September 2020
College & Tax Planning

Between deepening Washington gridlock and election year politics, just a few months ago we were expecting 2020 to be a quiet year in terms of tax law changes. But, boy, were we ever wrong! The government funding bills signed by President Trump in December 2019 included a lot of tax provisions. The economic stimulus packages enacted in March 2020 to help boost the U.S. economy dragged down by the coronavirus added more. Plus, there are several other 2020 tweaks from new rules or annual inflation adjustments. All in all, this means American taxpayers are staring at a long list of tax changes for the 2020 tax year. 

Here are just a few examples: 

Tax Brackets - Although the tax rates didn't change, the income tax brackets for 2020 are slightly wider than for last year. The difference is due to inflation during the 12-month period from September 2018 to August 2019, which is used to figure the adjustments  

Capital Gains Rates - Tax rates on long-term capital gains and qualified dividends did not change for 2020, but the income thresholds to qualify for the various rates did go up. In 2020, the 0% rate applies for individual taxpayers with taxable income up to $40,000 on single returns ($39,375 for 2019), $53,600 for head-of-household filers ($52,750 for 2019) and $80,000 for joint returns ($78,750 for 2019). The 20% rate for 2020 starts at $441,451 for singles ($434,550 for 2019), $469,051 for heads of household ($461,700 for 2019) and $496,601 for couples filing jointly ($488,850 for 2019). Copperwynd Financial, LLC is a Registered Investment Advisor. Advisory services are only offered to clients or prospective clients where Copperwynd Financial, LLC and its representatives are properly licensed or exempt from licensure. This brochure is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Copperwynd Financial, LLC unless a client service agreement is in place. 

Charitable Deductions - More donations to charity can be deducted for 2020 under the CARES Act. The 60%-of-AGI limit on deductions for cash donations by people who itemize is suspended (gifts to donor-advised funds and private nonoperating foundations are excluded). Nonitemizers can also write off up to $300 of charitable cash contributions. This is a new "above-the-line" deduction for people who don't file Schedule A. 

College Loans - The CARES Act allows employers to pay down up to $5,250 in workers' college loans in 2020. The payments are excluded from the workers' wages for federal tax purposes. The $5,250 cap applies to both student loan repayment benefits and other educational assistance (e.g., tuition, fees, books, etc.) offered by an employer under current law. 

Medical Expenses - The 2020 threshold for deducting medical expenses on Schedule A is 7.5% of AGI. The adjusted-gross-income threshold was slated to jump from 7.5% to 10% after 2018, but the 2019 government funding law revived the 7.5% figure for 2019 and 2020. 

The limits on deducting long-term-care premiums are higher in 2020. Taxpayers who are age 71 or older can write off as much as $5,430 per person ($5,270 for 2019). Filers age 61 to 70 can deduct up to $4,350 ($4,220 for 2019). Anyone who is 51 to 60 can deduct up to $1,630 ($1,580 for 2019). For people age 41 to 50, the max is $810 ($790 for 2019). Finally, for whippersnappers age 40 and younger, it's $430 ($420 for 2019). 

Standard Deductions - Many of the standard deduction amounts were increased for 2020. Married couples get $24,800 ($24,400 for 2019), plus $1,300 for each spouse age 65 or older. Singles can claim a $12,400 standard deduction ($12,200 for 2019)—$14,050 if they're at least 65 ($13,850 for 2019). Head-of-household filers get $18,650 for their standard deduction ($18,350 for 2019), plus an additional $1,650 once they reach age 65. Blind people can tack on an extra $1,300 to their standard deduction ($1,650 if they're unmarried and not a surviving spouse). 

It's never too early to start thinking about next year's return. Proper tax planning requires an awareness of what's new and changed from last year—and there are plenty of tax law changes and updates taking effect in 2020 that you need to know about. Use this information now to start your tax planning this year so you can save money next April when you file your 2020 return. 

If you have questions, please contact us.

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