Helpful Tax Information in Jefferson City and Central MO

Listed here are changes specific to 2020 taxes. To find a list of changes due to the annual inflation adjustments, see Tax Facts – 2 Year Comparison.

• Medical expense deduction threshold remains at 7.5%. To deduct medical expenses as an itemized deduction, threshold is still 7.5 percent of your Adjusted Gross Income (AGI). The 10 percent threshold was rolled back to 7.5 percent for last year and 2020.
• Retirement account rules get an overhaul. A number of changes were made to retirement plan rules beginning in 2020. Among them are:
• Moving the required minimum distribution to age 72 from age 70 1/2.
• Removing the age limit to contribute to traditional IRAs.
• Eliminating the stretch IRA for most non-spouse beneficiaries. Distributions must now be taken out within 10 years.
• Allowing qualified part-time employees to participate in employer retirement plans.
• Allowing new parents to withdraw up to $5,000 penalty-free from qualified retirement accounts to pay for a new birth or adoption.
• Mortgage insurance premium deductions. You may use this premium expense as an itemized deduction once more in 2020.
• Continued revisions to Form W-4 to get your withholds right. The IRS is continuing to revise this important paycheck withholding tool to ensure your taxes do not create a big surprise or underpayment tax penalty.
• Covid 19 payments. Most taxpayers have received stimulus checks to help during the pandemic. If you are eligible for this payment, but have not received it, you can claim it on your tax return.

The changes outlined here are only some of the major changes implemented during the current tax year. As other changes are made, rest assured they will be reflected in any of your tax filings.

Listed below are the educational-related tax benefit annual limits. Some things to remember when reviewing these limits:

1. No double-dipping. You may not use the same educational expense for more than one tax benefit.

2. Income limits apply. Many of these benefits are subject to income limits. Please review the phase-out article to see if they apply to your situation.

3. Not all expenses qualify. Each credit has criteria as to what educational expenses qualify for its use. Remember to review your expenses against these limitations.

Education Credits

American Opportunity Credit (AOC) maximum amount 

$2,500

Lifetime Learning Credit maximum amount $2,000

Education Deductions

Student loan interest deduction (maximum) $2,500

Tuition and Fees Deduction (maximum)

$4,000

Education Savings Account Limits

Coverdell Education Savings Account contribution limit 

$2,000

Standard Deduction1Deduction

• Single: $12,400
• Joint returns & surviving spouses: $24,800
• Married filing separately: $12,400
• Head of household: $18,650

The standard deduction increases by $1,300 for a married taxpayer aged 65 or older or blind ($2,600 if both 65 and blind); by $1,650 for a single taxpayer aged 65 or older or blind ($3,300 if both 65 and blind).

Personal Exemptions: Suspended through 2025

No personal exemption is allowed to an individual who is eligible to be claimed as a dependent on another taxpayer's return.

Good recordkeeping can cut your taxes and make your financial life easier.

How long to keep records is a combination of state and federal statutes of limitations. Since federal tax returns can generally be audited for up to three years after filing and up to six years if the IRS suspects underreported income, it’s wise to keep tax records at least seven years after a return is filed. Requirements for records kept electronically are the same as for paper records.

Generally, follow these recommended retention periods for various documents:

Tax returns (uncomplicated) 

7 years

Tax returns (all others) 

Permanent

W-2s 

7 years

1099s 

7 years

Cancelled or substitute checks

supporting tax deductions 

7 years

Bank deposit slips 

7 years

Bank statements 

7 years

Charitable contribution documentation 

7 years

Credit card statements 

7 years

Receipts, diaries, logs pertaining to tax returns

7 years

Investment purchase and sales slips Ownership period + 7 years

Dividend reinvestment records 

Ownership period + 7 years

Year-end brokerage statements 

Ownership period + 7 years

Mutual fund annual statements 

Ownership period + 7 years

Investment property purchase documents 

Ownership period + 7 years

Home purchase documents 

Ownership period + 7 years

Home improvement receipts and cancelled checks 

Ownership period + 7 years

Home repair receipts and cancelled checks 

Warranty period for item

Retirement plan annual reports 

Permanent

IRA annual reports 

Permanent

IRA nondeductible contributions (Form 8606) 

Permanent

Insurance policies 

Life of policy + 3 years

(Check with your agent. Liability for prior years can vary.)

Divorce documents 

Permanent

Loans 

Term of loan + 7 years

Estate planning documents 

Permanent

In business, good recordkeeping is essential not only for tax reporting purposes but also for the success of the company. Generally, you need to retain records for three years after the filing due date or when you actually filed your tax return, whichever is later. Remember to add six months to this requirement for most state audit time limits. If an error is found that exceeds 25% or more of your obligation, the time limit can be expanded to six years. The guidelines below give retention periods for the most common business records, in a worst-case audit scenario. Please call if you'd like assistance with your record retention program.

Accounts payable 

7 years

Accounts receivable 

7 years

Audit reports 

Permanent

Chart of accounts 

Permanent

Depreciation schedules 

Life of assets plus 7 years

Expense records 

7 years

Financial statements (annual) 

Permanent

Fixed asset purchases 

Permanent

General ledger 

Life of business plus 7 years

Inventory records 

7 years

(Permanent for LIFO system)

Loan payment schedules 

7 years

Purchase orders (1 copy) 

7 years

Sales records 

7 years

Tax returns 

Permanent

Bank reconciliations 

2 years

Bank statements 

7 years

Cancelled or substitute checks 

7 years

(Permanent for real estate purchases)

Electronic payment records 

7 years

Board minutes 

Life of company plus 7 years

Business licenses 

Permanent

Bylaws 

Permanent

Contracts – major 

Permanent

Contracts – minor 

Life + 4 years

Insurance policies 

Life + 3 years

(Check with your agent. Liability for prior years can vary.)

Leases/mortgages 

Permanent

Patents/trademarks 

Permanent

Shareholder records 

Permanent

Stock registers 

Permanent

Stock transactions 

Permanent

Benefit plans 

Permanent

Employee files (ex-employees)

7 years

(Or statute of limitations for employee lawsuits)

Employment applications 

3 years

Employment taxes 

7 years

Payroll records 

7 years

Pension/profit-sharing plans 

Permanent

Construction records 

Permanent

Leasehold improvements 

Permanent

Lease payment records 

Life + 4 years

Real estate purchases 

Ownership period plus 7 years

FICA tax is a combination of a Social Security tax and a Medicare tax. The Social Security tax is assessed on wages up to $137,700; the Medicare tax is assessed on all wages.

Self-employed individuals pay a self-employment tax which is the equivalent of FICA tax. For 2020, they will pay a 15.3% OASDI tax (the old age, survivors, and disability insurance tax) on the first $137,700 of self-employment income. A 2.9%* Medicare tax is imposed on all net self-employment income.

The earnings limit for retirees under full retirement age is $18,240. Social Security benefits will be reduced $1 for every $2 of earnings above this limit. There is no earnings limit for individuals at full retirement age. (Special rules apply in the first year of retirement.)

Social Security 

Maximum Tax Rate: 6.20% 

Maximum Wage Base: $137,700 

Maximum Tax: $8,537.40

Medicare 

Maximum Tax Rate: 1.45%* 

Maximum Wage Base: No limit 

Maximum Tax: No ceiling

* A 0.9% Medicare surtax is assessed on all wages or self-employment income in excess of $200,000 for singles, $250,000 for joint returns, and $125,000 for those married filing separately.

The Social Security Administration announced a 1.6 percent boost to monthly Social Security and Supplemental Security Income (SSI) benefits for 2020. The increase is based on the rise in the Consumer Price Index over the past 12 months ending in September 2019.

For those still contributing to Social Security through wages, the potential maximum income subject to Social Security tax increases 3.6 percent this year, to $137,700. A recap of the key amounts is outlined here:

What does it mean for you?

• Up to $137,700 in wages will be subject to Social Security taxes, up $4,800 from 2019. This amounts to $8,537.40 in maximum annual employee Social Security payments. Any excess amounts paid due to having multiple employers can be returned to you via a credit on your tax return.
• For all retired workers receiving Social Security retirement benefits the estimated average monthly benefit will be $1,503 per month in 2020 – an average increase of $24 per month.
• SSI is the standard payment for people in need. To qualify for this payment you must have little income and few resources ($2,000 if single/$3,000 if married).
• A full-time student who is blind or disabled can still receive SSI benefits as long as earned income does not exceed the monthly and annual student exclusion amounts listed above.

Social Security & Medicare Rates

The Social Security and Medicare tax rates do not change from 2019 to 2020.

Note: The above tax rates are a combination of 6.20 percent Social Security and 1.45 percent for Medicare. There is also 0.9 percent Medicare wages surtax for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in these figures. Please note that your employer also pays Social Security and Medicare taxes on your behalf. These figures are reflected in the self-employed tax rates, as self-employed individuals pay both halves of the tax.

Corporate tax rates and Section 179 expense limits are noted here for your use.

C Corporations

• Flat 21% corporate tax rate. Includes personal service corporations.
• No alternative minimum tax (AMT).

Pass-Through Entities (S corps, partnerships and sole proprietors)

• Taxed as ordinary income.
• 20% qualified business income deduction available. Income threshold is $164,900 ($163,300 in 2020) and $326,600 joint $329,800 ($326,600 in 2020)*
• *Select companies above these limits may have the income deduction reduced based on wages, property and type of business.

Section 179 Business Expensing Limits

• Business equipment Sec. 179 expense deduction $1,050,000 ($1,040,000 in 2020)
• Total purchase limit for full Sec. 179 expense deduction $2,620,000 ($2,590,000 in 2020)

Single Tax Rate: 

10% 

2020: $1 - 9,875 

2021: $1 - 9,950

12%

2020: 9,876 - 40,125 

2021:  9,951 - 40,525

22%

2020: 40,126 - 85,525 

2021:  40,526 - 86,375

24%

2020: 85,526 - 163,300

2021:  86,376 - 164,925

32%

2020: 163,301 - 207,350 

2021:  164,926 - 209,425

35%

2020: 207,351 - 518,400

2021:  209,426 - 523,600

37%

2020: Over 518,400

2021:  Over 523,600

Married Joint Tax Rate: 

10%

2020: $1-19,750

2021:  $1-19,900

12%

2020: 19,751-80,250 

2021:  19,901-81,050

22%

2020: 80,251-171,050

2021:  81,051-172,750

24%

2020: 171,051-326,600

2021:  172,751-329,850

32%

2020: 326,601-414,700

2021:  329,851-418,850

35%

2020: 414,701-622,050

2021:  418,851-628,300

37%

2020: Over 622,050

2021:  Over 628,300

Married Separate Tax Rate:

10%

2020: $1-9,875

2021:  $1-9,950

12%

2020: 9,876-40,125 

2021:  9,951-40,525

22%

2020: 40,126-85,525

2021:  40,526-86,375

24%

2020: 85,526-163,300

2021:  86,376-164,925

32%

2020: 163,301-207,350

2021:  164,926-209,425

35%

2020: 207,351-311,025

2021:  209,426-314,150

37%

2020: Over 311,025

2021:  Over 314,150

Head of Household Tax Rate

10%

2020: $1-14,100

2021:  $1-14,200

12%

2020: 14,101-53,700

2021:  14,201-54,200

22%

2020: 53,701-85,500

2021:  54,201-86,350

24%

2020: 85,501-163,300

2021:  86,351-164,900

32%

2020: 163,301-207,350

2021:  164,901-209,400

35%

2020: 207,351-518,400

2021:  209,401-523,600

37%

2020: Over 518,400

2021:  Over 523,600

Here's a quick review of some of the tax changes you'll see from 2020 to 2021 as a result of inflation adjustments and new tax laws.

Provision 2021 2020 +/-

Business equipment Sec. 179 expensing deduction $1,050,000 $1,040,000 +$10,000

Total purchase limit for full Sec. 179 expensing deduction $2,620,000 $2,590,000 +$30,000

Standard mileage rate: business 56¢ per mile 57.5¢ per mile -1.5¢

Standard mileage rate: medical/moving 16¢ per mile 17¢ per mile -1.0¢

Mileage rate: charitable activity 14¢ per mile 14¢ per mile nc

Maximum wages subject to social security tax $142,800 $137,700 +$5,100

Social security earnings limit 

- Under full retirement age $18,960 $18,240 +$720

- Full retirement age No limit No limit nc

Top estate tax rate 40% 40% nc

Estate tax exemption $11,700,000 $11,580,000 +$120,000

Annual gift tax exclusion (per donee) $15,000 $15,000 nc

Alternative minimum tax exemption 

- Single $73,600 $72,900 +$700

- Married, joint $114,600 $113,400 +$1,200

- Married, separate $57,300 $56,700 +$600

Maximum retirement plan contributions 

- IRA for those under age 50 $6,000 $6,000 nc

- IRA for those 50 and over $7,000 $7,000 nc

- SIMPLE plan for those under age 50 $13,500 $13,500 nc

- SIMPLE plan for those 50 and over $16,500 $16,500 nc

- 401(k) plan for those under age 50 $19,500 $19,500 nc

- 401(k) plan for those 50 and over $26,000 $26,000 nc

HSA contribution limits 

- Self only $3,600 $3,550 +$50

- Family $7,200 $7,100 +$100

- Additional for 55 & older $1,000 $1,000 nc

"Kiddie tax" threshold $2,200 $2,200 nc

"Nanny tax" threshold $2,200 $2,200 nc

Education savings account contribution (Coverdell) $2,000 $2,000 nc

American opportunity (Hope) credit limit $2,500 $2,500 nc

Education loan interest deduction $2,500 $2,500 nc

Personal exemption (suspended through 2025) Suspended Suspended na

FICA & self-employment tax 

Taxable wages for Social Security/Medicare Up to $142,800 Up to $137,700 +$5,100

Social Security/Medicare tax rate 

- Employees 7.65% 7.65% nc

- Employers 7.65% 7.65% nc

- Self-employed 15.3% 15.3% nc

Standard deduction 

- Single $12,550 $12,400 +$150

- Joint returns & surviving spouses $25,100 $24,800 +$300

- Married filing separately $12,550 $12,400 +$150

- Head of household $18,800 $18,650 +$150

- Additional for elderly or blind (married) $1,350 $1,300 +$50

- Additional for elderly or blind (single) $1,700 $1,650 +$50

In addition to the planning changes in tax benefit phaseouts and other cost of living (COLA) adjustments, here are changes to the tax code for 2021.

For individuals

Tuition and Fees Deduction eliminated. This oft-expired tax break is now permanently closed.

Lifetime Learning Credit phaseouts increase dramatically. To help reduce the impact of the elimination of the Tuition and Fees Deduction, the income phaseout of this education expense tax break is dramatically increasing to $80,000 unmarried ($160,000 married filing joint). This is an increase of $20,000 to $40,000!

Medical and other health care-related expense threshold to remain at 7.5% of income. To begin deducting health expenses as an itemized deduction, the expense threshold no longer moves to the planned 10% level.

Additional economic recovery payments. The Federal Government is issuing additional pandemic related payments that are non-taxable. There is no proof of hardship required to receive the payments. They are based on income and number of qualifying dependents.

Mortgage insurance premium deductibility. You may still deduct mortgage insurance premiums as an itemized deduction. This was set to expire last year.

Exclude discharge of mortgage indebtedness. With the extension of this law, qualified debt forgiveness on qualified mortgages is still not considered income.

Above the line charitable deductions. If you do not itemize, you can deduct up to $300 in qualified charitable deductions ($600 for married couples).

For Small Businesses

PPP loans for small businesses. PPP loan forgiveness is no longer a taxable event for your small business. The same goes for any second round loans your business receives this year if they qualify.

100% meal deductibility. Business meals are typically only deductible at 50%. To help aid restaurants during the pandemic, a new law allows for 100% meal expense deductions for both 2021 and 2022.

Numerous general business credits extended. New laws extend expiring tax credits for many small businesses. There are too many to mention here, but common extended credits include; work opportunity credit, credit for paid family and medical leave, and employer paying employee student loan payments.

Given the ongoing pandemic, expect other tax changes throughout the year.

Retirement Plan Contribution Limits 2000 2021

IRA for those under age 50 $6,000 $6,000

IRA for those 50 and over $7,000 $7,000

SIMPLE plan for those under age 50 $13,500 $13,500

SIMPLE plan for those 50 and over $16,500 $16,500

401(k) plan for those under age 50 $19,500 $19,500

401(k) plan for those 50 and over $26,000 $26,000

Health Savings Account (HSA) Contribution Limits 2000 2021

Self only $3,550 $3,600

Family $7,100 $7,200

Additional for 55 and over $1,000 $1,000

Mileage Type 2020 2021

Business miles 57.5¢ per mile 56¢ per mile

Medical and moving miles* 17¢ per mile 16¢ per mile

Charitable miles 14¢ per mile 14¢ per mile

* Miles deducted as a moving expense are limited to a permanent change of station for military purposes only.

2020 Tax Rate Taxable Income

10% 0 - 2,600

24% 2,601 - 9,450

35% 9,451 - 12,950

37% Over 12,950

2021 Tax Rate Taxable Income

10% 0 - 2,650

24% 2,651 - 9,550

35% 9,551 - 13,050

37% Over 13,050

RS Interest Rates — 1st Quarter (January - March 31) 2020 2021

Paid on overpayments by individuals 5% 3%

Charged on underpayments by individuals 5% 3%

Paid on overpayments by corporations 4% 2%

Paid on corporate overpayments exceeding $10,000 2.5% 0.5%

Charged on underpayments by corporations 5% 3%

Charged on large corporate underpayments 7% 5%

IRS Interest Rates — 2nd Quarter (April 1 through June 30) 2020 2021

Paid on overpayments by individuals 5% XX

Charged on underpayments by individuals 5% XX

Paid on overpayments by corporations 4% XX

Paid on corporate overpayments exceeding $10,000 2.5% XX

Charged on underpayments by corporations 5% XX

Charged on large corporate underpayments 7% XX

IRS Interest Rates — 3rd Quarter (July 1 through Sept 30) 2020 2021

Paid on overpayments by individuals 3% XX

Charged on underpayments by individuals 3% XX

Paid on overpayments by corporations 2% XX

Paid on corporate overpayments exceeding $10,000 0.5% XX

Charged on underpayments by corporations 3% XX

Charged on large corporate underpayments 5% XX

IRS Interest Rates — 4th Quarter (Sept 31 through Dec 31) 2020 2021

Paid on overpayments by individuals 3% XX

Charged on underpayments by individuals 3% XX

Paid on overpayments by corporations 2% XX

Paid on corporate overpayments exceeding $10,000 0.5% XX

Charged on underpayments by corporations 3% XX

Charged on large corporate underpayments 5% XX

Social Security and Medicare income limits and tax rates

FICA tax is a combination of a Social Security tax and a Medicare tax. The Social Security tax is assessed on wages up to $142,800 ($137,700 in 2020); the Medicare tax is assessed on all wages.

Self-employed individuals pay a self-employment tax which is the equivalent of FICA tax. For 2021, they will pay a 15.3% OASDI tax (the old age, survivors, and disability insurance tax) on the first $142,800 ($137,700 in 2020) of self-employment income. A 2.9%* Medicare tax is imposed on all net self-employment income.

The earnings limit for retirees under full retirement age is $18,960 ($18,240 in 2020). Social Security benefits will be reduced $1 for every $2 of earnings above this limit. There is no earnings limit for individuals at full retirement age. (Special rules apply in the first year of retirement.)

Social Security Medicare

Tax Maximum Tax Rate:

Social Security 6.2%

Medicare 1.45% *

Maximum Wage Base:

Social Security $142,800

Medicare No ceiling

* A 0.9% Medicare surtax is assessed on all wages or self-employment income in excess of $200,000 for singles, $250,000 for joint returns, and $125,000 for those married filing separately.

The Social Security Administration announced a 1.3 percent boost to monthly Social Security and Supplemental Security Income (SSI) benefits for 2021. The increase is based on the rise in the Consumer Price Index over the past 12 months ending in September 2020.

For those still contributing to Social Security through wages, the potential maximum income subject to Social Security tax increases 3.1 percent this year, to $142,800 (up from $137,700 in 2020). A recap of the key amounts is outlined here:

What does it mean for you?

Up to $142,800 in wages will be subject to Social Security taxes, up $5,100 from 2020. This amounts to $8,853.60 ($8,537.40 in 2020) in maximum annual employee Social Security payments. Any excess amounts paid due to having multiple employers can be returned to you via a credit on your tax return.

For all retired workers receiving Social Security retirement benefits the estimated average monthly benefit will be $1,543 per month in 2021 – an average increase of $20 per month.

SSI is the standard payment for people in need. To qualify for this payment you must have little income and few resources ($2,000 if single/$3,000 if married).

A full-time student who is blind or disabled can still receive SSI benefits as long as earned income does not exceed the monthly and annual student exclusion amounts listed above.

Social Security & Medicare Rates

The Social Security and Medicare tax rates do not change from 2020 to 2021.

Note: The above tax rates are a combination of 6.20 percent Social Security and 1.45 percent for Medicare. There is also 0.9 percent Medicare wages surtax for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in these figures. Please note that your employer also pays Social Security and Medicare taxes on your behalf. These figures are reflected in the self-employed tax rates, as self-employed individuals pay both halves of the tax.

Here are the key phaseout levels for this year and next.

American Opportunity Tax Credit 2020 2021

Single / Head of household $80,000 - 90,000 $80,000 - 90,000

Joint $160,000 - 180,000 $160,000 - 180,000

Married filing separately (MFS) $0 $0

Child Tax Credit ($2,000 Per Child) 2020 2021

Single / Head of household $200,000 - 240,000 $200,000 - 240,000

Joint $400,000 - 440,000 $400,000 - 440,000

Married filing separately $200,000 - 240,000 $200,000 - 240,000

Family Tax Credit 

$500/dependent non-qualifying CTC same as child tax credit

College Savings Bond Interest Exclusion 2020 2021

Single / Head of household $82,350 - 97,350 $83,200 - 98,200

Joint $123,550 - 153,550 $124,800 - 154,800

Married filing separately $0 $0

* Adjusted or modified adjusted gross income.

Education Loan Interest Deduction 2020 2021

Single / Head of household $70,000 - 85,000 $70,000 - 85,000

Joint $140,000 - 170,000 $140,000 - 170,000

Married filing separately $0 $0

Education Savings Accounts 2020 2021

Single / Head of household / MFS $95,000 - 110,000 $95,000 - 110,000

Joint $190,000 - 220,000 $190,000 - 220,000

Lifetime Learning Credit 2020 2021

Single / Head of household $59,000 - 69,000 $80,000 - 90,000

Joint $118,000 - 138,000 $160,000 - 180,000

Married filing separately $0 $0

IRA Deductibility (With Company Pension) 2020 2021

Single / Head of household $65,000 - 75,000 $66,000 - 76,000

Joint $104,000 - 124,000 $105,000 - 125,000

Married filing separately $0 - 10,000 $0 - 10,000

When spouse has company pension $196,000 - 206,000 $198,000 - 208,000

Itemized Deductions 2020 2021

Single no phaseout no phaseout

Joint returns & surviving spouses no phaseout no phaseout

Married filing separately no phaseout no phaseout

Head of household no phaseout    no phaseout

Roth IRA Eligibility 2020 2021

Single / Head of household $124,000 - 139,000 $125,000 - 140,000

Joint $196,000 - 206,000 $198,000 - 208,000

Married filing separately $0 - 10,000 $0 - 10,000

Rollover of regular IRA to Roth IRA No income limit No income limit