I don’t know if you have realized, but the news over the last year or so has largely not been of the good variety. This certainly can get to a point where we need to take a break and tune out, paying little attention to the world and more attention to ourselves. This is only a good and necessary step to take when necessary. We should also be sure to plug back in at some point, though, for staying on top of news and not becoming numb to it can lead to unexpected benefits.
For example, I think a lot of people were much more attentive to the government’s first stimulus package than the second. That first one felt big and great – direct stimulus payments, PPP loans, EIDL loans, WE CAN DO THIS! The second one also seemed big and great, but once we found out how much we would personally receive in that direct stimulus payment, we largely shut down and ignored the rest. For individuals, that was probably good enough. For businesses, you may be leaving money on the table.
A big part of that missed opportunity comes in the form of the Employee Retention Credit (ERC). That term may sound familiar because it was part of the original CARES Act that everyone paid more attention to. It was quickly forgotten by many, though, for the original rules said that a company could only qualify for either a PPP loan or the ERC. The PPP loan was a better option for most, so they dove into that realm and found great success, receiving a loan that if used correctly would not have to be repaid.
When the second stimulus package was passed at the end of 2020, though, it allowed for businesses that received a PPP loan to also qualify for the ERC. This is not a small matter, either, for it could be worth up to $5,000 for each full-time employee retained from March 13, 2020 to the end of the year and up to $14,000 for each retained employee through the first six months of this year.
Now there are a lot of twists and turns as to how to qualify for this credit and this space does not allow for me to cover them all. (Here is a link to a Forbes article and to one on Investopedia if you want to delve deeper.) To hit a couple highlights, though:
This means that a lot of businesses qualify. It also means that some numbers need to be run to determine that eligibility and then how to maximize the benefit when it comes to what wages to apply to PPP forgiveness and what wages can then be used to receive the ERC. If you want to start looking at those numbers, though, please contact us for further guidance.
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Now that the second impeachment trial of Donald Trump has ended, attention is shifting as Congress, news outlets, and all of us regular laypeople look toward how the government will handle the next rumored/promised economic stimulus package.
This talk comes at an interesting time as the IRS began tax season last Friday and the biggest headline-grabber of all the stimulus packages has been the direct stimulus checks distributed by the agency. That is a lot for one group to handle at once, so knowing its plans and what to expect could become important. But be forewarned that all of this is a bit a tentative and composed of “best guesses” since nothing has actually been passed.
If you want a good roadmap through the potential mess, follow this link to a longer article on it. For the bare-bones bit here, though, the first takeaway is that with Congress aiming to have the stimulus package passed in the middle of next month, many will benefit by filing their 2020 taxes early.
First, this will make sure that your latest information (address, bank account information, etc.) is on file with the IRS, thus avoiding some potential issues if it does not have those bits correct. Second, the eligibility for payments likely will be determined by the latest tax return information the IRS has on file. For the many people who made less in 2020 than they did in 2019, that means they could receive more money quicker (though anyone who would have been eligible for more will get a chance to rectify that on their following year’s tax return).
Of course, there are people who made more last year than they did in 2019, even if this is overall a smaller group. If you find yourself in this situation, you may want to think about waiting to file, because indications are that if you receive more of a stimulus payment than you would have been eligible for under your 2020 income, this money will not need to be paid back.
I want to end with a little public service announcement that will hopefully serve both you and I, though. Even if you find yourself in a position where it will be advantageous for you to wait on filing your taxes – no matter the reason – this does not mean that you need to wait to prepare a return. Getting your information together and entering numbers into a return can be done without submitting it to the IRS. That initial work can be done with a delayed filing and then you will have the weight of knowing it has to get done removed from your shoulders. Pausing a final step could lead to some benefits, procrastination will not.
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Last week, I wrote about how this tax season will have some differences, because that’s just how 2020 treated us. I tried to keep it concise and hit the highlights, but then I kept coming up with more things that might have been worth saying. So consider this week a continuation of those ideas.
Traveling 2020 was difficult for many, and this led to a higher number of people than usual taking money out of a retirement account to get through the trying times. There were many rules implemented to help make this less painful. A big piece of this is that the additional 10% tax one usually faces when pulling money early out of a such an account will not apply. There is also additional leeway given concerning repaying this money and how it is taxed. This is not the place to get that deep into it, but if you are in this situation and have some questions, the IRS has put together an FAQ page here.
Another deduction that some should think about is out-of-pocket expenses for educators. This will include unreimbursed expenses for items meant to stop the spread of COVID-19 in classrooms. This includes things that range from face masks, disinfectant, and hand soap to physical barriers, markers to guide social distancing, and air purifiers. If it is something you had to bring into the classroom due to the unique nature of this school year, it could qualify.
Finally, I want to spend a little time talking about the timing of this tax season. The open of the season was delayed and the IRS will not start accepting returns until Friday, February 12. This is primarily due to the need for the agency to incorporate updates necessary when Congress passed a relief bill late in December. Currently, there has been no action taken to push back the conclusion of tax season, though, as happened last year.
Even so, however, there is a push for another relief ball that could make its way through Congress by the end of tax season, even if it remains on April 15. Could there be anything in that bill that could affect one’s tax picture from the 2020 calendar year? Well, it is possible. Does that mean one should wait to file, though?
I think the answer there could depend on one’s situation. Of course, many are looking forward to a refund and filing their tax return early and getting that money as soon as possible will ease their situation. If you find yourself in that spot, then push forward quickly, get that refund, and we can later deal with any changes that could have helped your situation.
If you are not in that situation, though, I would still counsel not procrastinating too long in getting a start on your tax return. We have been hit by enough surprises due to this pandemic and it is probably naïve to think that we have seen the last of them. So get things moving, get your information gathered and submitted to your tax preparer, and get your return started even if you do not want to immediately file. Then you will be in a situation where you are best prepared for any surprises that may still come.
And as always, please do not hesitate to come to us with any questions as you navigate this season.
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It is almost time to file taxes for the year of 2020 and of course there are some things that are different about that year, so I wanted to take the time to put them together here.
One of the biggest things that is going to be necessary for some to know is that unemployment compensation is taxable. Lockdowns put many out of work for the first time and this compensation helped many of those people get through that period. A number of them, however, will not have realized that taxes were not coming out of that money, so consider this a warning if you are in that situation - you may have a significant amount of income still to pay taxes on.
Also, if you are someone who turned to the gig economy for the first time to cover 2020’s unexpected bumps in the road, that is more money that most likely was not already taxed. Many in this situation are served well by making quarterly payments to the IRS. It is obviously now too late to do that for 2020, but it could then be a good idea to get your taxes done early (even if you put off filing immediately) to find out exactly how much you will owe and igure out how to get it together.
New situations in 2020 were not all bad, though (and how many times was that ever said about that year of years?). Many may have been using a home office during those times and that opens you up to a deduction you may have been unaware of. Granted, this is not a deduction that you qualify for if you currently work from home but exclusively receive a regular paycheck and/or W-2. If you are self-employed or doing any sort of gig work from home, though, this is something you should investigate.
No matter whether you itemize deductions or not, everyone qualifies for up to a $300 deduction for charitable contributions. That $300 is the cap for those not itemizing deductions, not a limit that had to be reached. If you gave less than that, still gather that information together. For even if it is not a giant deduction, it is still something. And shouldn’t the year give us something?
Finally, if you received an economic stimulus payment in 2020, this information needs to be on your tax return. This money is not taxed itself but there is essentially a check to see that you received what you should have. Paperwork was sent to those who received these payments, but that started many months ago now, and we understand that many either did not save this or now don’t remember where they placed it. You can still track what you received, though, through the IRS’s get my payment page. Be forewarned, this is not necessarily an easy and smooth progress that happens on one page (and if you are married filing a joint return, you and your spouse both need to do this), but this is another point where if you get it done now, you avoid a time crunch and aggravation.
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