Standard Deduction & Personal Exemption Increase

Standard Deduction and Phase-Out Levels

The basic standard deductions are:

 

2020

2019

Married, filing joint return

$24,800

$24,400

Surviving spouse

$24,800

$24,400

Head of Household

$18,650

$18,350

Unmarried (not surviving spouse or head of household)

$12,400

$12,200

Married, filing separate return

$12,400

$12,200

"Kiddie" standard deduction alternative amount

$1,100

$1,100

The additional standard deduction amount for the aged and blind (if the individual is also unmarried and not a surviving spouse, $1,650 in both 2019 & 2020). $1,300 $1,300

Personal Exemption Amounts

 

2020 2019
Personal exemption amounts $0.00 $0.00

The phaseout of the personal exemption deduction is suspended for tax years 2018 through 2025. 


Gift Tax Exclusion

The annual gift tax exemption remains at $15,000 in 2019 & 2020.

 


Social Security Limits

The social security tax rate has remains at 6.2% for both employee and employer.

The Medicare tax rate remains at 1.45% for both employee and employer.

  2020 2019
Social Security Wage Base $137,700 $132,900
Medicare No Limit No Limit

The Maximum Amount of Earnings and Still Receive Full Benefits

  2020 2019
Under Full Retirement Age $18,240 $17,640
Over Full Retirement Age No Limit No Limit

Full retirement age (also called "normal retirement age") has been 65 for many years. However, beginning with people born in 1938 or later, that age will gradually increase until it reaches 67 for people born after 1959.


Financial Planning Process

Often the first area that comes to mind with financial planning is investing. Although a sound investment strategy is one of the important aspects of financial planning, it should be considered as part of an overall plan. The Institute of Certified Financial Planners (ICFP) defines financial planning as follows:

Personal financial planning is the organization of an individual’s financial and personal data for the purpose of developing a strategic plan to constructively manage income, assets, and liabilities to meet near and long-term goals and objectives. Important to the success of the personal financial planning process is the monitoring and periodic review of the plan to assure that it continues to meet the individuals’ needs.

The financial planning process is generally divided into seven different functions:

  1. Determine goals and objectives and identify resources and means to achieve them.
  2. Gather relevant data.
  3. Review and analyze data
  4. Prepare preliminary analysis of current financial situation and reassess goals.
  5. Present a report and make recommendations.
  6. Implement or coordinate implementation of recommendations.
  7. Monitor performance and update plan.

The focus of financial planning is on seven areas that include the following:

  1. Retirement and financial independence planning - Much of the burden and risk of planning for retirement has shifted from employers to employees. Also the availability of funds under our social security system is subject to change. A review of your expected retirement needs, along with assets currently available, the amount of your savings, and the length of time to your desired date of retirement should be considered.
  2. Integrating tax and financial planning - Careful consideration of income tax implications is necessary for decisions made during the financial planning process. Coordinating income tax planning concepts and issues with your financial planning goals and objectives should be implemented on an ongoing basis.
  3. Estate planning - Estate planning is also an important part of one’s financial plan to assure care of loved ones as well as for the managing, administering and distribution of your assets. An up-to-date will is essential, along with the possible use of a living (revocable) trust, and a durable power of attorney. Part of this process should include a review of how your assets are titled, since the best estate and financial plans can be thwarted by improper titling of assets.
  4. Risk management and insurance needs - Risk management and insurance planning calls for obtaining the appropriate amount of health, life, auto, homeowners, general liability, and long-term care insurance. The goal is to allocate premium dollars to reduce significant risk and exposures. This includes using the appropriate deductibles and, in some cases, deciding not to insure against a potential loss. However, one should never risk a large loss to save a small premium.
  5. Cash management, budgeting, and debt management - Current expenditures can be reviewed and a budget prepared that would document modifications based on one’s goals. Included would be a review of the terms of all outstanding debt to investigate opportunities to refinance at more favorable terms. Providing an emergency fund for contingencies is important. This can be accomplished with additional savings and/or a home equity line of credit.
  6. Education planning and income splitting - Education costs continue to increase at a higher rate than the rate of inflation. A review of the progress toward funding education should be completed along with investigating potential sources of financial aid.
  7. Investment planning and asset allocation - An appropriate investment strategy can only be made after considering the other components to one’s financial plan. In this fast changing world of investing, there are many opportunities available today not previously available. A good example is the increased popularity of online investing. Keep in mind, however, that studies indicate that a proper and wise allocation of investments is the largest determinate of investment success. For most, this is more important than individual stock selection or being able to potentially time the ups and downs of the market. One must be sure to distinguish between investing and speculating.

Determining the direction and priority of your financial goals can be a difficult task. For example, your retirement date and lifestyle expectations will determine how much you will need to save for retirement and how you will want to invest those savings. The following are some questions you can ask yourself that could assist with the financial planning process:

  • Have I established attainable goals?
  • Have I made a review of my current financial status?
  • Do I have a personal budget?
  • Do I have a contingency plan?
  • Do I have an estate plan?
  • Is my homeowner and auto insurance coverage adequate?
  • Is my life insurance coverage adequate?
  • Do I have an investment strategy and have I recently reviewed the components of my investment portfolio?

We hope the above provides a good overview of the financial planning process. Our assistance can range from informal consultations regarding the above areas to a more detailed analysis and financial plan preparation and implementation.


Record Retention Schedule

Retain Indefinitely

Audit reports  
Capital stock and bond records, ledgers, transfer registers, stubs showing issues, record of interest coupons, options, etc.  
Cash books  
Charts of accounts
Checks (canceled for important payments, i.e. taxes, purchases of property, special contracts, etc.) (filed with transaction papers)
Contracts and leases in force
Copyrights, patents, trademark registrations
Corporation charter, minute books and bylaws
Correspondence (legal and important matters only)
Deeds, mortgages, easements and other property records
Depreciation schedules
Financial statements (end-of-year, other months optional)
General ledgers and journals
Insurance records, current accident reports, claims, policies, etc  
Property appraisals
Property records - including costs, depreciation reserves, end-of-year trial balances, blueprints and plans
Tax returns and work papers, including records to support carrybacks and carryovers

Retain 7-8 years

Accident reports and claims (settled cases)
Accounts payable ledgers and schedules
Accounts receivable ledgers and schedules
Bank statements  
Canceled checks (except checks kept permanently)
Contracts and leases (expired)
Expense analysis and expense distribution schedules
Inventories of products, materials and supplies
Invoices to customers  
Invoices from vendors
Maintenance and repair records (buildings and machinery)
Notes receivable ledgers and schedules
Option records (expired)  
Payroll records and summaries, including payments to pensioners and timesheets
Plant cost ledgers  
Purchase orders (purchasing department copy)  
Sales records  
Scrap and salvage records (inventories, sales, etc.)  
Subsidiary records  
Time books  
Voucher register and schedules  
Vouchers for payments to vendors, employees, etc. (includes allowances and reimbursement of employees, officers, etc. for travel and entertainment)

Retain 6 years

Commission reports  
Employee disability benefits records  
Employee withholding tax statements
Equipment leases (after expiration)  
Fire damage reports  
Monthly trial balances

Retain 2 years and less  

Purchase orders (except purchasing department copy)  
Receiving sheets  
Requisitions  
Stenographer's notebooks  
Stockroom withdrawal forms

* The above listing is only a guide and is not all inclusive. If you have any questions or need additional information, please contact us at (540) 662-7070.
 


Current Mileage Rates

The standard mileage rate for business mileage (in lieu of using actual expenses), as well as the standard rates for use of your car for medical and moving or charitable purposes are as follows: 

 

2020

2019

Business 57.5 cents/mile 58 cents/mile
Medical & Moving 17 cents/mile 20 cents/mile
Charitable 14 cents/mile 14 cents/mile

Current Minimum Wage Rate

The current federal minimum wage for covered nonexempt employees is $7.25 per hour effective July 24, 2009.


Retirement Plans

Below are the annual contribution limits on elective deferrals for retirement plans.

Indexed Contribution & Benefit Limits for Qualified Plans

Type of Plan 2020 2019
Individual Retirement Accounts (IRAs)* $6,000 $5,500
Section 401(k) plans or SAR-SEPs* $19,500 $19,000
Section 403(b) plans* $19,500 $19,000
Section 408(p)(2)(E) SIMPLE Contributions* $13,500 $13,000
Section 457(b)(2) limit* $19,500 $19,000
Section 415 limit for:    
      Defined contribution plans^ $57,000 $56,000
      Defined benefit plans $230,000 $225,000
Highly compensated employees Section 414(q) $130,000 $125,000
Top Heavy Key Employee Officer compensation limit $185,000 $180,000
Governmental "Grandfathered" plan compensation limit $425,000 $415,000
     
      *Age 50 Additional contributions    
      401(k) type plans $6,500 $6,000
      SIMPLEs $3,000 $3,000
      IRAs $1,000 $1,000
     ^ Thes Section 415 compensation limit for defined contribution plans is $285,000 for 2020 and $280,000 for 2019.

Roth IRAs --- 2018 & 2019

- Nondeductible Contributions    
- Qualified tax-free distributions    
- AGI limit for maximum contributions: 2020 2019
  Joint filers $196,000 $193,000
  Individual filers $124,000 $122,000

Health Savings Accounts

Contribution Limits 2020 2019
Individual, self-only $3,550 $3,500
Family Coverage $7,100 $7,000
Catch-up for those age 55 and older $1,000 $1,000

For 2019 and 2020, the minimum deductible for a high-deductible health plan (HDHP) is $1,400 in 2020 up from $1,350 in 2019 for self-only coverage and $2,800 in 2020 up from $2,700 in 2019 for family coverage.  The maximum out-of-pocket limit is $6,900 in 2020 and $6,750 in 2019 for self-only coverage and $13,800 in 2020 and $13,500 in 2019 for family plans.