From News Nation:
“EXPLAINER:
How the pandemic affects filing your taxes this year”
Tax filing
season will start a bit later this year and look a bit different too. That’s
because the pandemic that defined 2020 has seeped into tax time too. If you
worked from home, received a relief payment, took on some gig work or filed
unemployment benefits — or someone filed a fake claim in your name — there are
things you need to be aware of. Likewise if you normally receive certain tax
credits. The IRS will begin accepting tax returns on Friday. Here’s what you
should know before you file:
UNEMPLOYMENT Unemployment benefits are taxable income,
which may surprise some filers. Workers are not required to have federal
taxes withheld from their benefit payments. While they are given the option to
have it withheld, few opt to. Additionally, unemployment benefits are
always subject to federal taxes, but a handful of states do not tax it.
RELIEF
CHECKS The two rounds of economic impact payments sent to millions of
Americas are not taxable income. But people who did not get their payments, or
received less than they were due, can get the proper amount by claiming the
Recovery Rebate Credit on their 2020 taxes. As a reminder, the first
round of payment 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 larger economic impact payment than they were due will not
be penalized. It’s also worth noting that while no one has to pay tax on
this income at a federal level, some states are taxing it.
HOME OFFICE Working
from home became the norm for many in 2020, but few will be able to claim their
expenses for their new home office setup. That’s because the home-office
deduction can only be taken by businesses or the self-employed. Employees can
no longer claim any unreimbursed expenses following the last tax overhaul. To
properly claim a home office, it must be used “exclusively and regularly” as
the principal place of business, said Lisa Greene-Lewis, a CPA and tax expert
at TurboTax. That means the table where your kids do their homework, your
family eats dinner and you do your work does not count. Side note: It
won’t affect your federal taxes but if you relocated to a different state
during the pandemic, you may owe state taxes in more than one location.
TAX CREDITS Congress
put a temporary “lookback” provision in place for this tax season that could
help many low and moderate-income households. The provision allows
taxpayers to use either their 2019 or 2020 income when claiming the Earned
Income Tax Credit or Child Tax Credit. The eligibility and size of these
credits vary based on household size and income. In general, the less earned,
the larger the credit. However, rampant unemployment put some families
at risk of missing out or getting a smaller credit as unemployment is not
considered “earned income” in the eyes of the IRS. In response, lawmakers are
allowing taxpayers to pick which year’s income would yield the greatest
benefit.
INVESTING A
number of people jumped into the stock market for the first time in 2020. But
tax experts warn these investing newbies may not be fully aware of their tax
obligation. The most important thing to understand is you only pay taxes
on investments when you “realize” their gains. So if you bought a stock in 2020
and its value went up — you won’t pay taxes on those gains until you sell. And
if it sank in value, the same rules of “realizing” apply. It hurts to have a
loss but you can use those to offset your gains, up to a limit. It’s
also important to understand that gains are taxed differently depending on how
long you held on to the investment. If you sell a stock you held for less than
a year, they are taxed at the higher short term capital gains rate, versus the
lower long term capital gains rate for investments held for more than a year.
And if you are a higher income household, you may also face a net investment
income tax on capital games and other investment income. Made a killing
at GameStop or another short squeeze? That won’t come up until 2021 taxes,
which aren’t due until next year. But it would be wise to start making plans or
anticipated payments on those taxes now. Some types of trading activity
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. While
millions of people sought legitimate unemployment benefit claims during 2020,
scammers seized on the opportunity to commit identity fraud and make fake
unemployment claims. California alone paid out $10.4 billion in fraudulent
claims, according to a recent audit. The IRS says taxpayers who receive
Forms 1099-G for unemployment benefits they did not receive to contact their
state for a corrected form showing they did not receive these benefits.
Taxpayers who are unable to obtain a timely, corrected form from states should
still file an accurate tax return, reporting only the income they actually
received.
GIG WORK If you jumped into gig work, like many
did during 2020, be ready at tax time. A big shock may be facing the 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 tax. This is not the same as
income tax. One way to help offset this strain is to make sure to claim
all your expenses, said Greene-Lewis. This includes supplies, advertising or
marketing startup costs, or any equipment or dedicated home office. If
you were driving for a ride sharing service or delivery company, make sure to
claim all the mileage you are eligible for. Consider smaller items too, like
supplies for the car or car washing, which are eligible expenses.
CHARITY One
bright spot for the year is a new, temporary deduction for charitable
donations. Taxpayers can deduct up to $300 for cash donations given to
charity even if they don’t itemize their deduction. The IRS estimates that
about nine in 10 taxpayers now take the standard deduction instead of
itemizing.
^ 2020 Taxes
are going to be more difficult to file this year. Besides all the other things from
this article companies are mailing out their tax forms late this year. My
Health Insurance is not mailing out the required Obamacare Tax Form that proves
you had Health Insurance Coverage for all of 2020 until March 2, 2021 and Taxes
have to be filed by April 15th (and that doesn’t include how long
the Post Office will take to deliver them.) The Federal and State Governments
should extend the Tax Filing Season this year as they did in 2020. ^
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