Tax Day 2020: 5 Important Things to Know

For many Americans, tax season has taken a back seat to the recent COVID-19 pandemic and volatile economic situation But as you prepare to file for the 2019 tax season this year, there are a few important changes to keep in mind.

1. COVID-19’s Impact on Tax Season

The Tax Filing Relief for America Act was recently passed, which extends the 2019 tax filing deadline from April 15, 2020 to July 15, 2020.  With so much confusion amid the recent outbreak, this extension will allow individuals to take extra time, if needed, to file confidently.

Taxpayers that will be making 2020 quarterly estimated federal tax payments can also defer until July 15th their 1st quarter estimated federal income tax payment (normally due April 15th).

The due date for 2nd quarter estimated tax payments (normally due June 15th) has also been extended to July 15th.   As always, check with your tax advisor regarding your individual situation.

Unlike the federal government, Illinois has not extended the April 15, 2020 due date for first quarter estimated tax payments.

2. IRA Contribution Limits

If you haven’t taken advantage of contributing to your IRA for 2019, now may be an ideal time to make a contribution.  For 2019, IRA contribution limits are $6,000, with an additional "catch-up" contribution of $1,000 for those age 50 or older.  The deadline for making a 2019 contribution to an IRA has been extended to July 15th.  For the 2020 tax year, IRA contribution limits remain the same.

The contribution limits for 401(k)s have increased for 2020. Eligible employees interested in contributing to their employer-sponsored 401(k), 403(b), 457 or Thrift Savings Plan can contribute up to $19,500, with an additional "catch-up" contribution of $6,500 for employees over age 50.

3. Simplified Tax Standard Deductions

One of the more notable changes brought on by the Tax Cuts and Jobs Act of 2017 was the increase in standard tax deductions for taxpayers. The increased deduction reduces taxable income for every household before heading to the next set of filing provisions. While taxpayers are still able to itemize, this change was introduced in part to encourage more taxpayers to take the standard deductions offered.

In 2019, the standard deduction amounts increased to:

• Single or married filing separately: $12,200
• Married filing jointly or qualifying widow(er): $24,400
• Head of household: $18,350

4. Health Insurance Penalty

In the previous year, taxpayers were at risk of receiving a penalty if they did not have health insurance. While there’s been a lot of political back and forth regarding the Affordable Health Care Act, the IRS has removed the penalty for the 2019 tax season. Previously per the Tax Cuts and Job Acts of 2017, taxpayers would be required to pay $695 if they couldn’t provide proof of coverage.

5. Tax Bracket Adjustments

As you determine what tax bracket you fall into, it’s important to know that there have been some small adjustments to the brackets themselves. 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 file as single, and 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.

Tax Brackets & Tax Rates For 2019

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The author does not intend to provide investment, legal or tax advice as these materials are for general educational purposes only.  Please consult your legal, tax or investment professional for advice on your particular situation. This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. It is not intended to be a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Investing involves risk including the possible loss of principal. Past performance does not guarantee future results. Please refer to RRCM’s Form ADV Part 2 for additional disclosures regarding RRCM and its practices.