Tax Season is here- what you need to know now about 2020 tax filing. Pictured President Biden.
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COVID-19, stimulus payments, PPP Loans, unemployment benefits, and working remotely are a few of the factors that could make filing your 2020 taxes more interesting than in a typical year. Throw in sky-high values in the stock market and a booming real estate market, and some Americans may be getting hit with surprise tax bills this year.
Tax Season 2021 Is Here
The annual tax-filing season has begun, and filing your taxes could be more complicated than usual. This will not be the year to bring a shoebox of receipts into your CPA’s office to sort out your 2020 taxes. Ok, that should never happen. Technology and software have made tracking your income and expenses much easier.
Due to the Coronavirus pandemic, most Americans should skip their annual in-person meetings with their tax preparers. Doing these types of meetings virtually can help you stay safe but also avoid traffic. As far as actually filing your taxes, doing the meeting remotely will also allow you to dig through records at home if you are missing a receipt or tax form. Working from home and COVID may lead to some unusual tax deductions for 2020.
Regardless of your income in 2020, you should file a tax return. Your stimulus payment may be affected if you don’t file. For those with higher incomes in 2019 than 2020, you may finally be eligible to receive a stimulus payment based on the lower income. I’m trying to find the silver lining in what I’m sure has been a painful drop in income for many workers during the COVID recession.
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Tax-Filing Season Delayed in 2021
The IRS began accepting 2020 tax returns on February 12th, 2021. This is later than the typical late January opening of tax season. This will mean your tax preparers will have even less time than the average tax season to complete your tax returns. You can also expect more of a rush on the phone lines at the IRS. Even in the best of times, the IRS phone lines are understaffed.
The IRS is urging taxpayers (and their tax preparers) to file taxes electronically. Also, make sure to provide updated bank account information for direct deposit of refunds. For those who need to update information, do it online to avoid spending hours on hold waiting to speak with an IRS representative.
Why wait to file your taxes? Especially if you are owed a tax refund for 2020.
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Why File Your Taxes Early?
There are a few reasons to file your taxes early, or at least doing the majority of tax prep early. First off, if you are due a refund, why wait? For those who will be owing more money to the IRS, knowing sooner rather than later gives you more time to plan. You can still fund a traditional IRA or Roth by April 15th. For those who are self-employed, you can open a SEP IRA all the way up to your tax filing deadline, even if you file on an extension.
Your Taxes and Stimulus Payments
Two rounds of stimulus payments were sent out by the IRS. The first was way back in March 2020, and the latter was after December’s new law. Not every person who was eligible has received both stimulus checks. To ensure you received all the money you are entitled to, you must file a 2020 tax return.
The good news is that stimulus payments themselves are not taxable income. YAY! That’s tax-free money. More good news is that people, who received more money than they should have based on their 2020 incomes (reflected on their tax returns), won’t have to pay back funds already received.
Unemployment Benefits Are Taxable
I know this will come as a shock to many of you. Unemployment insurance payments are considered taxable income, and it is unlikely that taxes have already been withheld from your payments. Payroll tax withholding from unemployment benefits isn’t mandatory, and recipients will get 1099 forms listing the income.
Take the time to gather your tax records early. Make an appointment with your tax professional, and hopefully, you can get your taxes filed and move onto something more exciting.