Protecting Your Wealth: Nuances of Fiscal Yr 2020 That May Shock You (Voices)

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Covering Your Wealth: Nuances of Fiscal Year 2020 That Might Surprise You (Voices)

Michael Bosma
Courtesy photo

As an extension of last week’s tax planning column, I thought it helpful to hit on some of the 2020 tax year nuances that might surprise you when you file your taxes on April 15, 2021.

In fact, the upcoming filing season is getting tougher for many taxpayers due to high unemployment, work from home, and the general upheaval caused by COVID-19.

Here are some COVID-19 tax questions to be aware of.

UNEMPLOYMENT

Unemployment benefit is taxable income, which may surprise some applicants. Employees are not required to withhold federal taxes from their benefit payments. While people have the option of having the tax withheld, many don’t.

It’s worth noting that unemployment benefits are all subject to federal tax, but not all states tax them. The good news is that Nevada doesn’t have a state income tax (for now, at least).

Taxpayers who inadvertently do not include unemployment income in their taxes will receive a “love letter” from Uncle Sam with the tax due, plus the penalties and interest calculated by the IRS.

You can request that the penalties be removed (but no interest) by claiming you have a reasonable cause for omission (good luck). Often times, the best way to avoid a penalty is to claim that you filed and paid your taxes on time and, as a “first-time offender,” ask for forgiveness.

The decline in income from job losses could mean that some households are entitled to deductions and credits that they were not entitled to in the past, such as: B. the tax credit for earned income or the credit for children and people in need of care. The size of some loans can also change based on income.

Relief exams

Millions of Americans have received payments of $ 1,200 per adult and $ 500 per child under the CARES Act. According to the IRS, most recently 160 million payments totaling around 270 billion US dollars were made.

The good news is that money is not taxable. However, the bad news is, and what many people fail to realize, is that the money they have received is actually an upfront payment on the Recovery Rebate Credit for 2020 Accountants.

Individuals who have not received their payment or have only received a partial payment can resolve this issue when filing their 2020 taxes. If you have been overpaid, you will not owe.

If you did not receive a relief check because your income was too high, but it has been down since 2020 and qualified you, you can also receive the payment through this credit.

TO WORK FROM HOME

Working from home became the norm for many people in 2020, but most likely won’t be able to claim a cost on their new home facility.

The home office deduction can only be made by companies or self-employed. The Tax Act, enacted in late 2017, eliminated the ability for employees to claim non-reimbursed employee expenses until at least 2025.

You can ask your boss to reimburse you for the use of your home. This income is generally non-taxable and is not subject to FICA or Medicare for you or your employer.

CHARITY

One bright spot is a new, temporary deduction for charitable donations. Under the CARES Act, taxpayers can deduct up to $ 300 for monetary donations to charity, even if they choose to use the standard deduction instead of listing their deductions.

The IRS estimates that approximately nine out of ten taxpayers now take the standard deduction. So if someone makes a cash donation before the end of the year, they can get a deduction of up to $ 300 on submission.

You can also consider doubling your donation by a year and skipping the donation the following year. This works wonders if you are able to break down the double year and take the standard minor year deduction.

IRS NOTICE

The IRS has not yet announced when the tax filing season will begin. It usually starts in early January.

The agency brought some of its employees to the office. However, personal activities with taxpayers will remain extremely limited. The IRS continues to urge taxpayers to file their taxes online and use other online tools where possible.

With many IRS staff out of the office, we are seeing an increase in IRS notifications regardless of previously submitted forms or previous responses. The IRS has an automated notification system. Unless you or your CPA call and request that the account be suspended, the notifications will continue to fill your mailbox.

This article is general in nature. Ask your CPA how the tax law applies to your specific situation.

Mike Bosma, CPA, is Principal-in-Charge of the Reno office of CliftonLarsonAllen LLP. His NNBW column “Covering Your Assets” focuses on effective planning strategies for any business owner. Reach out to him for comment at mike.bosma@claconnect.com.