The reverberations of the COVID-19 pandemic continue to be felt in most areas of life. These impacts will certainly influence how you file your 2021 taxes. Whether you’re a business owner trying to maximize the credits you receive for keeping employees on the payroll or an individual wondering how working from home over the past year could impact your filing, it is anything but business as usual when it comes to taxes. To avoid any missed opportunities for credits or any errors that could impact you in the future, allowing a CPA to do your taxes is the best strategy. Here is a look at some of the facts you need to know about filing your 2020 tax return. Don’t forget to check out Part 2 of this article for more information.
The IRS has been inundated with new rules and responsibilities from the CAA. Because of this, the agency delayed the start of filing season to February 12, 2021. The filing deadline has also been pushed back from April 15 to May 17. This filing timeline has a few implications. For those of us in the financial services industries, it may be difficult to get people to file taxes early, since they aren’t motivated by the prospect of a fast refund. However, if you’re seeking last-minute help with tax preparation, it could be difficult to get assistance. Even with the extended deadline, many accountants may become overloaded because of the new complications for filing that have arisen this year. The best strategy is to find assistance early.
Recovery Rebate Credit (RRC)
The RRC allows you to get a tax credit if you did not receive the full amount to which you were entitled for the first or second round of recovery payments. Those payments were based on 2018 or 2019 tax returns, when your income may have been higher than in 2020. Because of this, the RRC lets you get a credit for payments you would have received if your 2020 income had been used in the calculation.
If you received unemployment compensation, you should receive a form called 1099-G that details what you received. Unemployment benefits are typically taxable income. However, with the American Rescue Plan, taxes will be waived on up to $10,200 of unemployment benefits received in 2020. For unemployment benefits beyond that amount, you will need to pay taxes. If you did not have anything withheld from your benefits, or if you did not pay any estimated taxes during the year, then you will owe money on those payments. If your 1099-G is wrong, the IRS suggests going to your state unemployment board to request a corrected form; keep in mind that this process can be lengthy.
Did you make a charitable contribution in 2020? You will need to have evidence of your contribution, even if you do not do an itemized tax return. This is also true if you made a cash donation that you wish to claim. Before claiming charitable contributions, be sure you have the appropriate paperwork.
The Royce CPA Firm is here for businesses, nonprofits, and individuals who need assistance with filing 2020 tax returns in Tucson. Schedule a consultation with our CPA team today by calling (520) 321-4626.