If you haven't filed your 2019 taxes you have some time yet, as the IRS has extended the filing deadline to July 15, 2020 due to the COVID-19 pandemic.
You're probably not thinking much about your taxes for the 2020 year yet, especially with the coronavirus crisis and the longer timeline to file for last year. But as you start to look ahead to how you'll be taxed this year, there's one important thing to know: The standard deduction will be bigger for the 2020 year than it was for 2019.
The standard deduction is going up
The standard deduction for 2020 is going up between $200 and $400 depending on your filing status. Here's what you need to know about how it's changing compared with 2019:
- For single filers and married separate filers, it's going up $200 to $12,400
- For head of household filers, it's going up $300 to $18,650
- For married joint filers, it's going up $400 to $24,800
What does this mean for taxpayers?
This change means your taxable income will be reduced by a little bit more if you claim the standard deduction. For example, if you're single with $50,000 in taxable income and you took the standard deduction in 2020, you'd reduce your taxable income down to $37,600 this year, compared with $37,800 last year.
The savings you'll realize from a higher standard deduction will depend what your tax rate is, as well as your filing status. If you're in the 22% tax bracket, the extra $200 in the standard deduction for 2020 would save you about $44 more as a single filer or $88 more as a joint filer compared with last year's deduction.
Since the standard deduction is a little higher, you'll also need to consider whether it still makes sense to itemize deductions. Itemizing would involve adding up specific deductions, such as the mortgage interest deduction and one for state and local taxes. If you had just enough deductions to itemize last year, a higher standard deduction may mean it no longer makes sense for you to do that, since you could save more -- and make doing your taxes far less complicated -- if you simply claimed the standard deduction instead.
You can add up the total combined amount of your itemized deductions and compare that to the new 2020 standard deduction to see what makes sense for you.
Make smart choices when it comes to your 2020 taxes
Determining what itemized deductions you could claim and comparing them to the standard deduction is always a smart choice. After all, you want to maximize your tax savings.
As the standard deduction goes up for the 2020 tax year, remember to redo the math to see what works for you. It's a simple calculation that could help you keep more money in your pocket rather than sending extra to the IRS.