Wolters Kluwer, Inc. has projected tax brackets and other inflation-adjusted amounts for the 2020 tax year. Highlights of projected 2020 amounts, including tax brackets for both ordinary income tax and capital gains tax, can be found at the following link.
Tax Cuts and Jobs Act and the Consumer Price Index
Beginning with the 2018 tax year, most inflation adjustments replaced the Consumer Price Index with the Chained Consumer Price Index, as required by the Tax Cuts and Jobs Act. The change in the calculation is highly technical, but the end result is much smaller increases in inflation adjustments.
On September 12, 2019, the Bureau of Labor Statistics released Consumer Price Index amounts for August 2019, enabling the calculation of 2020 amounts.
New Items under Tax Cuts and Jobs Act
In addition to changing the way inflation adjustments are calculated, the Tax Cuts and Jobs Act also produced a number of new items to adjust annually. These include:
- Threshold amounts for the Section 199A qualified business income deduction, which for 2020 are projected to be $326,600 for joint filers and $163,300 for single filers
- Gross income ceiling for corporations and partnerships to use the cash method of accounting, which for 2020 is projected to remain $26,000,000
- The refundable amount of the child tax credit, which for 2020 is projected to be $1,400
The personal exemption amount for 2020 is projected to be $4,300. While the Tax Cuts and Jobs Act eliminated the personal exemption deduction, the personal exemption amount is still used in a number of instances, such as the qualifying relative test for head of household filing status, and a qualified disability trust’s deduction in lieu of a personal exemption.
Official 2020 Amounts
The IRS should release official amounts for the 2020 tax year in late October or early November. Cost of living adjustments for retirement planning are based on a different set of numbers released by the Bureau of Labor Statistics, and are typically released in late October. Amounts for the 2019 tax year were released on November 15, 2018.
By Michael Henaghan, J.D., LL.M