2019-2020 Tax GuideIncome Taxes
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It’s that time of year again: tax season.
And whenever tax season rolls around, I update this here Money Done Right Federal Income Tax Guide.
Please keep in mind that anything I write here or in the comment section should not be taken as tax advice but as general educational information.
Do You Need to File a Tax Return?
It may surprise you to learn that not everybody who earns income in the United States needs to file a tax return.
The table below shows the income levels at which you will need to file an income tax return based on your filing status.
Income Thresholds for Non-Self-Employed Non-Dependents
|Filing Status and Age||Required to File if Income Is at Least|
|Single, under 65||$12,200|
|Single, 65 or older||$13,850|
|Married Filing Jointly, both spouses under 65||$24,400|
|Married Filing Jointly, one spouse 65 or older||$25,700|
|Married Filing Jointly, both spouses 65 or older||$27,000|
|Married Filing Separately, any age||$5|
|Head of Household, under 65||$18,350|
|Head of Household, 65 or older||$20,000|
|Qualifying Widow(er), under 65||$24,400|
|Qualifying Widow(er), 65 or older||$25,700|
Income Threshold for Self-Employed Non-Dependents
However, if you’re self-employed, you must file a tax return if you only netted $400.
Note that the definition of “self-employed” is broad and extends to any non-employee who earns income for providing goods or services.
|Filing Status and Age||Required to File if Net Self-Employment Income Is at Least|
Income Threshold for Dependents
If you can be claimed as a dependent on someone else’s tax return, then you are subject to the table below to determine if you must file a tax return or not.
|Filing Status and Age||Required to File if Unearned Income Is Over||Required to File if Earned Income Is Over||Required to File if Gross Income Is|
|Single, under 65 and not blind||$1,100||$12,200||More than the larger of $1,100 or your earned income (up to $11,850) plus $350|
|Single, 65 or older or blind||$2,750||$13,850||More than the larger of $2,750 or your earned income (up to $11,850) plus $2,000|
|Single, 65 or older and blind||$4,400||$15,500||More than the larger of $4,400 or your earned income (up to $11,850) plus $3,650|
|Married, under 65 and not blind||$1,100||$12,200||More than the larger of $1,100 or your earned income (up to $11,850) plus $350|
|Married, 65 or older or blind||$2,400||$13,500||More than the larger of $2,400 or your earned income (up to $11,850) plus $1,650|
|Married, 65 or older and blind||$3,700||$14,800||More than the larger of $3,700 or your earned income (up to $11,850) plus $2,950|
|Married Filing Separately||$5||$5||At least $5|
Other Situations in Which You May Have to File a Tax Return
Now, though rare, there are some other situations in which your income may not reach the levels described above, but you still may be required to file a tax return. Here they are:
- You owe special taxes such as the alternative minimum tax.
- You owe Social Security and Medicare taxes on tips that you didn’t report to your employer.
- You received HSA, Archer MSA, or Medicare Advantage MSA distributions.
- You had wages of $108.28 or more from a church that is exempt from Social Security and Medicare taxes.
- Advance payments of the premium tax credit were made on your behalf or on your spouse’s or dependent’s behalf.
- You have income under Section 965.
Not sure if you have to file a tax return? Leave me a comment below, and I’ll do my best to help you out.
Determining Your Tax Filing Status
Your tax filing status determines many things, including the income thresholds discussed previously at which you must file a tax return as well as your tax rates.
There are five filing statuses:
- Married Filing Jointly
- Married Filing Separately
- Head of Household, and
- Qualifying Widow(er).
If you were not married — that is, you have either never been married or you were divorced — on December 31, 2019, then you may file as Single.
Your divorce must be finalized by December 31, 2019; a mere interlocutory decree does not qualify.
Note that it may be more advantageous to you to file as Head of Household or Qualifying Widow(er) if you qualify for those filing statuses, so be sure to check those out as well.
Married Filing Jointly
If you were married on December 31, 2019 — regardless of whether you lived with your spouse — or if your spouse passe.d away during 2019, you may file as Married Filing Jointly.
Generally, married couples will receive more tax benefits by filing jointly rather than separately.
Note that you may also qualify for Married Filing Separately or Head of Household filing statuses, so be sure to check those as well to see if they may be more advantageous to you.
Married Filing Separately
If you are married, but you and your spouse would like to file your taxes separately, you may both file with the Married Filing Separately filing status.
Please note, however, that you may end up paying more tax by filing separately than by filing jointly, and you and your spouse will lose eligibility for the following tax benefits:
Head of Household
If you are unmarried and provide a home for others, you may qualify for Head of Household status.
In most cases, Head of Household status provides lower tax rates than Single status.
Generally, to qualify for Head of Household status, you must have paid over half the cost of your home, and a dependent or other qualifying child lived with you more than half the year.
An exception to this rule is that you may qualify for Head of Household status if you paid over half the cost of your dependent parent’s main home, regardless of whether they lived with you.
Qualifying Widow(er) status is only available to those with a dependent child living with them and whose spouse passed away in the preceding two tax years and you did not remarry before the end of the current tax year.
So in order to file as Qualifying Widow(er) for the 2019 tax year, your spouse would have had to have died in 2017 or 2018, and you must not have remarried on or before December 31, 2019.
There are currently seven tax rates — or brackets — for federal income tax purposes.
For regular income tax purposes — that is, excluding the Alternative Minimum Tax and preferred tax rates on long-term capital gains and qualified dividends — everyone with the same filing status pays the same tax rate on each bucket of income.
That is, everybody who files as Single will pay tax at the 10% rate on their first $9,875 of income in 2020.
Learn More: Here’s How Tax Rates Work
2019 Tax Rates
These are the tax rates for 2019 tax returns due on April 15, 2020 (or October 15, 2020 if you filed for an extension).
|Tax Rate||Single||Married Filing Jointly or Qualifying Widow(er)||Married Filing Separately||Head of Household|
|10%||$0 to $9,700||$0 to $19,400||$0 to $9,700||$0 to $13,850|
|12%||$9,701 to $39,475||$19,401 to $78,950||$9,701 to $39,475||$13,851 to $52,850|
|22%||$39,476 to $84,200||$78,951 to $168,400||$39,476 to $84,200||$52,851 to $84,200|
|24%||$84,201 to $160,725||$168,401 to $321,450||$84,201 to $160,725||$84,201 to $160,700|
|32%||$160,726 to $204,100||$321,451 to $408,200||$160,726 to $204,100||$160,701 to $204,100|
|35%||$204,101 to $510,300||$408,201 to $612,350||$204,101 to $306,175||$204,101 to $510,300|
|37%||$510,301 or more||$612,351 or more||$306,176 or more||$510,301 or more|
2020 Tax Rates
These are the tax rates for 2020 tax returns due on April 15, 2021 (or October 15, 2021 if you filed for an extension).
|Tax Rate||Single||Married Filing Jointly or Qualifying Widow(er)||Married Filing Separately||Head of Household|
|10%||$0 to $9,875||$0 to $19,750||$0 to $9,875||$0 to $14,100|
|12%||$9,876 to $40,125||$19,751 to $80,250||$9,876 to $40,125||$14,101 to $53,700|
|22%||$40,126 to $85,525||$80,251 to $171,050||$40,126 to $85,525||$53,701 to $85,500|
|24%||$85,526 to $163,300||$171,051 to $326,600||$85,526 to $163,300||$85,501 to $163,300|
|32%||$163,301 to $207,350||$326,601 to $414,700||$163,301 to $207,350||$163,301 to $207,350|
|35%||$207,351 to $518,400||$414,701 to $622,050||$207,351 to $311,025||$207,351 to $518,400|
|37%||$518,401 or more||$622,051 or more||$311,026 or more||$518,401 or more|
Tax Deductions and Credits
There are two ways to take deductions on your tax return: either you take the standard deduction (which you get even if you didn’t spend any money on deductions) or you itemize your deductions.
The standard deduction is a set amount that all taxpayers with a certain filing status can take.
|Married Filing Jointly or Qualifying Widow(er)||$24,400||$24,800|
|Married Filing Separately||$12,200||$12,400|
|Head of Household||$18,350||$18,650|
Your itemized deductions amounts are based on what you actually spend on certain items.
Here is a list of itemized deductions:
- Medical and Dental Expenses
- State and Local Taxes (capped at $10,000 per year)
- Home Mortgage Interest
- Investment Interest
- Gifts to Charity
- Casualty and Theft Losses from a Federally Declared Disaster
For most taxpayers, a tax credit will be worth more than a tax deduction because while a tax deduction merely reduces one’s taxable income, a credit reduces one’s entire tax liability.
Some of the most popular tax credits are:
- Child Tax Credit
- Earned Income Tax Credit
- Child and Dependent Care Credit
- Savers Tax Credit
- Foreign Tax Credit
Tax Law Changes for 2019 and 2020
Every year, Congress changes the tax laws.
Sometimes these are big changes, as when the Tax Cuts & Jobs Act was enacted in late 2017.
Since then, there have been some tax law changes, but not as massive as the changes that occurred in 2017.
2019 Tax Law Changes from 2018
- Form 1040-SR: Seniors, listen up! There’s a new tax form called Form 1040-SR that’s rolling out for tax year 2019.
- Affordable Care Act Penalty: The ACA-mandated penalty for not having health insurance has been eliminated for tax years beginning in 2019.
- Medical Expenses Deduction Threshold: In order to deduct medical expenses as an itemized deduction, they must now exceed 10% of your adjusted gross income for tax year 2019. For tax year 2018, this threshold was only 7.5%.
- Business Mileage Deduction: The deduction for business mileage in 2019 is 58 cents per mile, up from 54.5 cents in 2018.
2020 Tax Law Changes from 2019
- Increase in RMD Age: Thanks to the SECURE Act, required minimum distributions (RMDs) are now required to be taken beginning at age 72 rather than 70.5 as it was previously.
- Residential Solar Tax Credit: The solar credit has been 30% for quite some time, but it is now reduced to 26% for tax year 2020. It will drop again to 22% next year, which is the final year of the solar credit unless extended by Congress.
Retirement Plan Contributions
Nearly all Americans with earned income are able to lower their tax bill by simply contributing to a retirement account.
For tax years 2019 and 2020, taxpayers younger than 50 can contribute to IRA accounts — Traditional or Roth — the lesser of their earned income or $6,000.
Traditional IRA Contributions
Subject to certain eligibility requirements, contributions to Traditional IRAs are deductible against your current year taxable income.
If you or your spouse is covered by a retirement plan at work, however, you will need to check with the table below to see how much, if any, of your Traditional IRA contribution you may deduct.
|Married filing jointly and you're covered by retirement plan at work||2019: $103,000 or less|
2020: $104,000 or less
|2019: between $103,001 and $122,999 |
2020: between $104,001 and $123,999
|2019: $123,000 or more |
2020: $124,000 or more
|Married filing jointly and your spouse is covered by a retirement plan at work||2019: $193,000 or less |
2020: $196,000 or less
|2019: between $193,001 and $202,999 |
2020: between $196,001 and $205,999
|2019: $203,000 or more |
2020: $206,000 or more
|Single or head of household and you are covered by a retirement plan at work||2019: $64,000 or less |
2020: $65,000 or less
|2019: between $64,999 and $73,999 |
2020: between $65,001 and $74,999
|2019: $74,000 or more |
2020: $75,000 or more
|Married filing separately and you or your spouse is covered by a retirement plan at work||2019: Full deduction not permitted. |
2020: Full deduction not permitted.
|2019: between $0 and $9,999 |
2020: between $0 and $9,999
|2019: $10,000 or more |
2020: $10,000 or more
Roth IRA Contributions
Contributions to Roth IRA accounts are not deductible, but they grow tax-free and may be withdrawn from the account tax-free after age 59.5.
However, not everyone is eligible to contribute directly to a Roth IRA.
Check the table below to see where you land — if your income is above the limits, a backdoor Roth IRA will prove useful to you.
|Married filing jointly or qualifying widow(er)||2019: less than $193,000|
2020: less than $196,000
|2019: between $193,000 and $202,999|
2020: between $196,000 and $205,999
|2019: $203,000 or more|
2020: $206,000 or more
|Single, head of household or married filling separately (if you did not live with spouse during year)||2019: less than $122,000|
2020: less than $124,000
|2019: between $122,000 and $136,999|
2020: between $124,000 and $138,999
|2019: $137,000 or more|
2020: $139,000 or more
|Married filing separately (if you lived with spouse at any time during year)||2019: Full contribution not permitted.|
2020: Full contribution not permitted.
|2019: less than $10,000|
2020: less than $10,000
|2019: $10,000 or more|
2020: $10,000 or more
If you’re under age 50, you can contribute a maximum of $19,000 to your 401(k) plan in 2019 and $19,500 in 2020.
For those age 50 or older, this amount increases to $25,000 for 2019 and $26,000 for 2020.
Do You Need to Pay a CPA or EA?
If one is to believe the recent TurboTax commercial, “all people are tax people,” but that certainly doesn’t mean that all people should be doing their own taxes.
That said, there are some instances where doing your own return makes sense.
When Doing It Yourself Makes Sense
Tax preparation software is getting better every year, making doing your own tax return easier all the time.
Everything you need is reported on forms that others prepared for you.
If the only tax return inputs you have are those found on common IRS forms that others prepared for you — such as a Form W-2 or Form 1099-DIV — then you can probably get by doing your own return in a good tax software.
You are willing to put in the time to do some research.
Tax return software programs are fairly good at foolproofing the tax return preparation process for their customers, but they’re not perfect.
There may be some instances as you prepare your own return during which you are legitimately confused as to what you should do.
In these cases, you may have to do your own research on the IRS website, specifically in the various IRS publications that are produced every year to help taxpayers, in order to figure out what you should input in your tax software.
If you are willing to do a little bit of research on your own, DIY’ing your tax return may be a good option.
You qualify for free filing.
Many tax software programs offer free tax filing for those with relatively simple returns.
If you qualify for free tax filing, then you may as well take advantage of it.
When Hiring a Preparer Makes Sense
Of course, there are other instances when paying a professional to prepare your taxes makes sense.
It’s kind of like fixing your car: Could you watch some YouTube videos and do it yourself? Probably, but it will probably eat up half your day if you’ve never done it before, and you may end up spending more money in the long run if you do it incorrectly.
As with most services, sometimes paying a professional to prepare your taxes will save you both time and money.
You have your own business.
The first instance when hiring a paid preparer to do your taxes is if you own your own business.
There are so many tax benefits available to business owners that you may not be aware of, and hiring a tax professional can help you save more money on your taxes.
You bought a rental property.
Buying your first rental property is a huge step in anyone’s investing journey.
But making an investment like this immediately makes your taxes more complicated. Not only do you have to file Schedule E, but you now have to accurately determine the basis in your rental property, and this is where hiring a tax professional could help you out tremendously.
You’re extremely busy.
Finally, if you are just too busy to do your own taxes, it makes sense to outsource the work to a professional.
Tax Return Checklist
Below is the checklist that I use as a CPA for my clients.
If you are going to be preparing your own return or hiring a professional, below is a list of the information and documents you will need.
Note that it is very unlikely that you will have all of the documents listed below.
- Your home address and mailing address if different than in prior year
- Your full legal name, SSN or ITIN, occupation, and date of birth
- Dependents’ full legal name(s), SSN(s) or ITIN(s), date(s) of birth, and relation(s) to you
- Your prior year tax return
Common Tax Forms
- Form W-2
- Form 1099-DIV
- Form 1099-INT
- Form 1099-A, Acquisition or Abandonment of Secured Property
- Form 1099-B, Proceeds from Broker and Barter Exchange Transactions
- Form 1099-C, Cancellation of Debt
- Form 1099-DIV, Dividends and Distributions
- Form 1099-G, Certain Government Payments
- Form 1099-H, Health Coverage Tax Credit Advance Payments
- Form 1099-INT, Interest Income
- Form 1099-K, Merchant Card and Third Party Network Payments
- Form 1099-LTC, Long-Term Care and Accelerated Death Benefits
- Form 1099-MISC, Miscellaneous Income
- Form 1099-OID, Original Issue Discount
- Form 1099-Q, Payments from Qualified Education Programs
- Form 1099-R, Distribution from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
- Form SSA-1099, Social Security Benefit Statement
Other Common Tax Forms
- Form W-2
- Brokerage account statements along with gain/loss information
- IRA contributions
- Energy credits
- Medical Savings Account (MSA) contributions
- Moving expenses
- Educator expenses
- Charitable contribution letters and/or receipts
- Form 1098 showing mortgage interest paid on your personal residence(s)
- Property tax payments if not reported on Form 1098
- Vehicle registration information showing deductible portion of registration fees paid
- Notices received during the year from federal or state taxing authorities
- Form 1098-C showing contributions of motor vehicles, boats, and airplanes
- Form 1098-E showing student loan interest paid
- Form 1098-T showing tuition paid
- Documents supporting other income such as jury duty, gambling winnings, scholarships, etc.
For each of the Properties, please provide:
- Final escrow statement and/or HUD-1
- Annual property manager reports showing income and expenses by property along with any Forms 1099 issued to you by the property manager
- Number of days during the year the property was rented
- The mortgage balance as of December 31, if any
- Form 1098 showing mortgage interest paid
- A listing of any other expenses incurred by you that are reasonably associated with the rental properties and are not already included on the property manager(s)’s reports. Examples include but are not limited to:
- Legal and other professional fees
- Costs you incurred for the rental property that were not paid through the property manager(s)
- Travel expenses, including mileage, to and from the properties or other real estate-related activities
- Cost of educating yourself with respect to real estate investing (e.g., books, CDs, online subscriptions, seminars, etc.)
- Property taxes and insurance if not paid by the manager(s) or reported on Form 1098
For any business for which your compensation was reported on Form 1099, provide:
- Business name
- Business address
- Business start date
- Employer Identification Number (EIN)
- A description of the principal product or service provided
- All Forms 1099 issued by this business
- All Forms 1099 issued to this business or to you on behalf of this business
- A brief description, with amount, of all expenses you incurred that are reasonably associated with this business. Examples include but are not limited to:
- Office expenses
- Cost of goods sold
- Advertising expenses
- Wages paid to employees
- Commissions paid to contractors
- Meals and entertainment expenses
- Legal and other professional services
- Licenses or other regulatory fees, not including penalties
- Cost of assets (machinery, equipment, software) you used in your business
- Travel expenses, including mileage, incurred while conducting your business
Please indicate below how you would like your refund processed if you are entitled to a refund for overpayment of taxes:
- Apply any overpayment to next year’s taxes
- Receive a personal check for refund amount
- Receive a direct deposit for refund amount
What If You Can’t Pay Your Taxes?
Many taxpayers receive a tax refund, meaning that throughout the year — typically via withholding on their wages — they paid in more in taxes than they actually owed.
Others, however, end up owing money to Uncle Sam when they file their tax return.
If you end up owing money on your tax return but don’t have the ability to pay it right now, you have some options.
Just know that before pursuing any of the options below, you should file — or extend — your tax return timely.
120-Day Full Payment Agreement
If you think that you will have the cash to pay your taxes within the next four months or so, consider setting up a Full Payment Agreement with the IRS.
There is no fee to adopt this payment plan, but interest and penalties will accrue as they normally would otherwise.
If you think you will need longer than 120 days to pay off your balance, you should consider applying for an Installment Agreement with the IRS.
Do You Have Any Tax Questions?
Do you have any tax questions? Feel free to leave me a comment below!
Logan is a practicing CPA, Certified Student Loan Professional, and founder of Money Done Right, which he launched in July 2017. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.