Tax Tips and COVID-19
Are you ready for tax season? COVID-19 has affected many aspects of American life, and depending upon your individual circumstances, tax preparation may be one more thing altered by the pandemic. Here are some tips as you prepare your 2020 taxes:
Speed up your tax refund by using the IRS's free e-file form, or use an online tax service such as TurboTax or CreditKarma. The tax services keep up with current laws and use a step-by-step process to help you complete your return. Filing electronically is more efficient and avoids the backlog of a paper return.
Know When You Need Help
Consult a tax expert if you have had major changes in your life such as a marriage, a divorce or a new baby, or if you invest in the stock market, have capital gains, have major medical expenses or if you itemize deductions. Not sure if you need help? If you have to file any IRS schedule A through F tax forms, it's probably a good idea to work with a tax consultant like a CPA.
Know CARES Act Changes
The CARES Act that went into effect in March 2020 will impact taxes in the coming years for some people. For example, if you took money from a 401(k) retirement or IRA account during the pandemic, the usual penalty was waived and taxes can be spread over the next three years.
Review the American Rescue Plan
The American Rescue Plan extended tax relief for 33 provisions that were set to expire in 2020. These include a lower threshold to claim medical expenses and an expansion of the lifetime learning credit to help pay for higher education. Look for changes that may affect you.
If you received a stimulus check in 2020, you don't have to claim it as income. Depending on your income and family size, stimulus checks of $1,200 were distributed in April and $600 in December of last year. You don't have to pay taxes on whatever you received. If you didn't receive what you were owed, eligible individuals can claim the Recovery Rebate Credit on their 2020 tax return.
Deduct $300 in Charitable Contributions
Even if you don't plan on itemizing deductions, the CARES Act is allowing you to deduct up to $300 in charitable contributions made in 2020. The deduction will lower your gross income, meaning that you will pay taxes on a lesser amount.
Unemployment Tax Break
The American Rescue Plan, which was signed into law March 11, 2021, made the first $10,200 of unemployment income tax free for Americans with adjusted gross income of less than $150,000 in 2020. (For a married couple filing jointly, the break is $20,400 for two workers.) If you filed taxes for 2020 before the law was passed, the IRS will automatically process your refund.
Paycheck Protection Program
If you are a small business that took out a forgivable loan through the Paycheck Protection Program, which also allowed deductions for covered expenses, consult a tax advisor about what tax benefits will be recognized on your state return.
You Have an Extra Month
Confused? You actually have until May 17 to file your 2020 taxes this year. The Internal Revenue Service and Treasury Department recently extended the filing deadline for individuals from April 15 to May 17.
Review the tax breaks made available by the CARES Act and American Rescue Plan to see if it can save you money when filing your 2020 tax return. If you need help, consult a tax professional.
Julie Landry Laviolette is a freelance writer who specializes in personal finance, health and living well. Find her on Twitter at @JulieLavio.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Ameris Bank is not affiliated with nor endorses any of the companies featured in this article. Ameris Bank does not provide tax advice. Please consult your tax advisor to determine how this information may apply to your situation.