Tax season is upon us, and May 17th is approaching quickly. In 2020, many experienced unexpected lifestyle changes and financial hardships that may change how they file taxes this year. With that comes changes to qualifications and deductions for the 2020 tax filing year that may impact you. Here are some tips for filing your taxes. Also, see below for more information about Common Trust’s tax loan promotion.
1. New Gig Economy Workers: Report Your 2020 Income
What is a gig economy worker? It consists of freelancers, on-call workers, online platform workers, contract firm workers, and temporary workers. If the pandemic caused you to transition for the first time into the gig economy, you should be aware of some guidelines that may apply to you.
As taxes are not typically withheld from these types of gigs, you must report your income either at the end of the year or quarterly. The IRS recommends that anyone earning money without automatic withholding files quarterly estimated tax payments. Doing so will allow you to stay up to date on federal tax obligations that apply to your situation.
There are many bonuses to being self-employed, and the amount of deductions you can claim on your tax return is one of them. Home office deductions and travel expenses are two great examples that may apply to gig economy workers. Check out this complete guide from TurboTax to learn more.
2. Home Office Deduction Qualifications
Speaking of home offices, the nationwide transition to working from home across countless industries snowballed the need for more home offices. If you were a part of this new working model, there are a few important tax implications that may apply to you. Those who qualify for a tax deduction are employers, business owners, and those who are self-employed. Due to the elimination of the itemized deduction for employee business expenses, the majority of employees working from home do not qualify. Despite this, some employees may still be eligible for it as a state tax reduction.
You might be asking, should I take the home office deduction if I am self-employed or will that raise a red flag? The short answer is, if you qualify, yes, you should take it! Since the pandemic, the rules have been made easier for those who work from home to qualify for this write-off. For a more in-depth overview of home office deductions and to find out if you qualify visit the TurboTax tips page.
3. Generosity Pays Off With Charitable Donations Deductions
As part of the CARES Act effort to encourage charitable contributions to qualifying organizations, you are allowed to deduct up to 100% of your adjusted gross income. For those who don’t know, adjusted gross income is your total income minus any adjustments to your income that you qualify for.
The CARES Act added a new “above-the-line” deduction. If you ended up taking the standard deduction, you can now write off up to $300 of charitable donations that were made in cash. Good deeds can go a long way!
4. Check Up On Your Retirement Account Funds
Due to unexpected challenges in 2020, many people withdrew from their retirement funds in order to stay afloat financially last year. If you decided to dip into your retirement, be prepared to receive a considerable-sized tax bill. Luckily, the window for returning those funds is three years, which will help you get back on track with your savings. If you don’t plan to repay the sum you took out in three years, you will need to pay one-third of the tax upon submitting your 2020 return.
5. Taxability of Unemployment Benefits
The hardships of 2020 resulted in millions of Americans receiving unemployment for the first time. Since this type of benefit is taxable when filing your tax return, it must be included as gross income. If you elected to have federal taxes withheld from your unemployment benefits or elected to make estimated payments, the required taxes have already been taken out and paid. If you did not elect to withhold when filing your tax return, you should prepare to pay the taxes on those benefits.
Of note, COVID-19 stimulus checks are not taxable, so you will not need to take that under consideration when filing your taxes this year.
Special Offer: Tax Loan Promotion
Is a tax loan beneficial for you to start off this year? Up until May 17th, at Common Trust we are offering a tax loan promotion of up to $5,000. With rates as low as 9.99%* and a loan term of 12 months. Check out this offer, and get in touch if you believe it is the right fit for you. We’d love to speak with you and help provide all the information you need to get started.
*Actual rates are subject to creditworthiness.