Deadline approaching, get those taxes done ASAP!!
A number of my clients took advantage of the October 15 tax extension, so I wanted to reach out with a reminder that the extended deadline is now approaching. If you are among those who filed an extension, I’ll need to begin work on your taxes as soon as possible. To get those needing to file started, I pulled together answers to Covid related questions for 2020. Feel free to review this list yourself or send it on to those in your network who have yet to file their taxes.
COVID-Related Tax Questions 1. Will I owe taxes on my stimulus payment(s)? If you received a stimulus payment during 2020, you’ll be happy to hear those payments aren’t taxable. Don’t just take my word for it. Hear it straight from the IRS: “The payment is not income, and taxpayers will not owe tax on it. The payment will not reduce a taxpayer's refund or increase the amount they owe when they file their 2020 or 2021 tax return next year. A payment also will not affect income for purposes of determining eligibility for federal government assistance or benefit programs." 2. I never received a stimulus payment, but I think I qualify. Do I have any recourse? If you're confident you meet the qualifications, you can file for the Recovery Rebate credit with your 2020 income tax return. You can also file for the credit if you didn't receive the right amount of money for your child(ren). Learn more about how to file for the Recovery Rebate Credit on the IRS’s website. 3. My income drastically changed since I filed my 2019 taxes. Could I be eligible for stimulus money now? Quite possibly. If you’re one of the millions of Americans who lost your job or saw your income decrease last year as a result of the pandemic, you may qualify for one or both of the stimulus payments even if you didn't initially receive the money based on your 2018 or 2019 return. Work with a tax professional or use the Recovery Rebate Credit Worksheet to calculate how much you should receive. If eligible, the IRS will include your stimulus payment as part of your refund. 4. Is the money I received from unemployment payments taxable? The good news is that stimulus checks aren't considered taxable income. The bad news is that unemployment benefits are. While you won’t pay Social Security and Medicare taxes, you will pay income tax on unemployment benefits. This applies both to standard unemployment benefits and the weekly enhanced benefits of 2020. 5. Are there any deductions for working from home, homeschooling, or taking care of my kids? Unfortunately, no. There are no special deductions for items you bought for yourself or your kids when your boss sent you home or your child’s school shut down. Standard deductions are available for people who work from home in a normal situation—just not as a result of a worldwide pandemic. 6. I’m a business owner and took out a PPP business loan. What do I need to know? You know by now that as long as your PPP funds were used for qualifying business expenses—things like payroll, rent, utilities, or interest on mortgage payments—most of these loans were “forgiven.” Additionally, in December 2020, the IRS stated any eligible expenses paid with money from PPP loans could be deducted from your taxable income—definitely good news for small business owners. 7. I deferred my college loans or mortgage payments last year. Does this change anything on my taxes this year? You can still deduct up to $2,500 a year in student loan interest, so if you deferred last year, it might lower the amount you’ll deduct, but it won’t have a significant impact on your overall return. The same is true if you paused your mortgage payments. While you still owe back payments on your mortgage, you don’t have to worry about a tax penalty. 8. I’m a student, and my school or university refunded me a portion of my 529 or ESA funds due to remote learning. What do I need to know? Money you withdraw from a 529 plan or Educational Savings Account (ESA) must be used for qualified educational expenses to be tax-free. If you received a refund, you had sixty days from the day you received the refund to put the money back into the savings account or use it to cover other educational expenses. If you didn’t, be prepared to pay an early withdrawal penalty or income taxes on the funds. Keep in mind you can use money from a 529 to pay up to $10,000 total in student loan debt without penalties or taxes. You can also use 529 plans to pay for certain apprenticeship programs—including fees, books, and supplies. 9. I’m a teacher. Are there any notable credits or deductions for me? Yes! Teachers and other educators can deduct up to $250 of out-of-pocket expenses for personal protective equipment (PPE) and other items to prevent the spread of COVID-19 in the classroom. Items need to have been purchased after March 12, 2020. Eligible supplies include things like:
Disinfectant wipes or spray
Hand soap and sanitizer
Tape, paint, or chalk to facilitate social distancing
Physical barriers such as clear plexiglass
Other items recommended by the CDC
The deduction jumps to $500 for a married couple filing jointly if both spouses are educators (not to exceed $250 each). I hope you or someone in your network finds a few of these questions and answers helpful. If you have yet to file your taxes, feel free to email or call to set up a consultation. If you've already filed, I hope to work with you again in 2022. As always, anytime I can be of help, please reach out. Click here for an appointment