2020 Year-End Planning for Individuals – General Planning Information

By Bobby Hoffman

General information for year-end 2020 tax planning:

• Tax Rates: The current tax rates are 10, 12, 22, 24, 32, 35 and 37%. Because of the large jumps from 10 to 22% and 24 to 32% for specific taxable income ranges, taxpayers should discuss their income projections and tax plan for 2020 with both their financial advisor and tax preparer. Taxpayers will also want to ensure adequate estimates and withholdings, especially since the 37% top rate does not include the additional 3.8% Net Investment Income Tax and .9% Medicare taxes.

• Qualified Business Income Deduction: Beginning in 2018, individuals with qualified business income from a sole proprietorship, partnership, trust or S-corporation are allowed to deduct up to 20% of their Qualified Business Income (QBI). Qualification for this deduction is subject to certain limitations. For taxpayers with taxable income over $326,600 (married filing joint), additional tax planning may be warranted.

• Personal Exemptions & Child Tax Credit: In 2018 personal exemptions were phased out however, in turn, the Child Tax Credit increased from $1,000 to $2,000 per eligible child (with the refundable amount being limited to $1,400 for each qualifying child).

• Alternative Minimum Tax (AMT): The new law reduced the AMT’s effects by increasing the exemptions for 2020 to $72,900 for Single/Head-of-Household taxpayers and to $113,400 for married taxpayers filing jointly. Under the Tax Cuts and Jobs Act, the AMT exemptions phase out at $518,400 for single taxpayers and $1,036,800 for married taxpayers filing jointly.

• 529 Plans: 529 Plans now allow for up to $10,000 in annual distributions, per child, for tuition at public or private K-12 schools. Georgia taxpayers can contribute up to $8,000/beneficiary annually.

• Kiddie Tax: Is simplified by effectively applying ordinary and capital gains rates applicable to trusts and estates to the unearned income of a child while taxable earned income is taxed according to an individual taxpayer’s rates. Care should be given to the type of investment income received by the child to emphasize long-term capital gains and qualified dividends.

For more information regarding year-end tax planning, please contact us at 404-255-7400 or info@hoffmanestateaw.com.