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COVID-19 has complicated many aspects of life, including our taxes.
Whether you received stimulus payments, bought a house, or began working from home in 2020, there are some important updates to how we file.
With the April 15 filing deadline just a month away, here are some key changes, updates, and reminders to ensure you maximize your return.
The Filing Deadline Hasn’t Changed … for *Most* People
The tax filing deadline is still April 15 for most people. The exception this year is if you live or own a business in Texas or Oklahoma, where residents have been suffering from the aftermath of disastrous winter storms. There, you have until June 15 to file and pay your taxes, per the IRS.
Are Stimulus Payments Taxed?
The simple answer is no. If you received stimulus payments in 2020, they are not counted as taxable income.
Your Unemployment Benefits *Might Not* Be Subject to Taxes
We normally have to pay taxes on our unemployment benefits, but thanks to the recent passing of the 2021 stimulus plan, if you grossed less than $150,000 last year, you may qualify for a tax-exemption of up to $10,200 from last year’s unemployment benefits. While we’re waiting for the IRS to provide more details, here’s NextAdvisor’s guide on how to claim relief.
Your Home Office is Probably Not Tax-Deductible, Unless…
Like many, if you began working from home from your 9-to-5 job because of the pandemic, you most likely cannot deduct your new “home office” as an expense.
But if you are self-employed or an independent contractor, you may be able to bank on a home-office deduction. You can opt to take the standard deduction of $5 per square foot for a space in your home reserved “exclusively” and “regularly” for work. Your “desk” at the kitchen table, unfortunately, won’t count. The deduction limit is $1,500.
There’s a New Type of Deduction for Charitable Giving
Last year’s CARES Act created a special tax benefit for giviers. Contributions made to qualified charities can now be counted towards a new standard deduction of up to $300. That’s for both individual and joint filers.
The best part, as NextAdvisor’s Kendall Little writes, is that the credit is designed specifically for the 87% of filers who take the standard deduction, so you can benefit even if you don’t itemize.
Reminder for New Homeowners: Don’t Forget Your Tax Breaks
2020 was a record year for home buying and if you’re new to all of this, definitely take note of the tax breaks reserved for owners. You may be able to deduct your mortgage interest, as well as property taxes up to a limit.
One note: If you operate your business from home and moved across state lines in 2020, you may want to consult with a tax expert to be sure you file accordingly. It may affect your taxes.
You Can Always File an Extension
If you’re overwhelmed or need more time to organize your taxes, you can apply for an extension by filling out Form 4868 on the IRS website. This gives you an extra six month or until October 15 to file with the IRS. But be sure to still pay any taxes you think you owe by the April 15 deadline. An extension buys you time but it doesn’t place you off the hook for paying your taxes!