New Tax Changes Your Accounting Firm Should Know for 2020

The tax code never stands still, and 2020 has been especially busy. Not only does your accounting firm need to follow the normal updates, but you also need to keep pace with the legislation passed to deal with the COVID-19 crisis. We've put together a short summary of the new tax changes, along with what may be useful for your clients.

2020 tax brackets and standard deduction

The IRS increased the 2020 tax brackets for inflation:

They also increased the standard deduction. It's now $12,400 for singles, up from $12,200 in 2019. Meanwhile, it's increased to $24,800 for married joint filers, up from $24,400.

Higher retirement plan contribution limits

The IRS increased the contribution limits for workplace retirement accounts—401(k), 403(b) and most 457 plans—to a maximum up $19,500 per year, up from $19,000 in 2019. Employees who are 50 or older can make additional catch-up contributions of up to $6,500, versus $6,000 in 2019.

The IRS also increased the health savings account contribution limit to $3,550 for individuals and $7,100 for family plans, up from $3,500 and $7,000 in 2019.

However, the IRS did not increase the contribution limit for IRAs, which remain at $6,000 per year and an additional $1,000 for catch-up contributions. Make sure your clients are aware of the new limits, so they can save enough to max out their accounts.

Renewal of several tax breaks

Several tax breaks were scheduled to expire after 2019, but Congress renewed them for 2020. These include the deduction for mortgage insurance premiums, the deduction for college tuition, the $2 million exclusion for forgiven mortgage debt and tax credits for energy efficient upgrades to a home.

However, the investment tax credit has fallen to cover only 26% of the cost for investments like residential solar panels, geothermal heat pumps and residential wind turbines, versus 30% in 2019.

Extended tax payment deadlines

To help taxpayers manage with the COVID-19 disruption, the IRS extended the 2019 tax filing dealing from April 15 until July 15, 2020. They also moved the payment deadlines both for 2019 taxes and for the first two installments of 2020 estimated taxes until July 15, 2020.

If your clients have waited to file and pay, make sure they don't forget about the summer deadline. The IRS will start charging penalties and interest on unpaid taxes on July 16.

New sick and family leave credits

Under the Families First Coronavirus Response Act, the government law increased sick leave and family leave for workers who take time off during the crisis.

Workers who are sick themselves should be allowed to take up to two weeks and continue earning their full salary, up to a max of $511 per day. Workers who take time off to take care of a family member who is sick or out of school should be eligible for up to two-thirds of their salary, up to $200 per day, for 10 weeks.

To help employers manage these benefits, the government passed another tax credit to cover the full cost of anything paid for these programs. The tax credits are also refundable, in case costs exceed a business's taxes.

Extra CARES Act tax benefits

When Congress passed the CARES Act, they created several new tax changes and benefits as well. To support charities, the bill increased deductions for cash donations. In 2020, the 60% cap no longer applies for claiming cash donations as an itemized deduction, so donors could potentially deduct cash gifts up to 100% of their AGI this year. Non-itemizers can also write off up to $300 in cash charitable donations as an above the line deduction in 2020.

The bill also allows employers to pay off up to $5,250 for an employee's student loans and this payment is excluded from a worker's taxable wages. This could be a way for employers to offer an extra bonus during the COVID-19 crisis without increasing the amount an employee owes in taxes.

With the COVID-19 crisis still ongoing, new tax changes could still be on the way. Be sure to stay posted for future updates from the IRS that could affect your firm and your clients.