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7 Things To Know Before Filing Your 2020 Taxes

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2020 taxes

There were some big changes in 2020 that affected your taxes. Without knowing these 7 things, your 2020 taxes might be more painful and you might miss the money you’re owed.

Even in a normal year, preparing a tax return isn’t much fun. The pandemic add insult to injury, and you might find your 2020 return more complicated than usual. Due to the Covid crisis, there are plenty of new and revised provisions and important dates you will need to know about before filing your 2020 taxes this year. Here are some of the most important ones.

1. Unemployment Benefits

If you received unemployment compensation in 2020, including any of the special unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. All must be reported on a 2020 federal income tax return. You’ll generally receive a 1099G from your state agency reporting all of the unemployment benefits that you received during the year.

The taxes you owe on those benefits will be deducted from your refund if you are entitled to any, that is if you did not elect to have some taxes withheld.

2. Stimulus Payments

Stimulus payment(s) made in 2020 are not taxable income. As a matter of fact, if you didn’t receive all that you were entitled to — maybe you had a child during the year, maybe you didn’t receive your payment for one reason or another — you can claim the excess payment that you’re entitled to as a refund on your tax return.

It is helpful to file your taxes as early as possible; that way if another round of stimulus payments are approved and you qualify, the money will arrive quicker.

3. Working From Home Expense Deductions

For years 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) suspended write-offs for miscellaneous deductions that were formerly subject to the 2%-of-AGI rule. This means that employees are not eligible to claim the home office deduction, even if an employer required remote work because of COVID-19 min 2020.

However, business owners who used part of their home as a business office are allowed to deduct home office expenses including rent/mortgage, utilities on your federal business taxes. See more information here.

4. Medical Expenses Deductions

If you itemize your deductions, you can deduct only those eligible medical and dental expenses that exceed 7.5% of your adjusted gross income. So you should carefully go over the numbers with a tax preparer, tax software, or another resource.

5. Self-Employment

If you worked a gig outside of a regular (W2) employment, that is considered self-employment. It is important to keep in mind that when you are self-employed you pay the same income tax as someone who works for an employer and earns a paycheck or wage working for said employer.

You must report your self-employment income on Schedule C (Form 1040) to report such income or (loss). You’ll figure your self-employment tax on Schedule SE, which is required if your self-employment income minus expenses is at least $400.

6. Paycheck Protection Program Loan

Loans received under the Paycheck Protection Program are not taxable. However, some if not all the expenses that you pay with the PPP loan proceeds may be tax-deductible.

7. Paper Filing vs E-File

The IRS has indicated that they will take longer than usual to process paper returns this year. For that reason, it is better to file your taxes as early as possible. E-Filing is even better. Also, it will speed up your refund if you request a direct deposit into your bank account.

Get Tax Professional Help

It is important to get professional help filing 2020 taxes due to changes caused by COVID-19. You may schedule a call with Valor CPAs experienced CPAs for a free initial consultation.

Something Wasn't Clear?

Feel free to contact me, and I will be more than happy to answer all of your questions.

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