From unemployment to stimulus checks to changes for small businesses, doing your 2020 taxes could seem like a taxing task, but it doesn't have to be. KATC's Abby Breidenbach reached out on Facebook live this week to see what you want to know ahead of the tax season for 2020.
Ben Baudoin, Certified Public Accountant and Partner at Darnall, Sikes & Frederick CPAs in Lafayette, was able to answer your most pressing questions.
For those taxpayers who are accustomed to getting a W2 but in 2020 received 1099 due to contract labor, what kind of recommendations can you make?
First, Baudoin says this is a situation where hiring a professional will get you the most deductions possible.
"A few deductions that are out there for a 1099 employee, is the business use of home deduction. If you're a 1099 contract laborer, you can take that deduction. You can deduct things like your cell phone. You can deduct any travel you might have had because the IRS can auto allow it per mile," says Baudoin. "You can deduct your computer that was used for business. That’s a cost that you had to take on for your business. Generally, I would say any cost that you incurred for your business that you would not ordinarily use for your typical day to day life - office supplies, pens, paper, any expenses you had to take on because of your job, those are deductible."
I received a stimulus payment. Do I owe taxes on that?
"Those checks are credits. They are advanced credits for the 2020 tax year, so those are not taxable transactions. You do not have to pay them back," says Baudoin.
My 2020 income qualifies for a stimulus check but I didn't get one because I made too much in 2018 or 2019. Now what?
"If you did not receive your 2020 stimulus check because your 2018 or 2019 income was too high but your 2020 income does qualify, you will be able to capture that credit in 2020 so when you file your tax returns in the 2020 tax year you will get that credit or you will square up if you were owed more money," says Baudoin.
He made another point. If you qualified in 2018 or 2019, so you received a stimulus check even though you made too much in 2020, you will not have to pay it back. There is one instance in which a person would have to pay the amount back.
"If you have a deceased taxpayer that was part of your filing your return in 2018 or 2019 and you received the stimulus because of them, then you're going to have to pay that amount back."
Any advice for those who received unemployment benefits for the first time?
Unemployment benefits are taxable. Baudoin says those are subject to federal and state income taxes.
"The IRS will issue you a tax form and that form will show how much money they received through the year," says Baudoin. "It will draw out the year to date money they've received and it will be mailed to whatever address they have on file."
The good news is that he says this is simple, and online tax filing services are advanced enough that, even after receiving unemployment benefits, you can file on your own for free without major complications.
I've been working from home all year using my personal wifi, utilities and more for work purposes. Is any of this deductible?
"Due to the prior tax cuts in 2018 you can no longer take unreimbursed business expenses. Unreimbursed business expenses are expenses that you took on as a W2 employee that your employer didn't pay for, and business use of home is one of those expenses," explains Baudoin. "So to answer your question, if you're a W2 employee and you're working from home, there is no deduction you can take on your 2020 tax return."
Is there a new way I can deduct my charitable contributions this year?
"The IRS is now allowing a 300 dollar above the line charitable contribution deduction. It's 300 dollars for single taxpayers, 600 for married filers," explains Baudoin. "Traditionally itemized deduction taxpayers are the only ones that can take charitable contribution deductions and the majority of taxpayers out there do not reach the deductions to itemize. So this allows taxpayers who are charitable and who are giving to local communities and nonprofits to deduct up to 600 dollars if you're married and filing joint, on their tax return as an above the line transaction."
What kind of deductions can small businesses expect that are different from previous years?
"A lot of small businesses received PPP loans. It just came out that those funds that you use, you can deduct all those expenses and it becomes a nontaxable transaction, you don't have to pick that up as income so that's going to help out a lot of these small businesses. Now a lot of these businesses potentially got the main street grant rolled out by the Louisiana treasury department for 15000 dollars. Those funds are taxable. People also received the EIDL advanced loan. That money is taxable as well."
Unfortunately, Baudoin says, for 2020, there aren't many deductions that small businesses can take advantage of. The good thing is that going forward for 2021 and 2022, business meals that are deducted from restaurants are 100 percent deductible. It used to be just 50 percent. This is to help business owners and drive business to restaurants as well.
Some other helpful information for small business owners is that if a large loss was incurred in 2020, the IRS allows for a 5 year net operating loss (NOL) carryback. "This is where small business owners can carry back their losses, if they had any in 2020, five years to recapture any tax dollars that they previously paid in those years to offset what they lost this year," says Baudoin.
For business owners, it would be most helpful to hire a CPA to ensure you're taking advantage of everything that is available this year.