Click here for a 2020 Reference Card – Key Facts and Figures
Election 2020 – Tax Tracker
Click here for an analysis of the 2020 Presidential tax plans as prepared by the taxpolicycenter.org. The Tax Cener is a self proclaimed “nonpartisan, educational organization”. You decide.
Election 2020 – Full Analysis of Former V.P. Biden’ Tax Proposal
Although legal action and recounts continue (as of this writing) every major network has called the 2020 election in favor of Joe Biden. So what does this mean in regards to your tax bill? Well, the answer is, it depends. It depends on if your are on the higher or lower end of the income scale. It depends on how you earn your income, ie wages, rental real estate,etc. And, it depends on the outcome of the Georgia senate run-off election. A Biden administration may have to work with a Republican Senate majority making it difficult to get new tax legislation passed.
Click here for a full report on Joe Biden’s tax proposal.
What You Need to Know About Your 2020 Taxes – Year-end Tips
1. Understanding the impact of the stimulus check.
Your $1,200 ($2,400 for couples) stimulus payment, officially known as a “Recovery Rebate,” is an advance refundable tax credit on 2020 taxes. This means no matter how much you owe (or don’t owe) in taxes for the 2020 tax year, you get to keep all the money with no taxes due on it.
Since the stimulus payment will either be based on your adjusted gross income (AGI) for 2018 or 2019, but technically applies to your 2020 AGI, there may be some discrepancy. Don’t worry. The news there is good as well.
If it turns out your AGI for 2018 or 2019 (whichever one the IRS bases your stimulus payment on), is lower than 2020, resulting in a higher payment, you can keep the overage. If your AGI for 2018/19 is higher than your AGI in 2020, you can claim the additional amount owed when you file your 2020 taxes in 2021.
This applies to dependents under 17 as well. If someone else claims a child now, based on 2018/19 returns, but you legitimately claim that child on your 2020 return, you will get a $500 tax credit when you file in 2021 and the person who got it based on 2018/19 returns will not have to pay it back. If you have a child in 2020 you can claim the child when you file in 2021 and receive the $500 credit then.
Finally, your recovery rebate is not taxable. It will not add to your taxable income in 2020 (or any other year). All of this is based on the fact that the CARES Act contains no “claw back” mechanism by which the government can reclaim funds that were legitimately extended.
2. Yes, your extra $600 of pandemic unemployment assistance (PUA) is taxable income.
The $600 unemployment insurance payments are deemed taxable income and so must be declared on next year’s tax return (for 2020). If you have received UI payments for the entire 17 weeks that will be equivalent to $10,200 in taxable income – on top of any other state unemployment benefits you might have received.
Withholding is voluntary. In Massachusetts it is 10% federal, 5% state, IF you elected to have taxes withheld when you applied for unemployment.
If you have returned to work and do not want to be surprised by a tax bill next April you can use the IRS Tax Withholding Estimator to make sure you are having enough tax taken out of your pay.
If you have not returned to work call our office and we can prepare a projection and provide vouchers to make estimated tax payments.
3. Conduct a paycheck check-up – review your withholdings.
With so many individuals and families experiencing personal, residential and financial changes due to COVID-19, it is critical to review information on Form W-4 to avoid any surprises at tax time. Form W-4 may be changed at any time. Employers are required to update withholdings by the start of the first payroll period ending the 30th day from the date received. The IRS offers a Tax Withholding Estimator tool to assist taxpayers with completing the Form W-4.
4. Everyone is entitled to a charitable deduction this year.
The Tax Cuts and Jobs Act doubled the standard deduction while repealing or limiting many itemized deductions, leaving millions fewer taxpayers claiming actual itemized deductions. Typically, there is no tax benefit for giving to charity unless you itemize deductions. However, the CARES Act created an above-the-line deduction of up to $300 for cash contributions from taxpayers who don’t itemize. To take advantage of this provision, taxpayers should make sure to donate before the end of the year.
5. Can you take a home office tax deduction if you’ve been working remotely during COVID-19?
Even though the dining room may have been transformed into a conference room, this deduction has many rules and recent tax law changes that may curtail wide use.
DOES MY HOME QUALIFY AS AN OFFICE?
In order to qualify for this deduction, the taxpayer must have a dedicated area of the home used exclusively for conducting business on a regular basis. The IRS defines home for the purposes of this deduction as a house, apartment, condominium, mobile home or boat, and also includes structures on the property like a detached garage, greenhouse, studio or barn. The home must serve as the taxpayer’s principal place of business. Overlap with other activities outside of business can disqualify a space.
MISCELLANEOUS ITEMIZED DEDUCTIONS SUSPENDED THROUGH 2025
The Tax Cuts and Jobs Act of 2017 suspended the miscellaneous itemized deduction for tax years 2018 through 2025. This suspended category of deduction includes unreimbursed EMPLOYEE business expenses, including those associated with setting up and maintaining a home office. As a result, this deduction is not available to the vast majority of taxpayers through 2025, barring future legislative action.
SO WHO CAN TAKE THE HOME OFFICE DEDUCTION?
Partners in a partnership may deduct home office expenses on their individual income tax return provided that the partnership agreement contains language that addresses reimbursement of such expenses and their deductibility. Be sure to review the language of the agreement for specific conditions.
Individuals reporting income on a Schedule C can deduct home office expenses provided they meet the deductibility requirements mentioned above. All other employees and S Corporation shareholders are not able to take the deduction, due to the tax reform provision addressed above.
TRACK AND SUBSTANTIATE EXPENSES
Eligible taxpayers interested in claiming the home office deduction should start tracking expenses now. Remember, any expenses already reimbursed are not eligible. Use Form 8829 to claim the deduction.
6. Can you use retirement funds for coronavirus costs?
The CARES Act permits individuals under the age of 59½ to withdraw up to $100,000 from retirement funds during 2020 for coronavirus costs without triggering the usual 10 percent early withdrawal penalty under Section 72(t). There will be income tax on any coronavirus-related withdrawals, but it can be spread over three years starting in 2020. If you repay the withdrawal to the account within three years, you can avoid the income tax.
7. Should you take your RMD for 2020?
Required Minimum Distributions (RMDs) are suspended for 2020 for everyone with IRAs and 401(k)-type accounts (but not defined benefit plans) as a result of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that became law March 27, 2020.
There are, however, reasons why you might want to do so…
- If you need your RMDs to live off of, you will likely need and want to continue to take the distribution, or part of it.
- If your tax bracket will be higher in the future you may wish to take all or part of your distribution, as this can save you money in the long run.
- If you’ve already taken a distribution you will most likely be unable to return it to your account. Please speak directly to your investment and tax professionals for the most updated guidance.
- If you make an annual charitable distribution, you are permitted to continue to do so.