Answers To The Top 9 Tax Questions For 2020 Returns
There were numerous tax law changes for 2020 tax returns. Then we add in the misinformation taxpayers are finding on social media sites, which leads to filing incorrect tax returns.
So we thought it would be helpful to share answers to the most commonly asked questions.
But first, as a disclaimer, taxes are complicated and one fact in your situation could lead to a different answer, so be sure to consult a tax professional for specific answers regarding your tax return.
Do I Have To Pay Tax On The Stimulus Checks I Received?
No. Economic income payments, also known as stimulus payments, are not considered taxable income.
Do I Have To Payback My Stimulus Payment If I Received Too Much? What If I Received Too Little?
No, you will not have to pay back your stimulus payment if you received too much. There was no “grab back” written into this law.
However, once you file your 2020 tax return, and you’re eligible for a higher stimulus payment based on that return, you can receive the difference as a credit on the 2020 1040.
This is common for taxpayers who made less money in 2020, added dependents, or had other changes on their return that allowed them to receive a higher economic stimulus payment.
I Had To Work From Home In 2020. Can I Take A Home-office Deduction?
Unfortunately, no, if you are an employee and work for someone else. The TCJA law did away with home-office for employees for tax years starting in 2018.
If you own your own business you may be able to deduct home-office expenses, as long as you meet the requirements for this deduction. The two basic requirements include, 1) regular and exclusive use and 2) principal place of your business.
Will The Tax Deadline Be Pushed Back?
As of today, we don’t know! The House Ways & Means Committee has requested the IRS move the deadline from April 15th to July 15th, the same as they did for 2019 tax returns, but they have not made an announcement on their decision as of now.
Will My Taxes Be Higher Since Biden Won The Election?
For tax year 2020, no.
Although it is common for income taxes to increase with a Democrat President, it does not happen immediately.
We do think income taxes will increase, especially for above average earners, but that will happen over the next year, not immediately. As of today there have been no major income tax increases.
I Heard I Don’t Have To Pay Tax On My 2020 Retirement Distributions. Is This True?
No, not true. However, the IRS is giving you leeway on a couple of things if you received a Coronavirus related distribution.
First, in order for your retirement distribution to qualify you must:
Have been diagnosed with Covid by a testing center, or
Your spouse or dependent was diagnosed with Covid, or
You experienced adverse financial consequences as a result of being quarantined, laid off, or work hours were reduced, or
You experienced adverse financial consequences as a result of being unable to work due to lack of childcare, or
You experienced adverse financial consequences as a result of closing or reduced business hours in a business you own
If you qualify under one of those factors, then you can waive the 10% penalty on early distributions, as well as elect to pay the tax on the distribution (up tp $100,000) over 3 years.
Is There A New Tax Credit For Travelling?
No. I wish!
There were rumors going around (mainly on Tik-Tok) that the IRS would give you a $4,000 tax credit for travelling. That is not true.
Where did this rumor come from? There was actually a discussion among the House on a similar credit, but it never made it into a tax law, so, no, you will not be incentivized for travelling.
What If My Business Lost Money In 2020?
If your business lost money and you had a Net Operating Loss (NOL), you have a couple of options, thanks to the CARES Act.
The TCJA of 2018 did away with NOL carrybacks. That means if you have a NOL you could only carry it forward and offset it with future income. However, the CARES Act, only for 2018, 2019, and 2020 tax years, allows you to carry the loss back 5 years.
There are certain elections that must be made on your tax return, with 2020 being the last year, so be sure you are aware of these rules (talk to your CPA) prior to finalizing and filing your 2020 tax return.
Do I Have To Pay Tax On My Ppp Loan Proceeds?
No, you do not. Congress and the IRS have both agreed that PPP forgiveness will be tax-exempt income in the year of forgiveness.
As always, this is not intended to be tax advise. You should consult with your tax professional regarding your specific tax situation before making a decision.
If you have additional questions regarding this information, or other tax and accounting related matters, give us a call, or book a tax discovery here.
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