2020 Last Minute Taxes
Wait before you jump the gun and file your taxes, please read this.
- If you qualified and didn’t receive the $1,200 and/or the $600 stimulus checks in 2020, you can file for those as credits.
- Turbo Tax makes it easy since they ask you outright.
- If your AGI for 2020 looks to be higher than 2019, you might want to wait to file since they will use your 2019 AGI as the basis for Stimulus check #3.
- When the market took a turn, some panicked either withdrew money from investments or reduced their contributions to their employer plans ie 401k, 403b, and 457b. All of these unforeseen tax side effects.
- Home Office deduction eliminated in 2017 Tax changes so no reprieve there, if you had to buy items to work from home for W2 paycheck earners.
- You might still have a chance to make a retroactive contribution into a Traditional or ROTH IRA (up to $6,000) and/or an HSA for up to $3,200 if you had a qualifying High Deductible Health Plan.
Here are some of the things you should consider:
Unemployment benefits are TAXABLE
Federal unemployment benefits are taxable, while economic stimulus payments are not.
Some states may vary on their taxability of unemployment benefits, however Uncle Same wants his cut. An enhanced unemployment benefit at the federal level ($600 in federal pandemic unemployment) was added to every weekly unemployment benefit. Together, these can amount to as much as $34,000 taxable income on average.
This will be troubling for those who did not opt for the withholding. If you see a tax bill for as much as $3,000 don’t be too surprised.
Money taken from retirement account
One of the option that open up for income relief was the withdraw from the retirement plan penalty free.
However, IF a taxpayer pulled money out of their retirement account, consider this. If you don’t intend to repay it within three years; one-third of the tax should be paid with their 2020 return.
If you pulled out $120,000, the penalty was canceled but the tax is on $40,000 in 2020, 2021,and 2022 respectively. This amounts to about $4,000 in taxes owed.
Earned Income Tax Credit and Child Tax Credit
People who qualify for the Earned Income Tax Credit, or the Child Tax Credit can use either 2019 or 2020 income. It comes down to whichever is most beneficial to the taxpayer.
EITC not only reduces the amount of tax someone owes but may give them a refund even if they don’t owe any taxes or aren’t required to file a return.
Charitable deduction for Non-Itemizers
Taxpayers who don’t itemize can now take an above-the-line deduction for charitable contributions up to $300. A small and needed boost especially for church donations and other charitable giving.
Home office deduction
The home office deduction is available to qualifying self-employed taxpayers, independent contractors and those working in the gig economy.
Unfortunately, the Tax Cuts and Jobs Act suspended the business-use-of-home deduction from 2018 through 2025 for employees. Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deduction.
I bought a full on printer because… smh.
The IRS issued an automatic tax filing extension for anyone living in Texas, which means they won’t have to file forms requesting more time to file.
All Texas residents and businesses an additional two months to file their federal income taxes, citing the deadly winter storm that left millions without power and water. Texans will now have until June 15 to file their 2020 returns, instead of the regular deadline of April 15 2021.
The extension also includes any taxes that would have been owed by April 15, as well as any business returns that otherwise would have been due on March 15 2021, the IRS said. Texans also will have until June 15 2021 to make 2020 IRA contributions, the IRS said.
Am I eligible for a $600 payment?
- If you claimed the California earned income tax credit on your 2020 income tax returns.
- If you use an individual taxpayer ID number to file income taxes and earn $75,000 a year or less after deductions.
- If you get money from the federal supplemental security income (SSI) or state supplementary payment (SSP) programs, or the state’s Cash Assistance Program for Immigrants.
- If your household is enrolled in the CalWORKS. The state public assistance program that helps families pay for housing, food and other vital expenses in low-income households with children whose parents are absent, disabled or dead.
Originally published at https://theneighborhoodfinanceguy.com on February 24, 2021.