INDIANAPOLIS – Tax experts say there’s going to be a lot more due diligence this year.
“I was reaching out to clients at the end of 2020, encouraging them to do some tax pre-planning,” said enrolled agent Sherry Borshoff.
If you worked from home, can you claim your internet bill on your taxes this year? What if you lost your job during the pandemic? What steps do you need to take?
According to the Internal Revenue Service, this is one of the most important tax seasons. To answer your questions, we went directly to the experts to find out why COVID-19 is changing how we navigate this year’s filing season.
We may be in uncertain times, but tax season is certainly here.
“It was an interesting year,” said Josh Cox, a local taxpayer.
Cox typically files on his own, but the complexity of the pandemic is forcing him to look at other options. Just before COVID-19 hit Indiana, Cox left his job. It took months after filing for unemployment to receive his payments, like many other Hoosiers during the pandemic, and now he’s a student working from home. He believes filing on his own this year may be tough.
“Two concerns: One being that making sure I am being thorough enough to get everything; do I need to pay taxes on unemployment? Do I need to pay taxes on student loans? What’s my tax situation for the six weeks I was working a job?” explained Cox. “You want to make sure you’re not only paying the government what you owe them, but you’re getting what you are owed.”
Sherry Borshoff of Borshoff Consulting LLC can’t say if you’ll get a larger refund due to COVID-19, but there are tax credits and deductions to be aware of.
“In this industry, things change,” explained Borshoff, “and sometimes things change, they’re one way this day and they’re another way the next. I can’t say as to whether most people will get a larger refund. Obviously, if you’ve got the stimulus check and you don’t have to pay any of that back – so that’s already a win.”
Thousands of Hoosiers lost their job in 2020 and had to file for unemployment. Those payments you received are considered taxable income.
“In Indiana, the Department of Workforce Development will send you a 1099 for what they paid you,” said Borshoff.
The 1099G form should already be filled out by the state when you get it in the mail. You can also click here for additional information from the Indiana Department of Workforce Development, where online you can find your form. You need the information on the form to complete your state and federal tax returns. It contains details about the benefit payments you received and any tax withheld.
Tax experts say take note of the number in box one of the 1099G form. That’s the total compensation you received, and you will need to report it.
COVID-19 has also forced many people to take money from a 401K or IRA retirement account to make ends meet.
“There’s a provision with being able to withdraw money from your retirement accounts,” said Borshoff. “I can’t imagine there’s anybody that doesn’t qualify for this honestly.”
Borshoff explained that the IRS is waiving the 10% early withdrawal penalty, and they’re giving you three years to pay it back into your retirement account. She said that if funds are not repaid to your retirement account by date of filing the 2020 return, the taxpayer has two options. You could include 1/3 of the distribution in taxable income, with no 10% penalty in tax years 2020, 2021 and 2022, and you could include 100% of the distribution in taxable income in tax year 2020.
If the taxpayer repays the distribution before filing the 2020 tax return, you do not include any of the distribution in taxable income in the 2020 tax year. Borshoff said that if the taxpayer elects to include all of the distribution after filing the 2020 tax return, but before August 16 of 2023, the taxpayer will amend the 2020, 2021, 2022 tax return to remove the income and claims refunds of tax paid.
What if you had to work from home? Can you include your internet bill and other home office supplies in your taxes this year?
Tax experts say only some people will be able to claim their expenses because the deduction can only be used by businesses or the self-employed.
What about educators? Borshoff said if you kept track of the additional safety products like disinfectants and face masks you had to purchase, there could be additional provisions to help you out this year. Borshoff suggests taking your spreadsheet of payments you made to a tax professional to help determine how it could benefit you.
“Because traditionally, teachers get a $250 credit because they pay a lot of their school supplies stuff for their students,” explained Borshoff.
As for transforming your home into a classroom, Borshoff said it would be wise to ask your tax professional to see if you’d be able to deduct costs pertaining to at-home learning. In Indiana, there is a $1,000 deduction for each child who attends a private or parochial school and who is homeschooled. Borshoff said that tax experts are waiting on clear guidance from the IRS to see if the pandemic will allow families to be included in that deduction.
What if 2020 was good to you and you donated to help those struggling?
“They put a provision in where you can get up to $300 for charitable, cash contributions,” explained Borshoff. “So, if you gave $300 or more to say like your church, you at least get a $300 credit on your tax return this year.”
Borshoff predicts that small business owners are probably going to see more loss this year than gain. Many Hoosier businesses were given money this year through Paycheck Protection Program loans to help during the COVID-19 pandemic. Congress passed in December of 2020 that a forgiven PPP loan is tax-exempt and is not taxable income. Expenses paid with the PPP loan are deductible.
Once you’re ready to file, where do you start?
“If they’re going to file, file early” suggested Luis Garcia, an IRS Spokesperson.
The IRS provided some tips for taxpayers to make filing easier this year. Garcia added that these recommendations could also speed up refunds. The IRS anticipates nine out of 10 taxpayers will receive their refund within 21 days of when they file electronically with direct deposit.
- File electronically and use direct deposit.
- Check IRS.gov for the latest tax information, including the latest on stimulus payments.
- For those who may be eligible for stimulus payments, they should carefully review the guidelines for the Recovery Rebate Credit.
- Anyone who received the maximum amount does not need to include any information about their payments when they file. However, those who didn’t receive a payment or only received a partial payment may be eligible to claim the Recovery Rebate Credit when they file their tax return.
“70% of Hoosiers make less than $72,000 a year, and because of that, they can do their taxes for free with the IRS Free File program,” said Garcia.
That free service is available right now by clicking here. At a time where money is tight, it’s important to know how to the most out of your taxes.
“It sounds corny, but it’s the God-honest truth. We’re here to work with you. We really are here to help you,” said Garcia.
Click here to visit the IRS’s most frequently asked questions for help.
Here are key tax filing season dates provided by the IRS:
- Feb. 12 – IRS begins 2021 tax season.
- Feb. 22 – Projected date for the IRS.gov Where’s My Refund tool being updated for those claiming EITC and ACTC, also referred to as PATH Act returns.
- First week of March – Tax refunds begin reaching those claiming EITC and ACTC (PATH Act returns) for those who file electronically with direct deposit and there are no issues with their tax returns.
- April 15 – Deadline for filing 2020 tax returns.
- Oct. 15 – Deadline to file for those requesting an extension on their 2020 tax returns.
“We’re still in the professional community waiting to find out if they’re going to extend tax season, like they did last year,” Borshoff added. “We called it the never-ending tax season last year.”