The ongoing coronavirus pandemic has caused a lot of disruption in people’s lives. Some have lost jobs, others have started side jobs, and coronavirus relief has changed the tax laws for everyone. With this in mind, we wanted to share some possible surprises that might be waiting for you on your 2020 tax return. Take a look at the list below so that you’ll be prepared if one of them affects your own situation.
- Taxes on unemployment income. If you received unemployment benefits in 2020, you’ll need to report them on your tax return as taxable income. Check to see if either federal or state taxes were withheld from any unemployment payments you received. If taxes were not withheld, you may owe taxes when you file your tax return.
- Taxes from side jobs. Thousands of Americans have taken up side jobs during the pandemic, just to make ends meet. If you were one of them, keep in mind that payments received for performing these jobs may not have had taxes withheld. If this is the case, you’ll need to pay your taxes directly to the IRS on April 15.
- Unusual profit-and-loss. If you run a business that was affected by the pandemic, you may find that your estimated tax payments were either overpaid or underpaid compared to normal. Now that 2020 is in the books, run a quick projection to make sure you aren’t surprised by an unexpected tax bill when you file your tax return.
- Underpayment penalty. If you did not withhold taxes from your paycheck, or if your estimated tax payments weren’t enough, you could be subject to an underpayment penalty. While it’s too late to avoid a penalty on your 2020 tax return, you can take action now to avoid this problem in the future. Either plan to make high enough estimated tax payments each quarter in 2021 or have the appropriate amount withheld from your 2021 paychecks so that you aren’t hit with the same penalty next year.
- Claim missing stimulus payments. Finally, some good news for once! If any of your stimulus payments were for less than what you should have received, you can get money for the difference as a tax credit when you file your 2020 tax return.
If you have any questions about whether you might be affected by any of these items, please contact our office so that we can review your situation.