WASHINGTON – The entire tax filing process is starting a little later this year and there are a few things to keep in mind for those who received unemployment benefits, worked from home, accepted jobs, were victims of fraud, or faced other common problems in 2020.
The IRS will begin accepting tax returns on February 12. This is what you should know before filing your return:
UNEMPLOYMENT
Unemployment benefits are taxable income, which may come as a surprise to some taxpayers.
Workers are not required to have federal taxes withheld from their benefit payments. While they are given the option to retain it, few choose to do so.
Also, unemployment benefits are always subject to federal taxes, but some states do not.
ECONOMIC STIMULATION CHECKS
The two rounds of economic impact payments sent to millions of Americans are not taxable income. But people who did not receive their payments, or received less than they should, can get the appropriate amount by claiming the Recovery Refund Credit on their 2020 taxes.
As a reminder, the first round of payments was worth up to $ 1,200 per eligible adult and $ 500 per dependent; the second was worth up to $ 600 for each eligible household member. Those who received a payment for economic impact greater than due will not be penalized.
It’s also worth noting that while no one has to pay taxes on this income at the federal level, some states do.
It is important that you know that the economic stimulus payment is automatic for those who meet the requirements. You do not have to pay in advance or confirm personal data.
HOME OFFICE
Working from home became the norm for many in 2020, but few will be able to claim their expenses for setting up their new home office. This is because the home office deduction can only be made by companies or the self-employed. Employees can no longer claim any unreimbursed expenses after the last tax review.
To properly claim a home office, it must be used “exclusively and regularly” as the primary place of business, said Lisa Greene-Lewis, a public accountant and tax expert at TurboTax. That means the table where your kids do their homework, your family dines, and you do your work doesn’t count.
Side note: It won’t affect your federal taxes, but if you moved to another state during the pandemic, you may owe state taxes in more than one place.
The IRS announced Friday that it will delay the start of the tax season until February 12, the date when it will begin accepting and processing 2020 taxes.
TAX CREDITS
Congress implemented a temporary “roll back” provision for this tax season that could help many low- and moderate-income households.
The provision allows taxpayers to use their 2019 or 2020 income when claiming the Earned Income Tax Credit or the Child Tax Credit. The eligibility and size of these credits vary based on household size and income. In general, the less you earn, the higher the credit.
However, rampant unemployment puts some families at risk of losing credit or getting less credit, since unemployment is not considered “earned income” in the eyes of the IRS. In response, lawmakers are allowing taxpayers to choose which year of income would produce the most benefit.
He reiterated that relatives who received the money in bank accounts or prepaid cards must return it.
TO INVEST
Several people jumped into the stock market for the first time in 2020. But tax experts caution that these newbie investors may not be fully aware of their tax liability.
The most important thing to understand is that you only pay investment taxes when you “realize” your earnings. So if you bought a stock in 2020 and its value increased, you won’t pay taxes on those earnings until you sell them. And if it sank in value, the same “realization” rules apply. It hurts to have a loss, but you can use them to offset your gains, up to a limit.
It’s also important to understand that earnings are taxed differently depending on how long you held the investment. If you sell a stock that you held for less than a year, it is taxed at the highest rate of short-term capital gains, compared to the lowest rate of long-term capital gains for investments held for more than one year . And if you are a higher income household, you may also face a net investment income tax on capital gains and other investment income.
We tell you the details of this tax advice.
Did you make a kill on GameStop or another short squeeze? That won’t come until taxes in 2021, which don’t expire until next year. But it would be wise to start planning or making advance payments on those taxes now.
Some types of business can be complicated, so it may be wise to seek professional help in preparing your taxes.
FRAUD
Taxpayers may face a new challenge this year due to rampant unemployment fraud.
As millions of people searched for legitimate claims for unemployment benefits during 2020, scammers seized the opportunity to commit identity fraud and make false unemployment claims. California alone paid $ 10.4 billion in fraudulent claims, according to a recent audit.
The IRS says that taxpayers who receive Forms 1099-G for unemployment benefits that they did not receive should contact their state for a corrected form showing that they did not receive these benefits. Taxpayers who cannot obtain a timely and corrected form from the states must still file an accurate tax return, reporting only the income they actually received.
The Internal Revenue Service (IRS) alerted nursing homes and other healthcare facilities that Economic Impact Payments (EIPs) generally belong to the recipients, not the organizations providing the care.
WORK GIG OR ON YOUR OWN
If you jumped into “GIG” work, as many did during 2020, prepare for tax season.
A big hit may be facing the self-employment tax rate, which for 2020 is 15.3% on the first $ 137,700 of net income to cover Social Security and Medicare taxes. This is not the same as income tax.
One way to help offset this strain is to make sure you claim all of your expenses, Greene-Lewis said. This includes supplies, advertising, or marketing startup costs, or any dedicated home office or equipment.
If you were driving for a ride-sharing service or delivery company, be sure to claim all the miles you are eligible for. Also consider smaller items, like auto or car wash supplies, which are eligible expenses.
For many Hispanic families, going to the supermarket has become a heartbreak. To see more from Telemundo, visit now.telemundo.com
CHARITY
One positive aspect of the year is a new temporary deduction for charitable donations.
Taxpayers can deduct up to $ 300 for cash donations given to charities, even if they don’t itemize their deduction. The IRS estimates that about nine out of 10 taxpayers now take the standard deduction instead of itemizing.