With the pandemic forcing many people in 2020 to seek federal and state financial assistance, and everyone getting stimulus payments, there will likely be more questions among tax filers about what’s taxable and what’s not.
What You Need To Know
- A public accountant takes the time to explain the changes
- If you need more time to file your taxes, ask the IRS for an extension now
- Some things have changed due to the pandemic, like stimulus checks are not taxable
One local certified public accountant says the 2021 tax filing period will be the most unique and challenging than in recent memory.
Kristin Vogt is a realtor. Like so many people last spring, life and job drastically changed.
“Last March I remember going now what do we do because no one’s going to buy houses no one is going to move,” said Vogt.
A federal Paycheck Protection Program loan kept Vogt afloat financially until work picked back up.
PPP loans for small businesses are not taxable. And licensed-certified public accountant Amit Patel, founder of A.P. Accounting and Tax Services, says you can even deduct the items you used that loan money for.
“The business filers, they’re still going to be able to deduct those expenses and it’s still not taxable to them,” said Patel.
For people who lost work and got unemployment benefits, that money is treated as regular income and is taxable.
“And it’s a big surprise to a lot of people this year,” said Patel.
If you had to dip into your retirement savings accounts like a 401k, that’s also taxable.
Although Patel says revisions to the CARES Act did allow tax filers to put money back in or at least delay when they’ll have to pay back withdrawal penalties.
“But generally speaking if you took money out, you’re going to have to pay that in some way or another whether it’s in 2020 or you spread that out in the next three tax return filings,” said Patel.
And good news for everyone who got those $1,200 and $600 stimulus checks:
They’re not taxable.
And if you didn’t receive them, or did not get the right amount, Patel says you can remedy that through your tax filing.
“Maybe you had changes in your income, you claimed adult dependents, maybe you had a new child, so you didn’t really get the full amount of stimulus you were entitled to,” said Patel. “You can actually claim that back on a recovery and rebate form this year.”
With her real-estate work picking back up, Vogt says she’s leaving it to Patel to figure out what she owes, and what she doesn’t.
“I wouldn’t know how to handle that by myself, so I’m super thankful it’s in his hands,” said Vogt.
Patel also answered a question many people who found themselves working from home for a company in 2020, especially those looking to possibly deduct office expenses and other expenses they ended up paying for while working from home.
“The tax code change in 2018 eliminated the home office deduction for most W-2 employees. So regular W-2 employees working from home during the pandemic could not claim home office expenses. Those who are self-employed such as sole proprietors, independent contractors, receiving 1099s, would be able to claim the home office deduction as part of their schedule C filing on their personal return. So long story short, W-2 employees are out of luck while those who are self-employed can claim the home office deduction,” explained Patel.
Patel says whether you’re filing taxes yourself, or with a tax preparer — leave yourself plenty of time.
The filing period started later this year, and there’s no indication the IRS will extend the April 15 deadline like last year.
He suggests if you think you’ll need longer than that, ask the IRS for an extension now.