4 Key Changes for Your 2020 Tax Return
Tax law changes are more modest this year, but there are still some interesting ways you might save money.
Last year was a tough one for taxpayers, because new laws took effect that dramatically changed how people had to file their tax returns. Even the returns themselves looked different, with the old 1040A and 1040EZ forms going away and requiring everyone to use the same main 1040 form.
However, even though there wasn’t a huge amount of tax reform for the 2019 tax year, you can still expect to see some key changes when it comes time to file your taxes. Let’s look at the biggest ones and how they could affect you.
- A new tax form for seniors
Last year, there was just one return option for taxpayers, but that’s changing this tax season. The IRS will roll out the new 1040-SR tax form, which is designed for those 65 or older.
The form looks a lot like the old 1040A form, with lines for many different types of income, deductions, and credits. With no limits on income, most people 65 and up should be able to use the form, simplifying their tax preparation and avoiding having to use the many forms and schedules associated with the regular 1040 that most people are required to file.
- Bigger contributions to retirement accounts
Those who saved for retirement in 2019 will be able to get even bigger rewards on their tax returns. Key contribution amounts for several different types of retirement accounts went up, giving people more opportunities to save.
IRA contribution limits went up by $500 to $6,000 for 2019, allowing taxpayers to boost the amount of tax deductible contributions they can make to traditional IRAs. At the same time, maximum contributions to 401(k) accounts also went up by $500, reaching $19,000. Those 50 or older get to add an extra $1,000 to their IRA contributions and $6,000 more to 401(k)s — with the 401(k) catch-up number up $500 from 2018’s $5,500 amount.
- An end to alimony deductions
Under old tax law, alimony was treated differently from other types of payments between previously married people. Those paying alimony got to deduct their payments, while those receiving alimony had to include it in their income.
Tax reform changed those rules, but only starting in 2019. Now, alimony payments are disregarded for tax purposes, meaning that they don’t give the payer a deduction or count as income for the recipient. That’s a lot simpler to manage, but it can mean higher taxes for alimony payers. Note, though, that those who got divorced before the end of 2018 can generally use the old rules as long as they haven’t made any modifications specifically claiming the new rules apply.
- A host of inflation-related adjustments
Finally, there are plenty of small tax law changes that reflect the impact of inflation. Among them are the following:
- Standard deductions rose $200 for singles and $400 for joint filers, to $12,200 and $24,400 respectively.
- Tax brackets got wider, reflecting increases of about 2%.
- Exemption from the alternative minimum tax also got an inflation boost.
You’ll see some other inflation adjustments also affect your taxes. The general idea is to make sure that taxes account for the impact of inflation, rather than simply causing you to pay progressively more in tax year in and year out.