Coronavirus and Taxes
In case you have questions about your 2020 taxes, here are a few answers.
- Your stimulus check will not be counted as taxable income. It’s being treated as a refundable tax credit.
- If you made a “hardship withdrawal" from a retirement account, there is no 10% early withdrawal penalty, but you still have to pay income taxes on the money you take out of a traditional 401 (k) or IRA account. The CARES act allows you o return any funds withdrawn within the next 3 years and file an amended return.
- Unemployment benefits are taxable. There are two ways to pay
a. Have 10% of each payment withheld OR
- b. Pay quarterly taxes on that money
- c. If you expect to owe more than $1000 in taxes for the year, you should pay quarterly estimated taxes.
d. Look for 1099 forms from employers. And you’ll need to fill out a Schedule SE form to report any other self-employment income. Tip: Set aside 25-30% of each paycheck for taxes.
- Working remotely from another state may mean you have to pay income taxes in both states, depending on your state's agreement with other states. Check this out before tax due date.
- Working from home deductions are included in the higher standard deductions.
- Did you take funds for college expenses out of your 529 college savings plan and it was refunded when colleges were closed? PUT IT BACK! (60 days from date of refund) to avoid a tax and maybe a 10% penalty.
- Deferred payroll taxes from the end of 2020 still need to be paid. These will be made up between January and April 2021, which means you will have less money in your paycheck.
- Medical expenses for COVID-19 may be deductible on any expenses above 7.5% adjusted gross income. OR You can take the deductions if you itemize all deductions instead of taking the standard deductions.
As a small business owner who took out a Payroll Protection Plan loan, these can be forgiven as long as the funds were used for business expenses like payroll, rent or interest on mortgage payments. Forgiven expenses can be deducted from taxable income IF the loan application is approved by SBA.
Dave Reed Insurance hopes you are all well and is anxious to return to normal. We are available to answer any insurance questions, too.