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Good-bye 2019, Hello 2020! Cheers to Updated & Indexed Tax Limits

Just like the lyrics to Auld Lang Syne:

Should auld acquaintance be forgot,

And never brought to mind?

Should auld acquaintance be forgot,

And auld lang syne?

Let’s not forget the new tax rates/limitations that became effective January 1, 2020 as many of these new limits affect your businesses.  Let’s take a look at a few that have been indexed for inflation.  Note these are only some examples and additional rules may apply.

FICA Limits

  • Your 2020 Social Security earnings (wages/compensation/Self employment income) subject to Social Security tax is now capped at $137,700   (up from $132,900 in 2019).

Your Business Expenses

  • Section 179 expensing:
    • Limit: $1.04 million which is up from $1.02 million for 2019
    • Phaseout: $2.59 million which is up from $2.55 million
  • Income-based phase-out RE: Sec. 199A qualified business income deduction begins at:
    • Married filing jointly: $326,600 which is up from $321,400
    • Married filing separately: $163,300 which is up from $160,725
    • Single and Head of Household: $163,300 which is up from $160,700

Your Retirement Plans – Maximum Contributions Allowed

  • Employee contributions to 401(k) plans: $19,500 (was $19,000)
  • Catch-up contributions to 401(k) plans: $6,500 (was $6,000)
  • Employee contributions to SIMPLEs: $13,500 (was $13,000)
  • Catch-up contributions to SIMPLEs: $3,000 (same, no change)
  • Combined employer/employee contributions to defined contribution plans not including catch-ups: $57,000 (up from $56,000).  If over 50, with catchup is now $62,000 up $1,000 from $61,000 in 2019)
  • Maximum compensation used to determine contributions: $285,000 (was $280,000)
  • Annual benefit for defined benefit plans: $230,000 (was $225,000)
  • Compensation defining a highly compensated employee: $130,000 (was $125,000)
  • Compensation defining a “key” employee: $185,000 (was $180,000)

Your Other Employee Benefits

  • Qualified transportation fringe-benefits employee income exclusion: $270 per month (was $265)
  • Health Savings Account contributions:
    • Individual HSA Plan: $3,550 (up from $3,500)
    • Family HSA Plan: $7,100 (up from $7,000)
    • Catch-up contribution: $1,000 (no change)
  • Flexible Spending Account maximum contributions:
    • Health care: $2,750 (was $2,700)
    • Dependent care: $5,000 (no change)

Just like the end of the song, when the year is over, it’s over (and often too late)!  Be sure to maximize your funding contributions and other tax benefits for your businesses.  Reach out to Wegner CPAs for more information.

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