2020 income tax rates and inflation-adjusted tax brackets
Retirement plan tax inflation adjustments for 2020

Standard & itemized tax deductions for the 2020 tax year


Welcome to Part 2 of the ol' blog's 2020 series on tax inflation adjustments. 
We started on Nov. 6 with a look at next year's income tax brackets and rates.
Today we look at standard and itemized deductions,
certain limitations on some Schedule A claims
and the sort-of still around personal exemption amount.
Note: The 2020 figures in this post apply to 2020 returns to be filed in 2021.
For comparison purposes, you'll also find 2019 amounts to be used
in filing 2019 returns due April 15, 2020.


I love tax deductions button

Historically, around 70 percent of filers have claimed the standard deduction on their tax returns instead of itemizing.

The main reason for the standard deduction's popularity is that it's easier to claim. There's no need to keep receipts and statements. All you do is just look at your Form 1040 and use the standard deduction amount for your filing status shown there.

The Internal Revenue Service is still tallying the 2019 tax season data, but some estimates expect the final results to show even more standard deduction claims, possibly as high as 90 percent.

That's because of a key change created by the Tax Cuts and Jobs Act (TCJA), which took full effect with 2018 returns filed this year. The tax reform law almost doubled the standard amounts.

It also kept the existing law that mandates annual inflation adjustments of the amounts.

Inflation deduction increase: The IRS released those standard deduction adjustments this week.

For 2020 tax returns due in 2021, the standard deduction amounts for most taxpayers younger than 65 are:

  • $12,400 for single taxpayers and married taxpayers filing separate returns, $200 more than in 2019;
  • $18,650 for heads of household, $300 more than this year; and
  • $24,800 for married filing jointly couples and surviving spouses, $400 more than in 2019.

I know it's easy math, but so you don't have to bother, the table below show the differences in this and next tax year's standard deduction amounts are:


 Filing Status
    

 2019
 Standard Deductions
 Use these amounts
 to file 2019 taxes in 2020

 2020
 Standard Deductions
 Use these amounts
 to file 2020 taxes in 2021

 Single 

 $12,200

 $12,400

 Head of   Household 

 $18,350

 $18,650

 Married
 Filing Jointly 

 $24,400

 $24,800

 Qualifying Widow
 or Widower
 (Surviving Spouse) 


 $24,400


 $24,800

 Married
 Filing Separately 

 $12,200 

 $12,400 


Age adds to deductions: I've been doing this long enough now to know that readers of the ol' blog caught my earlier reference to "most taxpayers younger than 65" when it comes to standard deduction amounts.

The age distinction is important because tax code allows older filers and those who are visually impaired to claim additional standard deduction amounts. You do so by ticking a checkbox on your tax return.

Each added standard deduction amount option is separate for each filer, meaning that an older married couple could check up to four boxes on their joint return. The total number of boxes checked then is used to determine the filer(s) standard deduction amount.

For the 2020 tax year, aged or blind filers get an additional standard deduction amount of $1,300. That's the same as it is for 2019 taxes.

This added standard deduction amount increases to $1,650 if the individual also is unmarried and not a surviving spouse. Again, that's no change from this year's amount.

And if you're a tax filer who also can be claimed as a dependent of another taxpayer, in 2020 your standard deduction amount cannot be more than the greater of either $1,100 or $350 plus your earned income. This is the same standard deduction requirement as for 2019 tax returns.

Itemized deduction issues: Part of your annual tax planning is determining whether you'd be better off claiming the standard deduction or itemizing the expenses you can claim on Schedule A.

While the TCJA changes mean most filers will take the easier standard deduction route, don't assume. You know that old tax saying: Assuming can get your a$$ kicked by the IRS in the form of a higher tax bill. Or something like that.

You always want to use the deduction method that gives you the larger amount to offset your income. You're not locked into any one way. It's a decision you make each tax year. One year, itemizing might be better. The next year, it's wise to take the standard deduction.

Knowing what's available on the standard side gives you a baseline to use in measuring your potential itemized expenses.

For some folks, even under the new tax law, their total itemized deduction amount will still be more than their standard deduction amount. In these cases, by all means itemize.

Limits on itemized expenses: During the 2019 filing season, taxpayers who itemized got a little good news and a lot of bad news.

The one bit of good news is that there is no longer any limit on total Schedule A claims based on a filer's income. This so-called Pease limitation, one of several laws named after their advocates, in this case the late Rep. Don Pease (D-Ohio) who championed the deduction limits on higher-income taxpayers, was repealed by the TCJA for tax years 2018 through 2025.

But the TCJA brought more bad Schedule A news.

You no longer can claim miscellaneous expenses. This is the section that was limited to 2 percent of your adjusted gross income (AGI). That threshold meant that it wasn't a widely claimed itemized expense. It was popular, however, among employees who paid for some business expenses and weren't reimbursed by their bosses. Now, at least through 2025, they no longer have a tax way to recoup these costs.

Then there's the widely debated, in tax policy circles as well as courtrooms, the $10,000 cap on state and local taxes (SALT) that can be claimed as itemized expenses. The limit is $5,000 for married taxpayers filing separately. This cap is per tax return, not taxpayers, meaning a married couple filing jointly has the same limit as a single taxpayer.

If you're a homeowner with a big local real estate tax bill, you're already painfully aware of this change. Some states are tried working around the limit with charitable tax credit programs since charitable donation claims remain unlimited. But the IRS said no way and a federal judge recently upheld Uncle Sam's position.

Note that the $10,000 cap also covers deductible state income and sales tax amounts. So if you're not a taxable property owner but live in a state with a high income tax, you could be hit here, too.

Medical and dental expenses remain, but for the 2020 tax year they must exceed 10 percent of your AGI. It's possible that Congress could keep the 7.5 percent threshold that was in effect for the 2018 tax year as part of tax extenders legislation. Keep an eye on this possibility and the ol' tax blog, which will let you know if or when these expired tax breaks are renewed.

As noted in the SALT workaround discussion, the itemized deduction for donations to charity remains under the TCJA and even is enhanced a bit. Now if you can afford to be super generous, you can donate up to 60 percent of your income instead of the prior 50 percent limit.

Finally, claims for casualty losses also are still allowed, but now only in cases of major disasters.

The end, sorta, of exemptions: In addition to the TCJA changes to itemized deductions, the new tax law also eliminated, at least through 2025, the personal exemption.

Exemptions were a specific dollar amount, adjusted annually for inflation, that taxpayers could claim for themselves, their spouses if filing jointly and dependents. The exemptions total helped reduce the amount of filers' income subject to tax.

TCJA supporters say the exemption elimination isn't a big deal, although some filers with larger families disagree. The exemption loss is offset, they argue, by the new larger standard deduction amounts and expansion of the child tax credit and the new credit for other dependents.

However, an exemption amount still is used in other parts of the tax code. It comes into play in some tax situations where determining eligibility for or how much of a tax break you get depends on the old, now-gone exemption amount.

Since the tax law changes didn't mean to invalidate these cases, the IRS says that to deal with the now zero exemption amount it will use pre-TCJA exemption data. Specifically for tax years through 2025, the IRS will continue to calculate annual inflation amount for technically non-existent exemptions which must be used in these other tax cases.

For the 2020 tax year, the deemed exemption amount is $4,300. That's $100 more than the 2019 amount of $4,200.

More inflation info on the way: OK, that's is for the second part of the ol' blog's 2020 tax inflation adjustments series.

Yes, it does contain a lot a numbers. Again, that's why I'm breaking all the inflation amounts into a series of smaller, more focused posts. Even my eyes, those of a dedicated tax geek, glaze over after a certain point.

But I do hope that this series of inflation text, tables, explanations and elaborations help as you look toward your 2019 return filing and making tax savvy moves in the coming weeks and months to lower your 2020 tax bill.

And stayed tuned! More inflation figures are on the way.

Up next is an area near and dear to my heart, inflation's effects on tax-favored retirement and pension plan contributions.

As noted in the intro to this post, you can read the first part of the 2020 tax inflation series with details on next year's tax rates and income brackets.

You'll also find at the end of that post an index of what's coming up, along with links to inflation pieces already published.

Advertisements

 

 

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Comments are moderated, and will not appear until the author has approved them.

Your Information

(Name and email address are required. Email address will not be displayed with the comment.)