4 Areas to Be Mindful of When Filling Your 2020 Income Taxes
April 15th will be here before you know it! This year, it is the deadline to file your 2020 state and federal taxes unless you have applied for the proper extensions. Obviously, we are all going to have to pay a little more attention to our spending and income actions from 2020 because it was not an ordinary year.
With so many unique circumstances, sifting through all the information and rules can be a daunting task. We’d like to clarify some of that mess so, here are 4 main areas we feel everyone should be aware of:
Stimulus checks - WILL NOT count as taxable income
Unemployment benefits - WILL have to pay income taxes on this
Retirement plans - WILL have to pay taxes on withdrawals, as usual
Side jobs - WILL owe regular income taxes at the ordinary tax rate
Stimulus checks. According to the IRS website, neither of the 2020 stimulus checks will be considered taxable income when filing your taxes which is a huge relief for so many. **On a side note, if you had a new baby last year and made less money in 2020 than in 2019, you may be eligible for more stimulus funding which you will get on your taxes. Connect with your advisor for any questions regarding this situation.
Another main point about stimulus checks is to be sure to let your tax advisor know how much you did receive in stimulus money because you may be eligible for more.
Unemployment benefits. If you are one of the millions who filed for unemployment during the 2020 pandemic, then, that income is considered taxable income meaning -- you will have to pay taxes on those checks.
Retirement plans. With so many people deciding to withdrawal funds from their retirement investment programs to make it through the pandemic, this is a taxable income as well. If you fall into this category, then you will have to pay taxes on those withdrawals. It is taxable income.
Unless you withdraw from a Roth Retirement Plan. There may be a waiver of 10% for the early withdrawal penalty.
Side jobs. Sometimes considered freelance or independent contractors, you may receive a W-2 or you may or may not receive a 1099-NEC. If you are self-employed and receive a 1099-NEC, there may be as much as *25-30% tax on this income because of the way this is taxed. What’s the good news? You can claim deductible expenses that are directly or indirectly related to your side job. Please check with your tax advisor or us here at Peridot Consulting if you are unclear about it.
*This income is taxed in 3 ways. Ordinary federal income tax, state income tax (if applicable), or self-employment tax which is the additional tax that many people do not consider when earning this income.
Reminders:
Monday, March 15th, 2021:
March 15th is the deadline to file your Partnership Tax Returns and S Corp Tax Returns. It is also the deadline to elect your S Corp status for your existing C corporations in order for that status change to be effective January 1st.
April 15th, 2021 is the Deadline for:
Filing Individual and Business state and federal taxes
Filing for a tax extension
Corporations, the first installment of the year's end estimated tax
Partnerships and S Corps pay any tax due
For a more detailed list of monthly IRS deadlines and forms, go to our annual
tax calendar here.
With all this said, we and other tax agents simply ask is for your patience. The 2021 tax season did not begin on time, it was delayed two weeks, putting all of us accountants on a tight schedule. Just like every other year, we are working tirelessly to file your taxes on time but, if for any reason we need to file an extension for you, we will do that. Tax extensions are nothing to worry about. It is simply a formality to allow us more time to file to the IRS with no penalties.
If you are have tried to email or contact us or any other tax agency and have not heard back, please just keep trying. It is simply because we are working with our heads down deep in work -- meaning, we will be happy to get back to you as soon as possible. Feel free to contact us as much as you need to.
We hope this clears up any misunderstandings or confusion for this year's filing. Please email us at peridot@peridotconsulting.com if you have any questions or concerns.
Disclaimer: This is a brief synopsis and individual situations may vary. The above has left out many details for summation purposes. Do not take any advice from this column and please consult with relevant parties before making any decisions regarding the subject matter within. Any U.S. federal tax advice contained in this blog is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this blog.