For most people in the United States, the first half of 2020 has been like nothing they have ever seen before. Health issues as a result of the Coronavirus have resulted in businesses closing or reducing the number of employees that they need. This has led to high unemployment and the stock market going to its lowest point since 2008. As the financial recovery begins to show promise you may be wondering where your personal finances stand in this new world. If you are asking "Will COVID-19 affect my 2020 taxes?" you are not alone. It is important to be proactive when it comes to your taxes and talking to your financial advisor can help you take the right steps to avoid a nasty surprise when you go to file your taxes.
Changes to your income
Chances are, your income won't be the same in 2020 as it was in 2019 or previous years. Changes in income will affect the taxes that you owe. You may have received incentives to work additional hours or to work at all at the height of the pandemic. You may be one of the millions of people who are collecting unemployment as you wait for your job to come back or to feel safe enough to begin looking for a new job. While federal taxes will be standard across the board, state tax issues are individual to each state. Some of the things that can affect your income
- Unemployment compensation from both state and federal government
- Working from home expenses you are entitled to
- Less tax-deferred income
- Child care expenses lowered
When you are self-employed, you make your own tax deposits and usually, they are due quarterly with the first payment due by April 15. The IRS extended that due date to July 15, 2020. The taxes for the second quarter, April 1-June 30, have not been extended and they were also due on July 15. This is just for federal tax and social security—state tax extensions differ from state to state and your tax professional can help make sure you are in compliance.
CARES Act deduction change
If you take the standard deduction, you have not been able to claim your charitable contributions. As a part of the CARES Act for 2020, you will be able to claim up to $300 in charitable deductions. This is currently only for one year and you must choose a charity on the IRS list of eligible organizations. To see if your favorite charities are on the list go to the IRS website to search eligible charities.
Your retirement account
The CARES Act has made some changes to how you can use your retirement account. Several different changes will make it easier for you to access your retirement money during this time of COVID-19 if you are under 59 1/2. In order to reap the benefits of these special circumstances, you must have been negatively impacted by the Coronavirus. The IRS website outlines the details of who is eligible.
- Withdrawals don't incur the usual 10% penalty
- Tax liability can be stretched over 3 years
- Repayment is allowed within three years and any taxes paid will be refunded
For those over 72, no distribution from retirement accounts is required in 2020.
When you ask "Will COVID-19 affect my 2020 taxes" having a tax professional you can trust is important. Many new changes have been implemented for this year. At Chandler & Knowles CPA we keep up to date on all the latest tax laws. You have questions, we have answers. Contact us today to set up an appointment to discuss your taxes.