The pandemic brought with it a number of changes that could impact your taxes. From unemployment benefits to stimulus payments, we break down how this tax season will be unlike any in past years and important considerations to remember before filing by the April 15, 2021, deadline. Here are some of the key questions to consider:
Will having a new administration impact my taxes this year?
While a new administration will likely bring changes in the years to come, it should not have an impact on your 2020 taxes.
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What documents should I have before filing my taxes?
It’s important to have all of your tax documents handy before filing. These include but are not limited to the following: bank and investment account statements, retirement account documents, mortgage interest, student loan information and W2 and prior year’s 1040 forms.
What are some key terms I should know when filing my taxes?
Will I be taxed if I received a stimulus check last year?
The stimulus check you received from the federal government is considered a credit and not taxable income, therefore you will not be taxed. Additionally, if you failed to receive a stimulus check you may be eligible to claim it on your 2020 return, even if you normally are not required to file an income tax return.
What if my business received a Paycheck Protection Program (PPP) loan?
Similarly, PPP loans may be fully forgiven, meaning they do not have to be repaid as long as they were spent on its specific identified purposes.
I withdrew money from my retirement savings account early. Will I be penalized?
If you withdrew money from your retirement savings accounts, there are some relief measures that could help you recover. Under the Coronavirus Aid, Relief and Economic Security Act (CARES Act) the federal government has implemented new tax laws to help ease the burden and limit the penalties for withdrawals as long as you qualify for the exemption.
Here are the three biggest changes:
1. Prior to COVID-19, an individual was taxed 10% on early distribution from a retirement plan or IRA. This fee was waived under the CARES Act up to withdrawals of $100,000.
2. If you withdraw from a retirement account, you are still subject to income tax; however, it is now spread out over the next three years. Prior to the CARES Act, you had to pay taxes in the year the withdrawal took place.
3. You can repay all or part of the amount of a coronavirus-related distribution to an eligible retirement plan as long as you complete the repayment within three years of the date the funds were received.
Someone used my identity to collect unemployment benefits. What should I do?
If you received a 1099-G form for unemployment benefits but did not file for unemployment last year, contact your state agency as soon as possible to get a revised tax form. If you don’t, you will be taxed on the unemployment income you never actually received. For more information on identity theft involving unemployment benefits, visit the Internal Revenue Service (IRS) website.
Reach out to your financial advisor or tax preparer if you have specific questions.
Brandon Jones is assistant vice president and fiduciary tax manager at UMB Bank.