Important reminders before filing 2020 tax returns

Following an unpredictable year with many changes and challenges, the Internal Revenue Service today shared important reminders for taxpayers who are about to file their 2020 federal tax returns.

Choose direct deposit
The safest, most accurate and fastest way to get a refund is to electronically file and choose direct deposit. Direct deposit means any tax refund is electronically deposited for free into a taxpayer’s financial account.

Earned Income Tax Credit 
The Earned Income Tax Credit (EITC) can give qualifying workers with low-to-moderate income a substantial financial boost. EITC not only reduces the amount of tax someone owes but may give them a refund even if they don’t owe any taxes or aren’t required to file a return.

Taxable unemployment compensation
Millions of Americans received unemployment compensation in 2020, many of them for the first time. This compensation is taxable and must be included as gross income on their tax return.

Interest is taxable income
Many individual taxpayers who received a refund on their 2019 tax returns also received interest from the IRS. The interest payments were largely the result of the postponed filing deadline of July 15 due to the COVID-19 pandemic.

Home office deduction 
The home office deduction is available to qualifying self-employed taxpayers, independent contractors and those working in the gig economy.

Workers moving into the gig economy
Many people found different employment in 2020, including jobs in the gig economy. Taxpayers must report income earned in the gig economy on their tax return. However, gig-economy workers generally do not have taxes withheld from their pay as salaried workers normally do. The IRS encourages people earning income in the gig economy to consider making quarterly estimated tax payments to stay current with their federal tax obligations.

Charitable donation deduction for people who don’t itemize
Individuals who take the standard deduction generally cannot claim a deduction for their charitable contributions. However, the CARES Act permits these individuals to claim a limited deduction on their 2020 federal income tax returns for cash contributions made to certain qualifying charitable organizations and still claim the standard deduction. Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify.

Disasters such as wildfires, flooding or hurricanes 
Special tax law provisions may help taxpayers and businesses recover financially from the impact of a disaster, especially when the federal government declares their location to be a major disaster area. Some 2020 tax deadlines in certain counties have been extended into 2021 due to recent wildfires, hurricanes or flooding.

January 28th, 2021 by