The Tax Policy Center has an excellent article regarding phaseouts. As they explain, "preferences in the tax code phase out for higher-income taxpayers, meaning their value declines after income reaches a certain level. Phaseouts target tax benefits on middle- and lower-income households and limit the loss of revenue. Phaseouts are structured in different ways and thus have different effects. Some reduce credits and thus have the same impact on all affected taxpayers. Others reduce deductions, in which case their dollar impact depends on the taxpayer’s marginal tax rate: the higher the tax rate, the greater the value of the lost deduction."
Phaseouts are most common in three areas of the tax code: family benefits, education provisions, and retirement savings provisions. While currently the phaseout of itemized deductions is suspended, other phaseouts are alive and well. Here are the most common and when they start to phase out for 2020.
Child Tax Credit, $200,000 single/HOH, $400,000 MFJ
Adoption Credit: $211,160 all filing types
American Opportunity Tax Credit (College): $80,000 single/HOH, $160,000 MFJ
Lifetime Learning Credit: $58,000 single/HOH, $118,000 MFJ
Student loan interest deduction: $70,000 single/HOH, $140,000 MFJ
Traditional IRA contribution: $65,000 single/HOH, $104,000 MFJ ($0 for MFS)
Roth IRA: $124,000 single/HOH, $196,000 MFJ ($0 if MFS)
It is important to consider whether to accelerate deductions to preserve these value credits or opportunities. Contact us so we can discuss how to help you save valuable tax dollars.
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