Tuesday, September 21, 2021

10 Things You Need to Know Before Filing Your 2020 Tax Return

On the brink of deal with your federal earnings taxes for 2020? Due largely to the coronavirus pandemic, your return may very well be completely different — and maybe a bit trickier — this 12 months than in years previous. Listed here are 10 issues taxpayers ought to perceive earlier than filling out a 1040.

1. Deadlines are deadlines

Loss of life and taxes stands out as the two certainties in life, however not less than you realize when the taxman will come knocking. Federal earnings tax returns are due April 15 this 12 months, the standard submitting deadline. Congress prolonged the deadline to July 15 final 12 months due to the disruptions brought on by COVID-19.

The Inner Income Service (IRS) set Feb. 12 as the beginning date for processing 2020 returns, which is later than regular. It was Jan. 27 final 12 months. The IRS says it wanted the additional time to reprogram methods as a result of tax legislation modifications on Dec. 27 that licensed a second spherical of stimulus funds.

Are you a procrastinator? Any taxpayer can get an computerized submitting extension to Oct. 15 by submitting Type 4868, “Software for Automated Extension of Time to File U.S. Particular person Earnings Tax Return.”  Nonetheless, you continue to should pay the quantity of tax owed by April 15 or face curiosity and penalties. Troopers in fight zones and other people residing in catastrophe areas usually get an extension on each submitting and paying federal earnings taxes.

2. Penalties are penalties

One other certainty: Should you’re required to file a federal tax return however do not, you may pay. Should you file after April 15 with out having requested for an extension, you may should pay a late submitting price, which is 5 p.c of the taxes you owe for every month, or a part of a month, {that a} tax return is late. That penalty begins accruing the day after the tax submitting due date and may construct as much as a most of 25 p.c of your unpaid taxes.

The IRS additionally levies a late fee penalty, which is 0.5 p.c of your unpaid taxes every month. (That is 6 p.c yearly.) Should you blow the submitting deadline and the fee deadline, nevertheless, the utmost month-to-month penalty is 5 p.c of your unpaid taxes. In contrast to the late submitting penalty, the late fee price retains accruing till you pay your taxes.

You may pay your taxes by bank card if you do not have the cash you owe available. However be warned that you will be charged a processing price. You too can ask the IRS for a fee plan through this on-line software.

3. There’s nonetheless an opportunity to assert lacking stimulus checks

Should you did not get a stimulus verify final 12 months — or if you happen to did not get as a lot as you have been entitled to — you may declare the lacking stimulus cash in your 2020 tax return within the type of a tax credit score known as the Restoration Rebate Credit score. (The stimulus funds have been, technically, an advance on this tax credit score.) A tax credit score reduces your taxes, greenback for greenback — and on this case, it cannot solely cut back your taxes to zero however produce a refund.

This is an instance: A household of 4 who met the eligibility necessities was entitled to a complete of $5,800 within the two rounds of stimulus checks. If the household had overpaid their taxes by $200, they usually would have anticipated a $200 refund. But when the household by no means obtained the stimulus funds owed to them, they might get better the cash with their 2020 tax return for a $6,000 refund — the $200 in overpaid taxes plus the $5,800 value of lacking stimulus funds.

Use the Restoration Rebate Credit score Worksheet that comes together with your federal tax return to determine how a lot of a credit score, if any, you are eligible for. The 21-line worksheet seems to be intimidating, however it’s well worth the effort if you happen to’re lacking cash. No itemization is required. The quantity from the worksheet goes on line 30 of your 1040 type.

4. And people stimulus checks aren’t taxable

Based on the IRS, stimulus funds usually are not thought-about earnings and no tax is owed on the cash. Stimulus funds are additionally not thought-about earnings for functions of figuring out eligibility for federal advantages or help packages.

5. However your unemployment checks are taxable

Unemployment advantages have been a lifeline for a lot of who misplaced their jobs final 12 months through the pandemic. Sadly, these jobless advantages are taxable.

Whenever you signed up for unemployment advantages, you had the choice to have taxes withheld. Whether or not you probably did or not, you may obtain a Type 1099-G, “Sure Authorities Funds,” which is able to present the quantity of unemployment advantages you obtained in 2020 and the way a lot, if something, was withheld for taxes. Any severance pay you obtained final 12 months can also be taxable.

Relying in your earnings and the variety of dependents you could have, chances are you’ll be eligible for the Earned Earnings Tax Credit score (EITC), which may cut back your taxes owed, greenback for greenback, by as a lot as $6,660. Just like the Restoration Rebate Credit score, the EITC is a refundable credit score, which signifies that you may get the complete quantity of the credit score you are eligible for, even if you happen to had no earnings and even when it leads to a refund.

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