IRS Publishes Inflation Adjustments for 2020

The IRS has announced the tax year 2020 annual inflation adjustments, including the tax rate schedules and other tax items. Learn how it may affect you.

As it typically does, the IRS has made inflation adjustments for various tax items for the coming year — 2020. More details can be found in Rev. Proc. 2019-44. Below are the adjustments that apply to a wide range of taxpayers.

Inflation Adjustments

The standard deduction for married filing jointly rises to $24,800 for tax year 2020, up $400 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,400 for 2020, up $200, and for heads of households, the standard deduction will be $18,650 for tax year 2020, up $300.

The personal exemption for tax year 2020 remains at 0, as it was for 2019. This elimination of the personal exemption was a provision of the Tax Cuts and Jobs Act.

Marginal rates: For tax year 2020, the top tax rate remains 37% for individual single taxpayers with incomes higher than $518,400 ($622,050 for married couples filing jointly). The other rates are:

  • 35% for incomes over $207,350 ($414,700 for married couples filing jointly).
  • 32% for incomes over $163,300 ($326,600 for married couples filing jointly).
  • 24% for incomes over $85,525 ($171,050 for married couples filing jointly).
  • 22% for incomes over $40,125 ($80,250 for married couples filing jointly).
  • 12% for incomes over $9,875 ($19,750 for married couples filing jointly).
  • The lowest rate is 10% for single individuals with incomes of $9,875 or less ($19,750 for married couples filing jointly).

For 2020, as in 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.

inflation adjustments

Additional Inflation Adjustments

The alternative minimum tax exemption amount for tax year 2020 is $72,900, and it begins to phase out at $518,400 ($113,400 for married couples filing jointly, for whom the exemption begins to phase out at $1,036,800). The 2019 exemption amount was $71,700, and began to phase out at $510,300 ($111,700, for married couples filing jointly, for whom the exemption began to phase out at $1,020,600).

The new maximum earned income credit amount is $6,660 for qualifying taxpayers who have three or more qualifying children, up from a total of $6,557 for tax year 2019.

The qualified transportation fringe benefit now has a monthly limitation of $270. The monthly limitation for qualified parking is the same, up from $265 for tax year 2019.

The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements is $2,750, up $50 from the limit for 2019.

The annual exclusion for gifts is $15,000 for calendar year 2020, as it was for calendar year 2019.

This is not a comprehensive list, and there are subtleties that you should discuss with a professional in the new year.

© 2019

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How to Avoid the Top 10 Estate Planning Errors

Estate planning can get very complicated, and by the time you realize you’ve made a mistake, it may be too late. Learn more and be prepared.

There are myths and misconceptions about estate planning. Here are the top common mistakes to avoid and help your family save thousands of dollars in unnecessary taxes and probate fees:

Estate Planning Errors to Avoid

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1. Beneficiary omissions — Not naming contingent beneficiaries or failing to review beneficiaries often enough. This may subject your estate to probate, creditors and delays.

2. No stretch IRA — No contingent beneficiary on an IRA may mean there is no stretch IRA, a valuable tax break that enables someone who inherits an IRA to draw out distributions over his or her life expectancy if the original beneficiary has died.

3. Forgetting to change an ex-spouse on an IRA — Your new spouse becomes your beneficiary the day you get married, but not in an IRA. This can have disastrous consequences for your new spouse and family.

Minors, Ownership, and Residuary Clause in Estate Planning

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4. Leaving assets directly to a minor without dealing with guardianship issues — Who will handle their inheritance? The phrase “for their benefit” welcomes a whole host of potentially abusive interpretations.

5. Ownership mistakes and imbalances — If too many assets are in one spouse’s name, it could wreak havoc with tax planning. One spouse may have a much larger IRA and own a vacation house in his or her name only. By shifting the house or investment to the other spouse, the estate becomes more equalized, possibly reducing taxes.

6. Not having a residuary clause — A residuary clause covers items not named in a will or included in a trust. These can include items you don’t yet own but will before your death. Sometimes there are things you might not even know you own.

7. Not planning for the unexpected — There are a multitude of things that could happen, such as a sudden decline in your spouse’s health or a change in your assets. You can address this by having assets go to a trust. You can control how, to whom and when money gets distributed.

What Estate Planning Brings Up

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8. Not dealing with your own mortality — Don’t leave your family ruined because you don’t want to admit to yourself that you are going to die someday. Don’t make matters worse by failing to plan.

9. Not updating your will — Many changes take place within a family or business structure. Ensure the assets you leave behind are given to the people you intended to have them.

10. Not planning for disability — An unexpected long-term disability can affect your personal and financial affairs in myriad ways. Decisions such as who will handle your finances, raise your children or make health care decisions on your behalf are essential. It may be necessary to appoint a power of attorney or create a living trust to work on your behalf if you’re unable to do it for yourself.

Benefits of Estate Planning

You can benefit from having an estate plan. Not only can it help maximize the actual value of the estate you pass on to your heirs and beneficiaries, but you’ll also have an opportunity to make informed decisions concerning how your assets should be handled while you are still alive.

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Paying Taxes is Not a Choice

This Las Vegas lawyer thought he could evade paying taxes. He had been influenced by the teaching of several prominent tax defiers. Learn what happened.

A Las Vegas real estate broker was recently sentenced to 78 months in prison for tax evasion and willful failure to file tax returns.

He had been influenced by the teaching of several prominent tax defiers.

Evading Rather Than Paying Taxes

According to court records, William Waller Jr. sought to evade taxes by incorporating a shell entity, opening bank accounts in its name, and directing his income into those accounts rather than accounts in his own name. He also dealt extensively in cash and reduced his equity in his home.

Waller testified at trial that he believed that he was not required to file tax returns or pay taxes, but acknowledged that he was influenced by the teachings of several prominent tax defiers.

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The Consequences for Not Paying Taxes

In addition to his prison sentence, Waller was ordered to pay $1.45 million in restitution.

“Paying your taxes is not a choice,” said Chief Don Fort of IRS Criminal Investigation.

©2019

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Diesel Engine Company Executive Sentenced To Prison in Tax Case

In this recent tax case, an executive failed to pay taxes to the IRS and created false records, ultimately sinking his company.

He failed to pay taxes to the IRS and created false records, ultimately sinking his company.

A Nebraska businessman was sentenced to one year and one day in prison for failing to pay federal taxes.

Delving Deeper

Rolley D. Bennett Jr., 53, of Omaha, Nebraska, was also ordered to pay $31,576.19 in restitution.

Bennett was the controller of the Diesel Power Equipment Company, headquartered in Omaha. During the period of 2013 and 2014, he failed to pay approximately $879,000 in payroll trust fund taxes to the IRS.

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The Business

Diesel Power distributed and repaired diesel engines, generators, pumps, parts, and accessories, primarily to the mining, railroad, industrial equipment, and agricultural irrigation industries.

Bennett’s failure to make the payroll tax payments resulted in Diesel Power ultimately going out of business.

Bennett took steps to conceal the nonpayment of Diesel Power’s employment taxes, including creating cash flow reports that reported the employment tax liabilities had been paid and creating journal entries in the company’s general ledger, which accrued the employment tax liabilities and their associated payments.

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This Tax Case Verdict

“Failure to remit those employment taxes resulted in the loss of tax revenue to the government and the possible loss of future Social Security or Medicare benefits for the employees,” said Karl Stiften, Special Agent in Charge of IRS Criminal Investigation.

©2019

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Social Security: Note the Key Changes for 2020

The Social Security Administration has released new changes and numbers for those paying Social Security and those collecting it in 2020.

Every year, the Social Security Administration takes a fresh look at its numbers and typically makes adjustments. Here are the basics for 2020 — what has changed, and what hasn’t.

What Hasn't Changed for Social Security

First, the basic percentages have not changed:

  • Employees and employers continue to pay 7.65% each, with the self-employed paying both halves.
  • The Medicare portion remains 1.45% on all earnings, with high earners continuing to pay an additional 0.9% in Medicare taxes.
  • The Social Security portion (OASDI) remains 6.20% on earnings up to the applicable taxable maximum amount — and that’s what’s changing.

What's Changing for Social Security

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Starting in 2020, the maximum taxable amount is $137,700, up from the 2019 maximum of $132,900. This actually affects relatively few workers; the Society for Human Resource Management notes in an article that only about 6% of employees earn more than the current taxable maximum.

Also changing is the retirement earnings test exempt amount. Those who have not yet reached normal retirement age but are collecting benefits will find the SSA withholding $1 in benefits for every $2 in earnings above a certain limit. That limit is $17,640 per year for 2019 and will be $18,240 for 2020. (See the SSA for additional information on how this works.)

Cost-of-Living Adjustments

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Those collecting Social Security will see a slight increase in their checks: Social Security and Supplemental Security Income beneficiaries will receive a 1.6% COLA for 2020. This is based on the increase in the consumer price index from the third quarter of 2018 through the third quarter of 2019, according to the SSA.

An SSA detailed fact sheet about the changes is available on their site.

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Alabama Woman Gets Six Years for Filing False Federal Tax Returns

Filing false federal tax returns is the same as stealing money from the federal treasury. As a tax preparer, this woman in Alabama did just that.

An Alabama woman was sentenced to 72 months in prison for filing false federal tax returns.

Laquanda Gilmore Garrott, 39, of Montgomery, Alabama, was also ordered to pay $56,897.00 in restitution.

Filing False Federal Tax Returns

According to trial evidence, Garrott operated a tax preparation business. The government proved that Garrott knowingly put false information on multiple tax returns in order to increase refunds for clients, which also increased her own tax preparation fees.

In one case, Garrott falsely claimed that a client lost more than $30,000 on a lawn care company even though she knew her client had no such business. By including the false business losses, Garrott was able to offset the client’s taxable income and make the client eligible for the Earned Income Tax Credit.

filing false federal tax returns

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The Stance of the IRS

“Ms. Garrott stole money from the federal treasury when she filed false federal income tax returns, a crime that affects all of us,” U.S. Attorney Louis V. Franklin Sr. said in a statement.

©2019

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Florida Man Sentenced To Nine Months In Prison For Tax Evasion

This real estate investor has been found guilty of tax evasion after having failed to report more than $1 million in taxable income.

A Florida man was sentenced in Connecticut to nine months in prison for tax evasion.

According to court records, Anthony A. Valentino, of Palm City, Florida, is a real estate investor who owns property in Connecticut and New York, including a 100-unit apartment complex in Naugatuck, Connecticut.

What Led to the Tax Evasion

From 2011 to 2013, Valentino deposited more than $1.1 million of rental receipts, paid in cash or checks, into his personal bank accounts in Connecticut and New York and failed to report the receipts on his personal and partnership federal tax returns.

For the 2011 through 2013 tax years, Valentino failed to report more than $1 million in taxable income on his tax returns, and only reported $42,815 in taxable income. As a result, he evaded payment of $302,449 in income taxes.

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Other Illegal Practices Involved

The government’s investigation also revealed that, in 2013, Valentino made or caused to be made 27 cash deposits totaling $247,100. Many of the deposits, which ranged in amounts from $7,000 to $9,900, were made on the same day at different times, or on consecutive days — an illegal process known as “structuring” that is intended to avoid currency transaction reports.

Valentino pleaded guilty to tax evasion. He has paid $302,339 in restitution but still owes approximately $333,000 in tax penalties and interest. He also has forfeited $100,000.

©2019

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