Everything You Need to Know to File your 2020 Tax Return
We know you may be still recovering from the wild ride of completing your 2019 tax return after Covid19 turned our world upside down, but a new tax season is upon us, and there are few things you should know in order to make the process of filing your 2020 return as smooth as possible. Check out our updates below to find out what’s changed and what’s still in place for this year.
The IRS will begin accepting federal tax returns on Friday, Feb. 12.
The next time your boss gives you grief for showing up to work late, don’t sweat it because even the IRS is behind this year. While tax filing usually opens during the second half of January, the IRS was busy sending out second round stimulus payments, so they need a little more time to make sure everything is in order before accepting 2020 returns. This gives you a few extra weeks to get all of your paperwork together.
Taxes are still due by April 15, 2021.
Don’t put off starting your return for too long, though, because federal income taxes must still be filed and paid by April 15 unless you file for an extension. If you’ve been hit especially hard this year due to the pandemic and have a solid history of paying your taxes on time, you may be eligible for first-time penalty relief.
Yes, you can file an extension.
Simply submit your request to the IRS by April 15th to receive a six month extension on your 2020 federal income taxes. But remember, even if you’re eligible for an extension to file, you must still pay what you owe by April 15 to avoid a late payment penalty. And if the IRS owes you a refund, you’ll be waiting longer to receive it when you file an extension.
Stimulus Payments Are Not Taxable.
No, you do not have to pay taxes on your stimulus payments. If you didn’t receive a stimulus payment, but think you should have, it could be because your 2019 income was higher than your 2020 income, or because you did not file a return in 2018 or 2019. The good news is that you can still receive the stimulus money you are owed when you claim the Refundable Recovery Rebate Credit.This credit will reduce your income tax liability dollar-for-dollar and if the credit exceeds your tax liability, you'll get the remainder as a refund.
But Unemployment Benefits Are.
If you’re employed by the good old Granite State, then move right along because this doesn’t apply. However, many of our clients work in MA or ME where unemployment compensation is treated as taxable income. For those folks, if you didn't opt to have any income tax withheld from your unemployment payments during the year, it will be assessed when you file your return. Keep in mind that if your 2020 income was very low because you didn't work for a large portion of last year, it's unlikely you will owe, but instead you will see your refund reduced by the amount of income taxes you owe on your jobless benefits.
You can expect your refund within 21 days of the IRS receiving your return.
If you want to ensure delivery within this time frame it’s best to file electronically and choose direct deposit. You can also check the "Where's My Refund?" tool for the latest status of your return.
A few other important points...
You may be eligible for the Earned Income Tax Credit depending on your income and the number of children you have.
Congress created new tax assistance for individuals and small business owners to provide pandemic relief.
Small business owners who received funds from the Paycheck Protection Program can still deduct the business’s expenses they paid for with their loan money.
Those who choose the standard deduction on their tax return can now deduct charitable donations even though they are not itemizing, and eligible self-employed individuals can claim a new sick leave and family leave tax credit created by the Families First Coronavirus Response Act.
Credit available for self employed individuals who had covid, had to quarantine or was caring for someone who got covid or had to quarantine.
Caution: the feds may not be taxing your PPP but many states are - including NH and Mass.
As always, we’re happy to assist with any tax-related concerns. Reach out to us to get your return done right.
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