By: Jonathan Wolnik
The IRS released its annual inflation adjustments for calendar year 2020, updating more than 60 tax provisions. Common items affecting the vast majority of taxpayers are discussed below.
Standard Deductions and Personal Exemptions
The standard deduction for married taxpayers filing jointly increased by $400 to $24,800. For single taxpayers and married individuals opting to file separately, the standard deduction increased by $200 to $12,400. Taxpayers filing as heads of households will have a standard deduction of $18,650 for calendar year 2020, which is a $300 increase from the prior year.
The personal exemption for tax year 2020 will again be zero, due to its elimination under the Tax Cuts and Jobs Act of 2017.
Itemized Deductions
For 2020, as was the case in the past few years, there is no limitation on itemized deductions, which is also a result of the Tax Cuts and Jobs Act.
Transportation, Parking and Flexible Health Account Fringe Benefits
The monthly limitation for qualified transportation fringe benefits will be $270 for calendar year 2020, which is the same for qualified monthly parking. This constitutes a $5 increase from the prior year’s limitations.
The dollar limitation for employee salary reductions related to contributions to health flexible spending arrangements increased by $50 to $2,750.
Estate and Gift Tax Exclusions
Estates for individuals who die in 2020 will be granted a basic exclusion of $11,580,000, which increased from the prior year’s amount of $11,400,000. This exclusion is applied against the federal estate, gift, and generation skipping taxes. For married couples that are able to use the portability provisions, opportunities still exist to carryforward unused exclusion amounts. Portability often represents a powerful tax planning opportunity for families with significant assets.
The annual exclusion for individual gifts remains at $15,000. Gifts given to any person at or below that amount are not included in the donor’s total taxable gift calculation for the year. Spouses, as a unit, may gift a combined $30,000 to any person tax free by making the gift-splitting election. Gift splitting represents another potentially powerful tax planning opportunity.
Tax Planning Opportunities
The 2020 tax items adjusted for inflation do not show significant changes in most areas. However, there are still valid reasons to discuss tax planning opportunities on the horizon, especially in the estate and gift tax arenas. Now is the time to have meaningful conversations with your tax attorney and CPA teams to plan for end-of-year 2019 and for the 2020 year ahead.