2020 doesn't just mark a new year, but the beginning of a new decade—and with it, some more changes to the federal tax code. It can often be easy to put tax preparation on the back burner, but being proactive can help you save time, money, and hassle. What steps can you take now to help the 2020 tax season go as smoothly as possible?
Review 2019 Tax Changes
The 2019 tax season was the first time that most taxpayers saw the impact of the Tax Cuts and Jobs Act. But with even more tax tweaks for 2020, including an end to taxable or tax-deductible alimony and the elimination of the Affordable Care Act (ACA) penalty, you don't want to assume that this tax season will be business as usual.
It's a good idea to review your 2019 tax return before you begin working on your next one, especially if you don't expect many changes in your own information. But you'll also want to review some of the changes that were enacted between 2018 and 2019, including:
- Changes in the tax treatment of alimony, which will no longer be tax-deductible to the payor or taxable to the recipient if the divorce occurred after December 31, 20181;
- An end to the "ACA penalty," or the penalty assessed on taxpayers who lacked health insurance at some point during the year;
- Changes in the mileage allowance amount for those who deduct mileage expenses; and
- An increase in the threshold for deductible medical expenses from 7.5 percent to 10 percent of Adjusted Gross Income (AGI).2
Not all of these changes will apply to every taxpayer, but being aware of them can help you make better financial decisions.
Take Advantage of Last-Minute Deductions
Taxpayers have until April 15, 2020 to contribute to their traditional or Roth IRA for 2019. If you can get a rough idea of your total tax liability early in 2020, you're in a good position to realize instant tax savings by making a deductible IRA contribution, "capturing" some investment losses, or contributing to a 529 college savings account (or another tax-advantaged savings vehicle) before April 15.
CLICK HERE for a Home Mortgage Deduction Calculator
Be Ready for Adjustments
Although being well-prepared is the key to a smoother tax season, it's important to remember that the IRS can (and often does) make changes to its forms at the last minute. In December 2017, the Tax Cuts and Jobs Act was passed into law less than two weeks before it took effect; many of the IRS's experienced tax professionals spent the next year working hard to interpret these regulations and revising their forms to maintain accuracy.
This penchant for last-minute changes can mean that if you download tax forms in October and don't bother to check back again before April, you could be working with outdated information. Before sitting down to begin your tax preparation in earnest, check the IRS's website to ensure that the forms and instructions on which you're relying are the most current ones.
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