The 2020 tax filing deadline has been extended from April 15 to May 17, and there are other new changes implemented by the IRS that you need to know.
Essential Tax Rules for 2020:
- Stimulus checks received are not taxable on your 2020 taxes. If you received too much, you don't have to pay it back. And, if you didn't receive enough or didn't receive them at all for the first or second rounds of stimulus, you can claim a recovery rebate credit and recoup that stimulus you didn't get -- those amounts will deduct from the amount you owe.
- New parents can claim a recovery rebate credit and get the stimulus for their baby. If you had a baby in 2020, there's no way that the IRS would know that when they issued the checks, but you can recoup that money during the tax filing process.
- Some unemployment income is not taxable. If you received unemployment, it is typically taxable but there was retroactive relief with the American Rescue Plan. Your first $10,200 is tax-free if you single or $20,400 if you're married filing jointly if you make under $150k.
- Employees cannot claim home office expenses. However, if you're self-employed, you can claim home expenses via the home office deduction. On a federal level employees cannot claim home office expenses, but there are some states that allow you to claim the unreimbursed employee expenses on your state taxes. So, they conform to the pre-tax reform law.
- There is no penalty for early retirement distributions. If you made a coronavirus-related withdraw from your retirement funds, either your IRA or 401K, there is some relief. If you took the distribution before you are 50 and a half years old, you will not get the 10% tax penalty that's usually in place.
- Distributions can be taxed over three years. When you typically take a distribution, you have to recognize that entire distribution in your income in the tax year, but the IRS is now allowing you to spread that out over three years. For example, if you took out $30k, you would usually have to recognize that entire amount in your taxable income. But with this provision, it would be $10k per year, so it's lowering your tax liability.
- You can use 2019 income to calculate earned tax income credit. The provision that passed for earned income tax credit accounts for up to $6,660 for a family with three kids and allows people to use their 2019 income if it helps them get more earned income tax credit.
- You can claim up to $300 in charitable donations on top of the standard deduction. If you're one of the 90% of people that now claim the standard deduction, you can also claim up to $300 in charitable contributions under the Cares Act on top of the standard deduction.
- PPP loans are not taxable because you are paying the loan back. If you have a loan that's forgiven, you are typically taxed on that amount but you will not be taxed on that debt in 2020 because of the various provisions that passed. It will be tax-free as long as you use the funds for expenses that were required to be used, such as paying for wages, rent, or supplies if you are self-employed.