Page 14 - Supplement to Income Tax 2020

Estimating Your 2020 Taxes

profit-sharing SEP or Keogh) is $57,000 (up slightly increased slightly to $24,800 for married couples filing
from $56,000 in 2019). The general limitation on the jointly and surviving spouses, $18,650 for heads of
annual benefit from a defined benefit pension plan is households, and $12,400 for singles and married persons
$230,000 (up from $225,000 in 2019). filing separately.The additional standard deduction for
taxpayers age 65 or older or blind (Your Income Tax
Compensation limit (pages 715–718). The maximum
amount of compensation that can be taken into 2020, page 347) at the end of 2020 is unchanged at
account when applying the contribution limits for $1,650 for single taxpayers and heads of households
qualified defined contribution and pension plans is and $1,300 for married persons (whether filing jointly
$285,000 (up from $280,000 in 2019). or separately) and qualifying widows/widowers.
For a person who meets the definition of a dependent
SEP eligibility (page 248). Employees meeting the for 2020, the basic standard deduction (Your Income
age and service requirements must be covered by a Tax 2020, pages 348–349) is the greater of (1) $1,100
SEP if they have 2020 compensation exceeding $600 or (2) the dependent’s earned income plus $350 (but
(no change). no more in total than the basic standard deduction for
Definition of key employee or highly compensated the dependent’s filing status).
employee (page 194). The earnings threshold for Rate brackets for net capital gain and qualified
determining highly compensated employees under the dividends (pages 112-115). The bracket breakpoints
nondiscrimination rules is increased to $130,000 (up between the 0% and 15% capital gain rates, and
from $125,000 in 2019). The threshold for treating between the 15% and 20% capital gain rates, are
officers as key employees under the top-heavy plan increased for 2020. The breakpoint between the 0%
rules is $185,000 (up from $180,000 in 2019). rate and the 15% rate is: $80,000 if married filing

Saver’s credit (page 518–519). The first $2,000 jointly or a qualifying widow/widower, $53,600 if a
of eligible contributions (including ABLE account head of household, or $40,000 if single or married
contributions) made for 2020 may qualify for a 50%, filing separately. There is no tax (0% rate applies)
20%, or 10% retirement savings contribution credit on 2020 qualified dividends and eligible long-term
(“saver’s credit”), depending on the taxpayer’s AGI. capital gains (collectibles gains and unrecaptured
For married persons filing jointly, the 50% credit Section 1250 gains are not eligible) if taxable income
applies if 2020 AGI does not exceed $39,000, the 20% does not exceed the applicable breakpoint. Even
credit rate applies if AGI does not exceed $42,500, and if taxable income exceeds the breakpoint, the 0%
the 10% credit applies if AGI does not exceed $65,000. rate rather than the 15% rate might still apply to a
For a head of household, the 50% credit applies if portion of the gains/dividends, depending on how
2020 AGI does not exceed $29,250, the 20% credit much of the taxable income consists of ordinary
rate applies if AGI does not exceed $31,875, and the income and how much is long-term gain plus
10% credit applies if AGI does not exceed $48,750. qualified dividends; this will be figured on the IRS
For single individuals, married persons filing separately, capital gains rate worksheet.
and qualifying widows/widowers, the 50% credit applies The breakpoint between the 15% and 20% rate is
if 2020 AGI does not exceed $19,500, the 20% credit $496,600 if married filing jointly or a qualifying widow/
rate applies if AGI does not exceed $21,250, and the widower, $469,050 if a head of household, $441,450
10% credit applies if AGI does not exceed $32,500. if single, or $248,300 if married filing separately. Even
if taxable income exceeds the breakpoint, the 20% rate
Non-Retirement Cost-of-Living Adjustments does not necessarily apply to the gains/dividends. If

for 2020 ordinary income is only a small part of taxable income,
the 15% or even the 0% rate may apply to some of the
Standard deduction amounts (pages 343-346). The gains/dividends; this will be figured on the IRS capital
basic standard deduction amounts for 2020 have gains rate worksheet.

10 | Supplement to J.K. Lasser’s Your Income Tax 2020