There is one more task to think on and do related to 2020, our taxes.
Tax season has started and many of us are preparing to file. The pandemic has changed a lot of things including this tax season. Here are some important details of the things you need to know before filing.
Important facts
Primarily know the tax day deadline is Thursday, April 15. To account for inflation the income tax brackets increased. The standard deduction for single filers is $12,400 and 24,800 for a married couple filing jointly. Check income brackets and rates for 2020 tax season at IRS Tax Inflation Adjustments for Tax Year 2020
Stimulus check
Under the Coronavirus Aid, Relief, and Economic Security (CARES Act) many received a stimulus check. The good news is if you received a stimulus check during 2020 it is considered a refundable tax credit. Which means the stimulus check is not counted as taxable income. For example, if you received $1,200 and $500 for your child, the total amount of $1,700 is not taxable income because it is sort of an advance of your refund.
Also, if you didn’t receive your stimulus check, you will be able to apply for it in your 2020 tax form under the Recovery Rebate Credit. Ask your tax agent or accountant how to claim it.
Unemployment benefits
During 2020, many people experienced a loss of income, reduction in work hours or were temporarily out of work resulting in a large group that turned to re-employment assistance. If you received unemployment benefits you will need to pay taxes on the money you received.
You will need to visit your benefits page to get a copy of your benefits through a 1099-G form. If you chose not to have taxes withheld from your reemployment assistance, make sure is accounted for on tax day to pay the amount owed.
Retirement Plan 401(k) s or IRAs
The CARES Act also allowed individuals under the age of 59.5 to withdraw, without penalty, money from their 401(k)s and IRAs. So penalty or no penalty there were many changes to retirement plans during 2020. For those who did take out money from a traditional 401(k) or IRA, the money will be taxed as income. If you made any withdrawals, consult on how this income will be reported in your tax return.
You may have to pay taxes, but you are also allowed three years to put the money back into your retirement plan. Once you pay the money back for your retirement, you are eligible to receive a refund for the taxes you paid on that money.
College funds
As the Centers for Disease Control and Prevention (CDC) guidelines issued a call for social distancing, many universities and colleges across the nation decided to send students home and provide their classes through online platforms. As a result, many students got a refund from their 529 plan or Educational Savings Account (ESA). This money is used to pay for tuition and student expenses.
Make sure you know how you used the refunded money or if you didn’t use it at all. Some must be used for qualified educational expenses to be considered tax-free. Makes sense, but you could be responsible to pay income taxes on it and be charged a 10 percent penalty from the Internal Revenue Service (IRS) if it was not used for its intended purpose. To avoid taxes and penalty you have a certain amount of time to place the money back into your plan. Contact your provider for more information.
Side jobs
Some people during 2020 might have taken a side job or two to replace the loss of income experienced. It times of crisis we still have to provide for our families. Don’t get frustrated. Determine what kind of odd job or freelance work you performed and whether it was paid to you as a W-2 or as self-employment through a 1099 form. The money you made on those jobs is considered taxable income.
Here are some of the things you need to know. Make sure you received all 1099 forms for the jobs that you performed on the side. A Schedule SE form must be completed to report any self- employment income you made during 2020. Probably you will be looking at 15.3 percent to cover Social Security and Medicare taxes also. Consider what items might be write offs you can claim.
Small business
If you are a small business and you took the Paycheck Protection Program (PPP loans) through the CARES Act, remember these loans were designed to be “forgiven” if used for specific expenses such as payroll, rent, or business mortgage and utilities. Usually the income for debt forgiveness counts as taxable income, but in this case, the loan is forgiven and will not be considered taxable income as long as the funds were used for eligible expenses in your PPP loan. There are other factors attached to this kind of loan. First, look for your approved application by the Small Business Administration (SBA) and then look closely to your expenses and the list of eligible expenses that can be deducted from your taxable income. For more information Small Business Administration PPP Loans.
Take away and do it right
Without doubt this tax season is far from an ordinary one. Many changes occurred during 2020 for all of us and we are continuously adapting to these changes. If your taxes are simple and you are used to filing through easy-to-use tax software, consider the facts mentioned in this article when you are going to submit your tax return form. If you feel your taxes are more complicated than other years because of 2020, we recommend you search for a local tax expert in your area. The key is to make this a successful tax filing process. Stay safe!
Johanna Gómez is a UF/IFAS Family and Consumer Sciences Faculty Extension Agent in Osceola County
Need help? Contact your local UF/IFAS Extension office. If you are interesting in more of our programs please contact us at UF/IFAS Extension Osceola County at 321-697-3000.
For more information about our programs, visit us at http://sfyl.ifas.ufl.edu/osceola/
