Tax Prep Q&A

 

It’s that time of year again… The tax season is upon us!

And with no indication of any reprieve — in the form of an extension on this year’s filing date — the Tax Man is looking for his due no later than April 15th.

Which, of course, means it’s time to get your finances in order. But with the topsy turvy year that’s just passed us by, no one would be surprised if your ducks aren’t quite in a row.

It’s also worth noting a LOT changed with regard to tax rules and regulations in 2020, which further complicates matters. Even seasoned and salty tax pros, like me, have been busy playing catch up.

So, to ease (at least some) of your tax-related stress, I’m dropping in to lend a helping hand! Here’s are six tax preparation questions and answers to help you sort our your finances — just in time for your reckoning with the Tax Man ;—)

What’s the Cap on My IRA Contribution?

Assuming you’re eligible, you can contribute up to $6,000 a year into a traditional or Roth IRA. And the $6,000 is 100% deductible from your 2020 income if placed in a traditional IRA

Additionally, If you’re 50 years of age or older, your contribution cap bumps up to $7,000 (100% of which is deductible from your annual income if placed in a traditional IRA).

How Much Can I Contribute to My Employer-Sponsored 401(k) or 403(b) Plan?

You can contribute up to $19,500 to your 401(k) or 403(b) plan.

This cap rises to $26,000 if yo50 you’re 50 years of age or older.

Should I Withhold and Pay to Cover FICA Tax For Part-Time Babysitters or House Cleaners?

If you paid less than $2,200 for domestic household help, such as babysitters or house cleaners, you’re not required to withhold or pay FICA taxes.

What’s the Earnings Threshold to Stop Paying Social Security Tax on My Salary?

The 2020 threshold on salaried earnings is $137,700. This means you don’t have to pay Social Security tax on the income you earn that rises above $137,000.

What’s The Standard Deduction for 2020?

The Tax Cuts and Jobs Act of 2017 totally rejiggered standard and itemized deduction rules. By significantly increasing the standard deduction and reducing or eliminating a number of itemized deductions, many folks have lost out on the benefits afforded by itemized deductions.

And this change is reflected in the 2020 standard deduction amounts, which are…

  • $12,400 for single filers and married couples filing separately
  • $24,800 for married couples filing jointly
  • And $18,800 for head of household filers

Thus, if the total amount of your itemized deductions (charitable donations, mortgage interest, etc…) is less than your standard deduction, there are no cost savings in itemizing your tax return.

What’s The Cap On Individual Gifts?

The annual gift tax annual exclusion is $15,000 for 2020. This means you can give a monetary “gift” of up to $15,000 without triggering the “gift tax” inclusion on the recipient’s income taxes.

Need Help Getting Your Finances in Order?

If you have additional questions on any of the items above, questions on other tax issues, or if you need assistance filing your taxes — I’m here to help! Let’s chat ASAP. peter@advisellp.com