With COVID-19 still widespread in most communities, it has had some effects on 2020 taxes. In this article, we will go over some of these changes. This way you can be ready to file your return.
Due to issues within the IRS, the start date for filing taxes will be Friday, February 12th, 2021. However, the deadline will still be April 15th. Since tax season will be short, schedule with your tax preparer as soon as possible to avoid any delays. The longer you wait, the harder it will be to get an appointment.
Since COVID-19 has many people working from home, when people move out of state, they may not change employers. This can lead to tax complications, such as having to file multiple state returns. If you are working with an experienced tax preparer, they will be familiar with the tax laws so they can ensure you file properly. For example, New York and New Jersey offer credit for taxes you pay in the other state if you work in one of them and live in the other.
Working from Home
More people are working from home now than ever before. If you are a W-2 employee, do not be led astray by false claims that you have additional deductions available to you for your working from home expenses. You will not be able to deduct anything for a home office or for any supplies you bought for work.
However, if you are self-employed or own your own business, there may be some deductions available to you. Meet with your tax preparer for advice on what you may be able to deduct.
Retirement Account Withdrawals
Generally, if you make any withdrawals from retirement accounts before age 59 ½ you will be subject to a 10 % penalty, on top of the income tax you will owe. However, the CARES Act allows you to withdraw up to $100,000 from your retirement account penalty-free. But you must pay all taxes within three years of making the withdrawal. You also must prove that you, your spouse, or a dependent got sick and/or your family lost income due to the pandemic.
Missing Stimulus Payments
If you did not receive all your stimulus payments, you can claim them with the Recovery Rebate Credit. This is done on your Form 1040 on line 30. There you will need to list the difference between how much of a stimulus payment you were owed and what you received. This will cause your refund to increase, or the amount you owe to decrease.
Filing Your 2020 Taxes
When filing your 2020 taxes, be sure to advise your tax preparer of any new circumstances due to COVID-19 so that you can file correctly.
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