Tax-filing season is here, and you may be wondering how the pandemic will affect your return. Many filers have a lot more questions about their taxes this year than in the past.
“For this specific tax season, it’s all about organization, especially because of what was provided last year for Covid relief,” said Sheneya Wilson, a CPA and founder of Fola Financial.
We talked to several tax experts to get answers to common questions and tips on what you should do before filing your 2020 federal income tax return.
Here’s the No. 1 question:
Are stimulus checks taxed?
No.
“It is not taxable income, it is essentially a credit,” Wilson said. “So if you were able to get the stimulus check last year or early this year for the second round, you already received your credits.
“So when you are filing your taxes, you need to note that you’ve already received them.”
What if your income dropped last year and you didn’t receive the amount you are due in your stimulus check? Or you had a baby and would qualify for a payment for your dependent? You can claim a “recovery rebate credit” on your 2020 federal income tax return.
More from Invest in You:
Tax filing season starts Friday. Here’s why you should file as soon as possible
Nearly half of workers suffer mental health issues Covid hit, report finds
Here’s how to tell if paying a financial advisor should be a part of your budget
Are unemployment benefits taxable?
Yes, they are.
Unemployment benefits are always taxed on your federal return, said Kelley C. Long, a CPA and one of the AICPA’s Consumer Financial Education Advocates. “Even the extra $600 weekly payment is taxed.”
“If you didn’t have taxes withheld, you will have to pay taxes on it,” she said. “But there are some states that don’t tax unemployment compensation and a few only tax part of it.”
Does PPP relief need to be reported?
Small-business owners who received a loan from the Payment Protection Program and qualify for loan forgiveness should make sure the information provided to obtain that relief matches what they’re reporting on their tax return.
“If your returns are not matching what’s reported, you can trigger an audit for yourself,” said Wilson. “So you want to make sure that your returns are consistent.” Document your expenses. Keep good records of your income. And remember even business expenses paid for with loan money are tax-deductible.
Finally, file your return early, especially if you’re due a refund or a recovery rebate credit.
“If you made less money in 2020 than you did in 2019, you definitely want to file early to ensure you get your stimulus checks, past checks owed or future checks yet to be approved,” said Wendy Barlin, a CPA and founder of About Profit.
And, what if you owe money to Uncle Sam?
“You can file your taxes now even if you owe,” Long said. “But you don’t have to pay until April 15.” That remains the deadline to file your 2020 federal income tax return.
For more on tax tips, watch The News With Shepard Smith TONIGHT at 7pm ET.
SIGN UP: Money 101 is an 8-week learning course to financial freedom, delivered weekly to your inbox.
CHECK OUT: 3 money moves helped me save $100,000 by age 25, says Break Your Budget blogger via Grow with Acorns+CNBC.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.
