DENVER — Tax season is around the corner, and with all the changes 2020 brought, many wonder what that means for their taxes.
Three things to pay close attention to when filing this year:
- Unemployment benefits
- Stimulus paychecks
- Work from home deductions
Amanda Hill, Jackson Hewitt Franchisee, gave us the low-down of what to know before filing this year.
File early this year
Do not procrastinate on filing taxes this year.
“There are certain credits that are going to take longer for the IRS to process this year; there are certain things that are going to hold up the processing of your refund,” Hill said. “The earlier you file, the earlier you get in and the faster you're going to get into that process of getting your refund back.”
Filing online early and providing people their direct deposit information makes it quicker to receive the third stimulus check.
“Some of the issues that we've seen with the first two stimulus checks that have gone out is that the IRS doesn't have updated information for people, so when those stimulus checks went out, a lot of them went to wrong places because people don't have them [tax records] updated,” Hill said. “If you're filing your tax return regularly and get it in as quickly as possible, then that updates their system as soon as your return is processed. So, then you can make sure that you're getting anything that's going to be coming out.”
Unemployment is taxable
Those who received unemployment in 2020 will need to make sure they have a 1099-G form while filing taxes. This document is sent to claimants detailing the number of unemployment benefits that have been paid during the year.
“The biggest misnomer that people don't understand is that unemployment is taxable," Hill said. "So, it does have to be included on your tax return, and a lot of people are missing that. They didn't think that it was taxable, or that it needed to be included, but it does."
Stimulus checks
People who received stimulus checks in 2020 will need to include this on their taxes. But, don’t worry, stimulus payments are not taxable.
On the flip side, people who were eligible for stimulus payments and did not receive one or both of them can include this while filing to get those payments.
“The IRS is looking to make sure that everybody got the full amount that they were entitled to receive,” Hill said. “So if somebody did not receive one or the other or both, then on your 2020 tax return, we can use what's called a recovery rebate credits on your return, and we include the stimulus amounts or the portion that you did not receive that you should have received on your return. And that's how you get the full amount of your stimulus payments for those two payments that have already gone out.”
Line 30 on your 1040 tax form is where you will find the Recovery Rebate Credit.
Deductions for home office
Many people have been working from their home offices or couches since the beginning of the pandemic. And those may be wondering if working from home and using their own supplies is deductible.
Well, it depends.
“If you're a W-2 employee, there's not anything that you can deduct. However, if you are self-employed, there are deductions that you take on your business return," Hill said. "And when I say business return, I use that term lightly because if you're self-employed and you're working from home, you file what's called a Schedule C and that accounts for your business income and your business expenses.”
Documents you will need to file
Here’s a breakdown of some common forms that people may need to file taxes.
W-2. Tax-filers have to include a W-2 for all jobs that worked, even if they only worked for a week, reach out to that employer if for a copy.
“Everything is already reported to the IRS, so they already know that you've received it and by leaving it off, or leaving anything off of your tax return, it will just delay processing your refund,” Hill said.
1099-G. Unemployment gets reported on a 1099-G.
“In the state of Colorado, if you receive both the state and the federal portion, you're going to receive one 1099 G, and that will report both portions. However, there was a second federal portion for unemployment that comes separately on a second 1099-G, so you could receive two, and you'll need both of those to file your return,” Hill said.
1099-NEC. Formerly known as 1099-MISC (Miscellaneous). Tax-fillers that are self-employed, a freelancer, a contractor or work a side gig and made $600 or more will now receive Form 1099-NEC (Non-employee compensation). This includes gig-work like Uber, Doordash or Instacart.
1099-B. Those who sold stocks, bonds, derivatives or other securities through a broker can expect to receive a Form 1099-B. This reports gains or losses from such transactions.
1099-R. This form is used to report the distribution of retirement benefits such as pensions and annuities. People would receive this form if they received an allocation of $10 or more from their retirement plan.
“If you had to take out of your retirement account specifically for things COVID related, you can spread your distribution over the next three years. So, this year the next two,” Hill said. “So it kind of helps with that breaking up the taxability of having to take the money out of your retirement account.”
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