Tax season is just around the corner, and with it comes a slew of changes to the tax law. The Tax Cuts and Jobs Act (TCJA) of 2017 made sweeping changes to the tax code, and the Internal Revenue Service (IRS) has been making adjustments ever since. This article will provide an overview of the most important changes to the tax law in 2020, so you can be prepared for filing your taxes this year. One of the most significant changes to the tax law in 2020 is the extension of certain tax exemptions. The Inflation Reduction Act extended two of these tax exemptions that are available to individuals: the credit for non-commercial energy properties and the real estate credit for refueling alternative fuel vehicles.
The IRS inflation adjustments are intended to keep federal taxes in line with inflation, so it's worth knowing the most recent figures. The new law also changed tax rates and categories, revised deductions for business expenses, increased the standard deduction, eliminated personal exemptions, increased the child tax credit, and limited or suspended certain deductions. This means that some people can stay in a lower tax bracket and those who received an increase in the cost of living can prevent part of their income from moving to a higher category. The Earned Income Tax Credit (EITC) is another important change to the tax law in 2020. This refundable tax credit helps low-income taxpayers reduce the amount of tax owed dollar for dollar. The new law extended the deadline for filing an administrative lawsuit and filing a lawsuit for an unlawful embargo from nine months to two years. The Retirement Issues Simple IRA Contribution Limits have also been adjusted for 2020.
Contribution limits to the 401(k) plan and the retirement profit sharing plan have been updated to get up to date. The Required Minimum Distribution (RMD) rules have also been adjusted; these rules seek to get taxpayers to spend their retirement savings over their lifetime instead of transferring their wealth to beneficiaries. Finally, taxpayers should be aware that there are other tax deadlines on October 17th besides just filing an extended return. To apply the safe harbor method, taxpayers must use the applicable depreciation table in Appendix A of Publication 946, How to Depreciate Property. This relief helps taxpayers who didn't properly adjust their withholding and estimated tax payments as needed for changes in the TCJA.
As a result, more small business taxpayers can switch to the cash accounting method starting with the December tax deadline. Even though the tax filing season is still months away, this is a good time of year to start thinking about next year's return. Those who haven't filed their return (or haven't paid any taxes due) expect severe penalties before the tax filing deadline. We'll just have to wait and see what Congress decides to do with these tax expander deductions and credits; keep an eye out for future events.