Posted by Fred Lake

Just Released; The New 2020 Tax Rates

Just Released; The New 2020 Tax Rates

The Bureau of Labor Statistics of the United States has said that the consumer price index (CPI) rose 0.1% in August, after rising 0.3% in July. This is what it means for taxpayers in 2020, with the first glimpse of rates expected for next year.

The CPI estimates the value of goods and services or the cost of living. Under the Tax Cuts and Job Act (TCJA), the IRS now calculates cost-of-living adjustments using a "chain" CPI. The chained CPI measures consumer response to rising prices rather than just measuring higher rates. This means for taxpayers that inflation-related adjustments will seem less pressing: most inflation-adjusted data, including dollar tax thresholds, are expected to increase by less than 1.5% by 2020.

It is expected that a slight increase in most inflation-adjusted data this year, as expected, partly because of the use of the CPI to measure the cost of living and partly because of the slowdown of "total inflation" growth. The forecasts help taxpayers and tax planners to begin the 2020 tax planning season before the Internal Revenue Service releases official inflation figures for 2020. 

Tax Bracket

The rates for 2020 are shown below:

Capital Gains

Rates of Capital Gains will not change until 2020, but the rate bracket will change. Most taxpayers pay a maximum rate of 15%, but a rate of 20% is applied to the extent that the taxable profit exceeds the 37% standard rate limits. Exceptions also apply for art, collectibles, and benefits under section 1250 (depreciation-related).

Personal exemption values

Under the TCJA, there are no personal exemptions for 2020. Personal exemptions are used to reduce taxable income before determining the tax liability. As a general rule, you have been granted an exception (unless another taxpayer declares you an employee), a spousal exemption if you have made a joint declaration and a personal exemption for each of your dependent family members, this is no longer the case.  

For the purposes of defining a qualified parent, the value of the exemption is $4,250 ($4,300). The initial amount, $4,250, is the amount that we consider a strict application of the IRC provision, but the value in parentheses is the amount that the IRS expects to publish. 

Standard deduction

As part of the TCJA, the value of the standard deduction has doubled for most taxpayers by 2018. With inflation, these values remain the same for most taxpayers next year. 

Also, by 2020, the standard deduction for a person who can be claimed as an employee of another taxpayer must not exceed $1,100 or the sum of $350 plus the individual earned income.

The value of the additional lump sum deduction for the senior or visually impaired will be $1,350. The amount of the additional lump sum deduction will increase to $1,650 if the person is also single and not a surviving spouse.

For high-income taxpayers who describe the deductions in detail, the Pease limitations, which bear the name of the former representative Don Pease (D-OH), were used to limit or eliminate certain deductions. However, following the TCJA, there are no Pease limitations in 2020.

Section 199A deduction (also known as a pass-through deduction)

Under the TCJA, sole proprietorships and transfer companies can benefit from a deduction of up to 20% to reduce the corporation's income tax rate. The deduction is subject to limits and values per phase. 

Alternative Minimum Tax (AMT)

The AMT exemption rate is also subject to inflation. 

Kiddie Tax

Until 2020, the amount of the standard deduction for a person who can be claimed as a dependent of another taxpayer must not exceed $1,100 or the sum of $350 and the individual's earned income (which must not exceed the amount of regular standard deduction rate).

According to TCJA, your child must pay non-commercial income taxes, but if this amount is more significant than $1,100 but less than $11,000, you can choose to include this income on your tax return instead of filing a separate return for your child.

Federal Estate tax exclusion

The exclusion from the federal estate tax will increase to $11.58 million per person or $23.16 million per couple.

Exclusion of taxes on gifts

The annual federal gift tax exemption for donations will continue to be $15,000 by 2020. This means that you can donate $15,000 per person to as many people as you want, without the consequences of the Federal gift tax in 2019; if you share gifts with your husband, the total will be $30,000 per person.

Fred Lake
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