New Tax Things To Know This Year by Nicole Lapin
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There have been a lot of personal changes the past year because of the pandemic. Some of us have moved states and taken on more freelance work. People have had gaps in employment. This all affects what happens with how you file your taxes. Here are some new tax-related things to know for this year’s season.
Freelance For Hire
Freelance work has picked up for a lot of people this year. There are obvious perks to working for yourself, but guess what? You still have to pay taxes on freelance work if you receive more than $400 from a single employer. If you’re new to freelancing this year, you probably aren’t thinking about taxes. And if you have a number of different clients, taxes can feel overwhelming. The first step is to identify whether your business is an LLC, sole proprietorship or another category. This will then help you gather the right forms. As a freelancer, you’re also responsible for your expenses and receipts and all your deductibles, which covers a lot! It might be worth hiring a professional, or look for resources online. Turbotax has a simple freelancer’s guide to help.
Moving On Up
In just the first six months of 2020, almost 16 million people filed change of address forms with USPS. The first thing to know if you crossed state lines is to understand your new state’s tax burden. You can find that information at WalletHub. Make sure that you’re calculating the new burden into your yearly finances and budget—especially if the burden is higher in the state you moved to. If you moved during the middle of the year, you’ll have to file a state tax return in your old state and your new state. Most state websites have the paperwork for this already, so it’s not something to get worked up about.
Remote Friendly
Most of us are still working remotely, which complicates taxes. Remember that working remotely is different than moving if you relocated to, say, your parent’s house or somewhere else that isn’t your primary residence. You might have to file a non-resident return. And if you’ve spent a prolonged time in a secondary residence (more than 183 days), it might actually qualify you to be a statutory resident. Start keeping track of where you’ve lived and how long you lived there. Did you rent an AirBnB for three months? Stay with an aunt for six weeks? Counting days sounds tedious, but it will be the dividing factor between what sort of papers you’re filing.
Gap Year
With all the pandemic-related layoffs, a lot of people are going to have a gap in employment. The frustrating news is that unemployment benefits are usually taxable. The good news is that you can request they be withheld. Just use the W-4V form. This will help you to not get into any penalties while you file your income tax. Also remember that expenses you’ve accrued while job hunting aren’t deductible. Maybe you hired a recruiter or paid someone to look over your resume. You’ll want to factor those expenses into your budget when making financial decisions related to your job search.
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On the Side
Side hustle work can be different from freelance work. Freelancers also take side hustle jobs to offset their main source of income, and these can be small, one-off gigs like watering a neighbor’s plant. But remember that if you freelanced more than $400 from a single client you have to file taxes. This means that your side hustle could easily turn into your freelance work without you knowing. The best thing to do is to open a separate banking account for your side hustle work, where you can treat it like its own business. Keep track of your receipts, too. This will make life easier when it comes to writing off your expenses.
Taxes look different this year for many of us. But it’s simply a matter of locating the right forms and making sure you’re filing correctly. Do your research ahead of time and don’t wait until the last minute. You don’t want to be stressed and scrambling to locate a certain form you didn’t know you needed. As long as you start early, this year’s tax season shouldn’t be any more stressful than other years.