The tax season is just around the corner. The following is new for your 2020 return
You might want to buckle up for this tax season.
Whether it’s pandemic relief, remote work, or no work, preparing taxes for 2020 may be more of a challenge than usual for individuals.
“I think it’s getting a lot more complicated,” said Julio Gonzalez, CEO of Engineered Tax Services.
This year the IRS will process an estimated 150 million returns, with the standard filing deadline of April 15th. The agency started accepting returns on February 12th.
Here are a few ways your tax return process can be different this year.
While the federal stimulus payments issued in 2020 – two of them – were a lifeline for many households and helped boost the economy, they also raised many tax questions.
The most important thing to know is that the money is not taxable. However, they take into account your tax preparation.
“You’ll need to take a vote on your return,” said April Walker, senior manager of taxation and ethics at the American Institute of CPAs.
Basically, in the end, you will be comparing what you received with what you were entitled to. If the difference is in your favor – you should have received more than you – the amount of tax you owe will be reduced or added to your refund.
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If you should be getting more than you are receiving from these stimulus payments, you owe no tax on that amount, Walker said.
If you haven’t received one or both of the stimulus checks, but should have done so, this will also be matched in your tax return.
“It would either lower your tax bill one dollar at a time, or if you have a refund, it will increase the amount,” Gonzalez said.
While no federal tax law has changed regarding unemployment benefits, about 40 million Americans received these payments last year, according to The Century Foundation. And yes, the money is taxable at the federal level (state laws may vary).
However, not all unemployed taxpayers have deducted taxes from their benefits. And for those who do, the federal withholding tax rate is a flat 10% – which may or may not be a reasonable amount to avoid a bill at tax time.
“We may have a lot of people who have not been withheld taxes and it could be a big surprise when they file their 2020 filings,” Walker said.
You should get a Form 1099-G showing how much unemployment benefits were paid. Even if you don’t, you will be expected to report this income. Note that the IRS will receive all of the information listed on every tax form you receive (or should have received).
If you’re one of the many people who worked remotely over the past year, some tax issues can come into play.
Provided that you are a full-time employee of a company, ie you receive a W-2 from your employer, the expenses incurred while working from home are not tax deductible.
The only taxpayers allowed to write off business expenses or make a deduction for a home office are usually self-employed (i.e., an independent contractor).
If you worked remotely in another state in the past year, your state taxation may differ from previous years.
“This could sneak up on people because different states have different rules and it can get complicated,” Walker said.
Depending on the specifics, you can owe taxes in both the state you worked remotely and the state you worked in before you went away, Walker said. Or you can get a credit from one of the states so you won’t be double taxed.
“This is something you may need to talk to a CPA about,” Walker said.
Charitable allowance for everyone
The standard rule under applicable tax law is that you must list your deductions in order to receive a break on charitable contributions. Most people take the standard deduction, which is $ 12,400 for individuals or $ 24,800 for married couples.
For your 2020 return, the rule is a little different.
While non-itemizers still cannot write off donations in kind, they can make a qualifying deduction of up to $ 300 on qualifying charitable giving that will lower taxable income. This limit applies to any return, regardless of whether it is submitted individually or as a couple.
Additionally, taxpayers filing their 2020 tax return can deduct qualifying cash deposits up to 100% of their adjusted gross income. (This is a one-year adjustment from the usual limit of 60% of the AGI.)
Under typical rules, anyone under the age of 59½ who withdraws money from their 401 (k) plan or individual retirement account pays not only tax on the distribution but also a 10% early withdrawal penalty unless otherwise specified.
The CARES bill, passed in March last year, temporarily added withdrawals related to Covid to the exempt list. So, if you made an early distribution from your 401 (k) or IRA in 2020 due to adverse financial consequences related to the pandemic – e.g. B. Job loss or reduced working hours, childcare problems, Covid illness, etc. – don’t pay a fine but you will still owe taxes.
While you can spread these taxes over three years, you will owe something on your 2020 return.
“At least a third of it must be taxed for 2020,” said Walker.
If you pay the distributed amount back into your account within three years in accordance with the CARES Act, you can be refunded the taxes you paid on the money.
“You’d have to go back and change your returns to get the tax back,” Walker said.
Popular tax credits
A portion of the $ 900 billion coronavirus aid package in December temporarily adjusted the calculation of the child tax credit and the earned income tax credit.
For your 2020 tax return, you will have the option to use your 2019 income to calculate your eligibility for these credits based on income earned. Anyone who normally qualified for these loans but received unemployment in 2020 – which is not considered earned income – otherwise could face a loss of these loans.