The end of a calendar year often brings last minute tax planning. Taxpayers rush to harvest capital losses, make additional IRA contributions, prepay deductible expenses, or “bunch” charitable contribution deductions into a donor-advised fund, all in effort to lower an April tax bill. Amidst the flurry of last-minute tax planning, the end of a calendar year is an optimal time to review changes that may impact planning in the upcoming year. Expect inflation adjustments. The 2020 inflation adjustments include an increase in the standard deduction from $24,400 to $24,800 for married taxpayers, from $12,200 to $12,400 for single taxpayers, and from $18,350 to $18,650 for heads of household. Additional inflation adjustments also include an increase in the credit allowed for adopting a child with special needs from $14,080 to $14,300 and an increase in the penalty for failure to file a tax return within 60-days from $205 to $330.
Be aware of adjustments to the income tax brackets. The 2020 tax rates themselves will remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37% respectively, however, the transition point from one rate to the next will increase. The tables below provide a comparison of the 2019 and 2020 rates and brackets.
2020 Tax Preview