments under divorce agreements prior to December 31, 2018
• Up to $4,000 in college tuition and fees (income limits apply)
• Up to $2,500 in student loan interest (income limits apply)
• Up to $250 for educators buying classroom supplies
• Military service-related moving expenses⁹

4. No Health Insurance Penalty

In previous years, taxpayers were at risk of being penalized if they did not have health insurance. Starting in 2019, the IRS has removed the penalty. Taxpayers no longer have to pay $695 if they are unable to provide proof of coverage.¹⁰  

5. Tax Bracket Adjustments

There have been some small changes in the breakpoints for tax brackets, as shown below. The tax rates, however, have stayed the same.

While reviewing the table below, it’s important to remember that the tax rate is not a flat percentage. For example, if you make $50,000, you are not taxed a flat rate of 22 percent. Instead, the first portion is taxed at 10 percent, the next part at 12 percent, and the remaining amount up to the $50,000 is taxed at 22 percent.¹¹

Tax Brackets & Tax Rates For 2019¹¹

As you prepare to file your tax return this year, it’s important to remain up-to-date on recent changes that have taken place. While this year’s tax deadline has been extended, remember to meet with your CPA or other tax advisor early to thoroughly prepare for the July 15 deadline.

1. https://www.thune.senate.gov/public/index.cfm/2020/3/thune-daines-and-king-introduce-bill-to-extend-the-tax-filing-deadline-provide-additional-relief-to-middle-income-americans
2. https://taxfoundation.org/2020-quarterly-estimated-tax-payments-2019-tax-returns/#:
3. https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19000-for-2019-ira-limit-increases-to-6000
4. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions#:
5. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits#:~:
6. https://taxfoundation.org/standard-deduction-itemized-deductions-current-law-2019/
7. https://www.irs.gov/pub/irs-pdf/p501.pdf
8. https://www.investopedia.com/articles/taxes/08/itemized-deductions-overview.asp
9. https://www.kiplinger.com/slideshow/taxes/T054-S001-tax-deductions-if-you-claim-the-standard-deduction/index.html
10. https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2019
11. https://www.irs.gov/pub/irs-drop/rp-18-57.pdf

This content is developed from sources believed to be providing accurate information, and provided by Sapient Investmetns. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered tax advice or a solicitation for the purchase or sale of any security.