Tax season is officially here
Tax filing season for calendar year 2020 opened Feb. 12, a few weeks later than usual. Unlike last year, when the deadline to file and pay any tax owed was extended to July, this year we revert to good ol’ April 15, so it’s time to get organized. If you didn’t learn the lesson of electronic filing last year, it’s time to dump the paper. Those who had electronic files with the IRS got stimulus checks faster than paper filers. To make the process seamless, choose direct deposit, “the safest, most accurate and fastest way to get a refund,” according to the IRS. Stimulus checks: If you received an Economic Impact Payment of $1,200 ($2,400 MFJ for 2020), plus $500 for each qualifying child, it is not taxable. If you did not receive the payment (or think you were shortchanged on the amount), focus on Line 30 of Form 1040 and Form 1040-SR, “the Recovery Rebate Credit.” Even if you did not earn enough income to file a return, you may have to do so to get your credits, which can increase any refund you would have otherwise received or lower the amount of tax you owe. Unemployment benefits: The IRS says “unemployment compensation is taxable and must be reported on a 2020 federal income tax return.” That includes all state unemployment benefits, as well as all emergency federal benefits awarded under the CARES Act. You should have received Form 1099-G, which highlights the amount of unemployment that you received. There are 15 states that do not levy taxes on unemployment: Alabama, Alaska, California, Florida, Montana, Nevada, New Hampshire, New Jersey, Pennsylvania, South Dakota, Tennessee, Texas, Virginia, Washington and Wyoming. If you don’t live in one of the 15, you will also be on the hook for state taxes on your unemployment benefits. Home office/telework: If you are a W-2 employee, you are not eligible for the home office deduction, even if you are working from home. If you are self-employed, the home office deduction is still available, as long as you use a portion of the home for conducting business on a regular basis and your home is your principal place of business. If you worked from home in a different location, you could see tax benefits — or penalties — for the change in location. Check your primary state/city rules about other jurisdictions and make the necessary adjustments. Earned Income Tax Credit: The Earned Income Tax Credit (EITC) is geared toward low-to-moderate income workers. EITC reduces the amount of tax someone owes, but here’s the cool part: Even if you don’t owe any taxes or aren’t required to file a return, you can get the money. The amount of the credit (a maximum of $6,660 for three children or more) is based on whether or not you have kids. To find out if you qualify, use the EITC assistant on IRS.gov. IRS Free File: The IRS works with a number of tax preparation companies to offer free online products for those who make $72,000 or less. Each provider sets its own eligibility rules based on age, income and state residency, so you need to do some homework. Go to IRS.gov/FreeFile and use the “Free File Online Look up” tool to find the right product.
Resources
The Volunteer Income Tax Assistance (VITA): Free tax help to people who make $57,000 or less, people with disabilities and those who have limited English language abilities. Tax Counseling for the Elderly (TCE): Tax help for individuals who are 60 and older. Where’s My Refund? tool: https://www.irs. gov/refunds IRS2Go phone app: https://www.irs.gov/ newsroom/irs2goapp IRS Withholding Estimator: https://www. irs.gov/individuals/tax-withholding-estimator Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@jillonmoney.com. Check her website at www.jillonmoney.com.