The world breathed a collective sigh of relief when 2020 finally came to a close and the calendar flipped to January of 2021, but there's one last part of 2020 still to be wrapped up: taxes. Like many things in 2020, your taxes may look different this year thanks to the Coronavirus pandemic. To name a few, unemployment benefits, stimulus checks, small business loans, and new jobs. Here is what you need to know to be prepared to file 2020 taxes.
The IRS announced tax season won't start until February 12th
this year. While the start date has been pushed back, the deadline remains
unchanged at April 15th. Like the rest of us, the IRS is under
additional stress due to the pandemic. They recommend filing electronically and
using direct deposit for the fastest refund. So, what will you need to file
your taxes this year?
First, you'll need to assemble all your documentation. Start
with a copy of last year's return, which you can obtain through the IRS online
portal, or through any tax software you may have used to file. This will
provide you with a reference point as you move through the filing process.
Next, gather any tax-related documents such as W-2s, 1099s, 1098s, account
statements, and receipts if you plan to itemize expenses. With these in hand,
you have much of the information you'll need to file. However, due to the
unique circumstances many found themselves in during 2020, you may need
additional info to accurately file this year.
If you're one of the millions of Americans who received
unemployment benefits in 2020, you'll need form 1099-G "certain government
payments." Since unemployment income is taxable it must be reported. Taxes are
not automatically withheld from unemployment benefits, and many people are
unaware they will owe taxes on their received benefits.
Unlike unemployment benefits, the coronavirus stimulus
checks, or Economic Impact Payments, are not taxable and do not have to be
reported as income on your 2020 tax return. Those who were eligible but didn't
receive a payment or only received a partial payment may be able to claim the
Recovery Rebate Credit when filing 2020 taxes. According to the IRS, "Eligible
individuals who did not receive the full amounts of both Economic Impact
Payments may claim the Recovery Rebate Credit on their 2020 Form 1040 or
2020 saw millions of people transition to remote work. If
you opted to work remotely in a different state than your primary residence,
this may introduce an additional wrinkle to your taxes. While each state has
their own rules on when a nonresident must file taxes in the state, workers are
typically required to file taxes in the state of their residence as well as the
state where they work.
For business owners who received a loan through the Paycheck
Protection Plan (PPP), remember that deductions cannot be made for expenses
paid using money that was forgiven under the PPP program. While there was some
confusion when the program was first announced, the Small Business
Administration has since clarified that "double dipping," as it is often
referred, is not permissible.
The information provided is for informational purposes only. It is not intended to be used, and should not be used, as the sole basis for legal and/or tax advice. Individuals should seek and rely upon the guidance and advice of their own legal and tax counsel before making any decisions regarding any planning, investment, tax concepts or strategies discussed herein. Individual circumstances may vary and results discussed are no guarantees of applicability or future performance.