Tax season 2020 will look different: Here's how to prepare
(BPT) - It’s no secret that 2020 has been a tumultuous year. Due to the COVID-19 pandemic, many Americans found themselves out of work — at least temporarily — and received unemployment benefits. Others may have experienced employment changes, like working from home or taking on multiple jobs. All of these factors will have even more of an impact come time to file income taxes on tax day, April 15, 2021.
“For many, the 2020 tax season will likely look different,” says Mark Steber, Chief Tax Information Officer at Jackson Hewitt Tax Services. “The pandemic brought unexpected, overwhelming changes.”
To help you prepare and get the maximum tax refund you deserve, Steber offers the following tax tips.
1. Understand how unemployment benefits work
If you received unemployment benefits this year, it may have been for the first time. Make sure you’re aware of how they affect your taxes.
Unemployment benefits are taxable and must be reported to the IRS on your tax return. Taxable benefits also include any special compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act earlier this year. That means if you did not withhold enough taxes from your unemployment benefits, you could see a big tax bill or a much smaller tax refund than you normally receive.
Unemployment benefits can affect tax credits. Unemployment is considered unearned income, so it won’t count toward certain credits. For example, you must have earned income to qualify for the Child Tax Credit or the Earned Income Tax Credit. Additionally, your adjusted gross income must be below certain levels to get certain credits.
2. Set money aside to cover unexpected taxes
If you received unemployment benefits and did not withhold any federal or state income tax, you’ll need to pay tax on that money. To prepare, consider setting money aside now to cover those taxes on your 2020 return and brace yourself for a much smaller refund or no refund at all this tax season.
3. Take advantage of possible deductions
Every taxpayer will get a charitable donation deduction for 2020. Make a list of any IRS-approved donations you made this year and locate any receipts. Whether itemizing or taking the standard deduction, under the CARES Act, all taxpayers are eligible to deduct up to $300 worth of monetary donations to qualified organizations.
And while many Americans have been working at home for months, a home office deduction is not guaranteed. The home office deduction is only available to those who are self-employed.
4. Consider major life changes
Life goes on, even during a pandemic, and life changes can bring sizeable tax implications. Some changes that cause the biggest impact include getting married or divorced, having a baby or adopting a child, buying or selling property, retiring, or starting a business. If you experienced any of these events in 2020, know that your return will look different.
5. Keep track of important documents
Even if your taxes won’t be affected by unemployment, make sure you gather all your documents, such as W-2 forms and 1099s for interest dividends and even retirement distributions. Remember to include the Notice 1444 you received with your stimulus check for your 2020 tax records. Collect your charitable contribution totals, mortgage interest, property taxes you’ve paid, and any additional state and local income taxes paid for the year. If you were furloughed and able to pick up a temporary job, gather your W-2s for each job you worked. If you worked a side gig, make sure to keep a record of your income, the miles you drove, and any additional expenses. And if you’re not filing single, be on the lookout for family members that may have been impacted to make your tax return more complicated.
No matter your 2020 situation, follow these tips to prepare for any unexpected tax implications. For more information and help during the 2020 tax season, visit jacksonhewitt.com.
With tax season in full swing, take time to consider how to get the most out of your tax return, which includes finding all the credits and deductions available to you. These often-overlooked tax breaks could potentially save you hundreds – maybe even thousands – of dollars if you itemize deductions.
Don’t Overpay Your Taxes
Commonly overlooked credits and deductions
(Family Features) With tax season in full swing, take time to consider how to get the most out of your tax return, which includes finding all the credits and deductions available to you. While many taxpayers claim common deductions, such as home mortgage interest and self-employment expenses, there are additional tax deductions that can lessen your final tax bill or increase your refund. These often-overlooked tax breaks could potentially save you hundreds - maybe even thousands - of dollars if you itemize deductions.
To start, get to know the difference between tax credits and tax deductions. Tax credits reduce the amount you owe in taxes. In some circumstances, tax credits allow a refundable credit, meaning you may not only reduce the amount you owe to $0, but you can also get money back. Deductions, on the other hand, simply reduce your taxable income. Both can have a potentially significant impact on your taxes and are often worth the extra effort to include on your return.
Some commonly overlooked credits include:
1. Child and Dependent Care Credit
2. Earned Income Tax Credit
3. Saver's Credit or the Retirement Savings Contributions Credit
Some tax deductions that allow you to reduce your taxable income include:
1. Moving Expenses
2. Tax-Preparation Fees
3. New Moms
4. Career Corner
5. Wedding Bells
6. Medical Fitness
7. Road Warriors
If you're getting a refund, you typically want it as soon as possible, but that isn't always an option, especially if you are one of the millions of Americans who claim either the Earned Income Tax Credit or Additional Child Tax Credit. You could access up to $3,200 with a no-fee Refund Advance loan at zero percent annual percentage rate (APR), offered by MetaBank, at participating Jackson Hewitt locations. Terms apply, visit JacksonHewitt.com for details.
Did You Know?
1. The IRS, as well as many states, allows taxpayers to catch up on missed credits or deductions, offering a three-year window for filing an amended tax return. You can secure unclaimed credits and deductions by filing amended tax returns to avoid losing any unclaimed funds from as far back as 2014.
2. With locations across the United States, including kiosks in 3,000 Walmart stores, the tax professionals at Jackson Hewitt make it easy to stop in when it's most convenient for you.
3. If you are a single parent, you can file as Head of Household instead of Single. This filing status can provide better deduction options and a lower tax rate schedule.
Photos courtesy of Getty Images (Woman looking at computer, Man sitting on the floor with papers)SOURCE:
(BPT) - Every year, nearly eight out of 10 taxpayers receive a federal tax refund. Many of them are more than happy to see that “extra” money drop into their bank accounts. In fact, according to a recent TaxAct survey, 61 percent of tax filers said they’d rather receive a big refund than a larger paycheck throughout the year.
Unfortunately, many of those taxpayers don’t realize they could have that “extra” money throughout the year. That’s right — receiving a refund means overpaying the government in the form of a 12-month, interest-free loan.
“Receiving a refund check simply means you’re getting the money you already earned in the past year,” says Mark Jaeger, director of Tax Development for TaxAct. “It’s money you could have used to pay for things like car payments, student loans, groceries and medical bills — or even that island getaway you wanted to take last summer.”
Fortunately, there is something you can do about it. By making the necessary withholding adjustments to your Form W-4, you can have that money a lot sooner than tax season. Follow these three steps to take control of your finances and help give yourself a raise this year — not a refund next year.
1. Review your current withholdings.
To control your tax withholding and paycheck, you need to adjust the number of allowances (withholding exemptions) you claim on Form W-4. If you’re unfamiliar with Form W-4, it’s the tax document you complete each time you start a job to let your employer know how much money to withhold from your paycheck for federal taxes. To better understand how allowances work, think about it this way:
* To increase your paycheck, claim more allowances to withhold fewer taxes.
* To increase your refund, claim fewer allowances to withhold more taxes.
With one simple form you can make the necessary adjustments to give yourself a raise and put more money in your paycheck instead of waiting to receive it in the form of a tax refund. Take a moment to review your withholdings along with your current financial situation. Is it better for you to receive a larger refund or would additional money in each paycheck benefit you more?
2. Use tools to help calculate the appropriate withholding.
If you are unsure of what number of allowances is appropriate for your tax situation, a variety of tax tools can make calculating your withholdings easier. The Paycheck Plus calculator, for example, will use information like your income and tax deductions to help you determine how to make changes to your W-4 to receive a boost in your refund or more money in your paycheck.
By answering a few quick questions, you can easily adjust your withholdings to see how they impact your paycheck and your tax liability. The tool will also auto-populate your new Form W-4 if you choose to adjust your withholdings.
Using a tool like the Paycheck Plus calculator not only takes the stress out of estimating your withholdings on your own, it also lets you quickly see the potential impact on your finances before you make any official changes.
3. Assess recent life events.
As life changes, so do your taxes. Generally, you should consider adjusting your W-4 any time a major life event occurs, to ensure the right amount of tax is withheld from your paycheck. For example, did you start a new job this year or get a pay raise in your current position? A change in household income can impact your tax situation and require you to modify your allowances.
Did you recently tie the knot? Saying “I do” can affect your tax rate, especially if you and your spouse are both employed. Filing a joint return can lower your tax rate and qualify you for deductions you didn’t have as a single person. The same is true if the opposite occurs — divorce. Untying the knot will place you back in single status and take away many of the tax benefits available to those who are married.
A new baby is also a major life event that greatly influences your tax situation. This is true even if you adopt. Not only can you claim an additional allowance for your new dependent, you may also qualify for various credits, like the Child Care Tax Credit and the Child Tax Credit. Both of those decrease your tax liability. If your withholdings remain the same, you may receive a larger refund, but you will miss out on extra dollars in your paycheck to cover the costs of added expenses, like diapers and formula.
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