It’s never too early to start putting money aside for retirement and reduce your tax bill. IRS amended on inflation in a number of bets from the amount you can contribute into a retirement plan 401 (k), to individual income tax rates, writes CNBC.
Please note your standard deduction for the 2020 tax year. The IRS increased it to 12 $ 400 for those who are not married, compared to 12 200 dollars in the previous year.
The standard deduction for couples will be 24 $ 800, compared to 24 $ 400 in 2019.
The IRS raised the annual limit for employee contributions to savings accounts retirement plans 401 (K), 403 (B) and most 457 plans up to 19 $ 500, compared with 19 000 dollars in 2019.
If you are 50 years or more, you can further save another 6 500 dollars. This is compared to $ 6,000 in 2019.
Limit contributions to individual retirement accounts, whether traditional or Roth, remains stable at the level of $ 6,000, plus $ 1,000 for investors aged 50 years and older.
On topic: Pay taxes. Important tips for American taxpayers
One caveat: the IRS limits the ability of persons receiving high incomes and make direct contributions to Roth IRA accounts money with which can after retirement to use without paying taxes on them.
In 2020, if your adjusted gross income is more than 124 000 dollars for a single person and 196 000 dollars for married couples filing a joint return, you cannot make the entire contribution directly to a Roth IRA.
Instead, investors can consider using a strategy known as the “backdoor Roth” when they put the money in a traditional IRA, and then transfer that contribution to a Roth.
Opportunities to save on medical services
If you bought a health insurance plan with a high deductible for the year 2020, it is likely that you have access to a health savings account (HSA — Health Savings Account).
Such accounts allow you to defer tax-free money, or money with deductions and accumulate them without paying taxes. You can use the funds from these accounts to cover costs for qualified medical services.
In 2020, you can save up to 3 $ 550 if you purchased a care plan for yourself. This compared to $ 3,500 in 2019. The owners family insurance plans can save up to 7 100 dollars on this account (compared to 7 000 dollars in 2019).
HSA is different from flexible spending accounts for health care (FSA — Flexible Spending Account), before you can transfer your HSA balance from year to year. Money in FSA accounts must be used to the end of the plan year.
The IRS also increased the amount you can save through the FSA: it will be 2 $ 750 in 2020, compared with 2,700 dollars in 2019.
Savings on gift and estate tax
Good news for the heirs of millionaires. Tax reform 2017 almost doubled the amount that individuals can give in a lifetime, or to bequeath after death, avoiding payment on her Federal taxes on property and donations. The rate of such taxes is 40%.
Before the reform, without the payment of Federal taxes throughout their lives could donate or bequeath assets worth up to 5.49 million dollars per person. In 2020, the limit is increased to 11.58 million dollars per person, compared with $ 11.4 million in 2019.