“Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”
– Benjamin Franklin (1789)
Yep, taxes are awful, but they are a part of our [un]natural order. Here are a few things to know about when the Taxman/Taxwoman cometh.
The New Tax Law
Uncle Sam recently changed the rules in a big way for both individuals and corporations. Here are just some of the many changes for individual taxpayers (but check with your own tax professional to address your own tax situation). Most of the new provisions (but not all) took effect in tax year 2018 and will expire in tax year 2025. For more information, check out the latest IRS news releases and statements:
- tax brackets and rates for tax year 2020:
- Higher standard deduction:
- For single taxpayers, the standard deduction is $12,400 for the 2020 tax year.
- For married taxpayers filing jointly, the standard deduction is $24,800 for the 2020 tax year.
- The personal exemption was eliminated (combined into the higher standard deduction)
- The higher standard deduction means that fewer taxpayers find it necessary to itemize deductions.
- State and Local Tax (SALT) deduction capped:
- The deduction for state and local taxes (which includes income tax, property tax, and sales tax) has been capped at $10,000.
- Previously, there was no upper limit on the amount that could be deducted.
- Cap on mortgage interest deduction lowered:
- The deduction for mortgage interest on new mortgages for a primary or secondary residence has been limited to interest on up to $750,000 of mortgage debt.
- Previously, the deduction was limited to interest on up to $1,000,000 of mortgage debt.
- This doesn’t affect deduction of interest on mortgages for homes purchased on or before December 15, 2017.
- Health insurance mandate eliminated starting in 2019:
- Beginning in tax year 2019, there is no longer a penalty for failure to have individual health insurance.
- Even though there will be no penalty, you’ll do yourself and your health (and your wallet) a big favor by getting adequate health insurance coverage.
Estimated Tax
- Do you owe estimated tax?
- If you are self-employed, have other income in addition to your main salaried income, or your tax liability is not adequately covered by withholdings from your regular paycheck, you may need to pay estimated tax. To see if you need to file federal estimated tax, take a look at IRS Estimated Taxes, IRS FAQ on quarterly estimated tax payments, and IRS Publication 505 – Tax Withholding and Estimated Tax.
- Individuals generally use Form 1040-ES. The form also has an Estimated Tax Worksheet to help you figure your estimated tax.
- When are these payments due?
- For estimated tax purposes, the year is divided into 4 payment periods (not quarters), each with a specific due date. See IRS FAQ for information on the 4 estimated tax payment periods. Pay attention to the due dates, because you may be charged a penalty if you don’t pay enough on time (even if you’re ultimately due a refund at the end of the tax year).
- Here’s how to figure out your 2020 Federal Estimated Tax Calendar (for calendar-year individual taxpayers):
- January 15, 2020: Final installment date for 2019 estimated tax
- April 15, 2020: First installment date for 2020 estimated tax
- June 15, 2020: Second installment date for 2020 estimated tax
- September 15, 2020: Third installment date for 2020 estimated tax
- January 15, 2021: Final installment date for 2020 estimated tax
- There are also estimated tax obligations at the state level, so make sure to check the specifics for your particular state.
Tax Preparation
There are many online and in-person tax preparation services. The benefit of all of this is that these solutions get.it.done as painlessly as possible. Some of them have added protections if you are audited later on, so check the features and costs before you decide which way to go. You can always do your own taxes for free, but besides the time and stress of doing that yourself, you may miss out on deductions or other items that could potentially cover the cost of using a service.
Here are some of the online and in-person tax prep options you might want to look into:
Full Disclosure: We’ve used TurboTax and H&R Block ourselves, which provided a low-stress solution to getting taxes done (and they sometimes have discounts if you search online).
Donations
Donation of Used Goods
There are many organizations that will gladly take your gently used goods. The win/win is that if you itemize your deductions (which will be less prevalent under the new tax law), the stuff you donate can help offset the amount you’ll owe Uncle Sam. If you want your donation to be tax deductible, make sure the organization you donate to is a qualified 501(c)(3) organization. (See IRS E O Select Check (Exempt Organizations Select Check) mentioned below.)
According to IRS Publication 561 – Determining the Value of Donated Property, household goods and used clothing must be in “good used condition or better” in order for you to take a deduction. Items should also be in good used condition or better just to be accepted by most of these organizations.
See also IRS Publication 526 – Charitable Contributions for other rules on charitable contributions, including what records you need to keep to document your contribution based upon the type and amount of the contribution.
There are many organizations that will accept donations of used clothing, furniture, housewares, and other items in good condition. Here are some that you might want to check out:
- Crossroads (Merged with Bib + Tuck)
- Clothes4Souls
- Donate My Dress
- Goodwill
- Mitzvah Circle Foundation
- Room to Grow
- St. Vincent de Paul
- The Arc
- The Bridge To Success
- The Salvation Army
- Vietnam Veterans of America
(If you decide to sell your goods outright, check out sites like Ebay, Decluttr, or Craigslist.)
For help on determining the value of the goods you donate, take a look at IRS Publication 561 – Determining the Value of Donated Property. This publication covers different kinds of donated property such as household goods, used clothing, jewelry, paintings, cars, etc.
Monetary Donations
- Charitable 501(c)(3) organizations such as educational organizations, religious organizations, cultural institutions, medical research foundations, service organizations, and numerous other charitable causes depend upon the generosity of donors to fund their organizations and operations. No amount is too small, as hundreds or thousands of small donations combine to make a large impact on the bottom line.
- When you make a monetary donation to a 501(c)(3) organization, it is better to use a check, credit card, or some other method with a paper or digital record, as opposed to cash.
- Keep all receipts and records of these payments for tax purposes to help you document the deduction you might be able to take on your tax return.
- See also IRS Publication 526 – Charitable Contributions for rules on charitable contributions, including what records you need to keep to document your contribution based upon the type and amount of the contribution.
Exempt Organizations
- See IRS E O Select Check (Exempt Organizations Select Check), an online IRS search tool to check on organizations that are eligible to receive tax-deductible charitable contributions.
