January is always a good time to take stock of what you accomplished in the previous year and start planning for how you will accomplish your goals in the new one. The IRS released some important updates you should be aware of so you can plan accordingly.
- Tax Brackets: Each year the IRS adjusts the tax brackets to account for inflation. We recommend checking the new brackets to verify your federal income tax rate for the new year.
- Standard Deduction: The standard deduction increased to $12,400 from $12,200 for single filers. For married couples, the standard deduction increased from $24,400 to $24,800.
- Workplace Retirement Plan Contributions: Contribution limits increased for 401(k)s, 403(b)s, and most 457 plans to $19,500, up from $19,000 in 2019. If you are over age 50, the catch-up contribution amount increased to $6,500, up from $6,000. The maximum combined employer and employee contribution amount increased to $57,000 from $56,000 for persons under age 50. For those over 50, the maximum increased to $63,500 from $62,000. The employee compensation limit for calculating contributions increased to $285,000 from $280,000.
- Traditional and Roth IRAs: There was no change to the annual contribution limits for Traditional and Roth IRAs. That amount remains $6,000 if under age 50 and $7,000 if over age 50.
- SIMPLE and SEP IRAs: The contribution limit for SIMPLE IRAs increased to $13,500 from $13,000. The SIMPLE catch-up contribution limit for those over age 50 remains at $3,000. The SEP maximum compensation limit increased to $285,000 from $280,000.
- Health Savings Accounts (HSAs): If you are in a high deductible health plan, you may have access to an HSA. If you are the only person covered by your health plan, the HSA contribution limit was increased to $3,550 from $3,500. If family members are also on the plan, the contribution limit was increased to $7,100 from $7,000.
- Flexible Spending Accounts (FSAs): The healthcare FSA contribution limit was increased to $2,750 from $2,700.
- Lifetime Gift and Estate Tax Exemption: This exemption amount was increased to $11.58 million per individual, up from $11.40 million. For married couples the exemption amount is $23.16 million.
- Annual Gift Exclusion: This amount remains unchanged at $15,000.
- Child Tax Credit: This credit has been increased to $2,000 and is refundable up to $1,400. However, the AGI phaseout to claim this credit remained the same at $400,000 of income for married couples filing jointly.
- Student Loan Interest Deduction: The deductible amount remained at $2,500. However, this deduction is phased out for married couples filing jointly having between $70,000 and $140,000 of modified adjusted gross income. Single tax filers with annual income of $85,000 or more are completely phased out.
There are many other small changes that go into effect this year. We recommend you speak with your CPA or financial professional to get a comprehensive list.
Jeff Witz, CFP® welcomes readers’ questions. He can be reached at 800-883-8555 or at firstname.lastname@example.org.
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Effective June 21, 2005, newly issued Internal Revenue Service regulations require that certain types of written advice include a disclaimer. To the extent the preceding message contains written advice relating to a Federal tax issue, the written advice is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer, for the purposes of avoiding Federal tax penalties, and was not written to support the promotion or marketing of the transaction or matters discussed herein.
The information contained in this report is for informational purposes only. Any calculations have been made using techniques we consider reliable but are not guaranteed. Please contact your tax advisor to review this information and to consult with them regarding any questions you may have with respect to this communication.
MEDIQUS Asset Advisors, Inc. does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.