We have entered 2020 and with a new year comes a new set of laws to consider when planning for your taxes.

While many of the sweeping reforms that were part of the Tax Cuts and Jobs Act of 2017 were implemented last year, a few things will apply for the first time when you file your 2019 return. On December 20, 2019, the President signed the SECURE Act that contains sweeping changes to retirement accounts, but also contained some provisions that may affect your 2019 income tax return.  As you prepare for the upcoming tax season, keep these key changes in mind to maximize savings on your tax bill.

Estate tax exemptions have been raised

The federal estate tax exemption more than doubled for 2018, and while the rate did not see another increase at such a level, it was adjusted for inflation. Starting in 2020, you can inherit up to $11.58 million in your lifetime before the estate is hit with the 40% tax. Such exemptions are scheduled to continue upward growth each year until they peak in 2025, reverting to the 2017 schedule in 2026.  Please reach out to your Advisor on ways to use this higher exemption while it is still available.

Health-related laws are different

This year’s filing will apply several changes related to healthcare coverage and expenses.

HSA contribution limits increase
Health savings account contribution limits have increased to $3,550 for self-coverage and $7,100 for family coverage. Plus, contributors age 55 or older get a $1,000 catch-up benefit, similar to catch-up opportunities available through retirement accounts. These valuable accounts allow for tax-free contributions, indefinite rollover, and investment for added tax-free growth. Likewise, withdrawals are tax-free, so long as they’re used for qualified medical expenses.

Medical expense threshold remains at 7.5%
One of the provisions in the recently passed SECURE Act held the threshold for medical expenses at 7.5% of annual gross adjusted income.  This threshold was scheduled to revert back to 10%.

Individual mandate penalty eliminated
The penalty for not having health insurance no longer applies to 2019 federal tax returns. The individual mandate penalty (also known as the shared responsibility payment) applied to those who were required by the Affordable Care Act to have health insurance but didn’t obtain coverage and didn’t qualify for an exemption. The penalty was previously due along with tax payments.

Alimony payments for new divorce agreements are not deductible
For divorce agreements finalized or modified on or after January 1, 2019, alimony payments are not tax-deductible for the payer, nor is the recipient required to claim alimony as taxable income.

For divorce agreements finalized or modified prior to January 1, 2019, the old federal income tax treatment applies. So long as payers satisfy requirements for deductible alimony, payments may still qualify as tax-deductible and alimony payments are included in the payee’s taxable income.

Retirement contribution limits are higher
Contribution limits to both traditional 401(k) plans and traditional individual retirement accounts (IRAs) increased for the 2019 tax year, which could add up to advantageous tax savings.

Contribution limits for 2019
401(k) Base Contribution:
$19,000
Additional $6,000 catch-up contribution allowed for taxpayers age 50 and older.

IRA Base Contribution:
$6,000
Additional $1,000 catch-up contribution allowed for taxpayers age 50 and older.

If you didn’t maximize this expedient way to trim tax bills in 2019, there is an even greater incentive to do so in 2020. Limits for 401(k) contributions will see an additional $500 increase for younger workers and a $1,000 boost for those 50 or older. And while limits for IRA’s won’t change for 2020, higher earners will gain a bit more leeway in funding a Roth IRA thanks to an increase in income thresholds. Contributions will begin to phase out when income reaches $124,000 for single tax filers and $196,000 for couples and barred completely for individual incomes of $139,000 or joint incomes of $206,000.

Tax brackets have been adjusted for inflation

The tax reform kept the number of tax rates at seven and that remains the same for 2019 returns, though the tax brackets/income ranges have been adjusted for inflation. To see if your rate has changed since last year, compare the tax rates and brackets for 2018 and 2019 by clicking here.

The standard deduction has increased

The standard deduction effectively doubled in 2018, causing many taxpayers who had previously itemized to instead take the standard deduction. The rate of standard deduction has increased again for 2019, albeit slightly, to $12,200 for single taxpayers and $24,400 for married couples.

For more information about the tax changes in effect for 2019, click here to visit details from USA.gov.

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As always, these are my own opinions and suggestions, and they could change due to market or economic conditions, or other factors. It’s best to engage tax and legal counsel before taking action, as this commentary is not intended to serve as tax or legal advice.

When it comes to tax preparation related to your investments, there’s always a lot to think about. Your Bartlett wealth advisor can help you consider your tax situation, alongside your other advisors, to determine which strategies make the most sense for you.