March 10, 2021 · Investment, Retirement, Savings, Taxes
Originally posted March 10, 2021. Updated on March 18, 2021 with the new tax filing deadline.
Spring is fast approaching, and it usually brings warmer weather, blooming plants and trees…and the annual federal income tax filing deadline, which has been extended this year to May 17, 2021. While May 17 is the deadline, the Internal Revenue Service (IRS) announced that this year’s tax season started on Friday, February 12, 2021, which was when the tax agency began accepting and processing 2020 tax year returns. Because of the COVID-19 pandemic, there are a few new tax features to consider as you think through your income tax preparation this spring.
Whether you’re an early tax filer, or usually get your taxes done right at the deadline, there are a few things to do—and to know about—as you prepare your 2020 taxes:
First, collect, sort and organize your income tax-related financial records. Collect your income, checking, savings, and investment account records for 2020, along with any receipts, so you have a complete view of your total income and expenses for last year. You may need to go online to your financial services providers to download some of the documents. Sort and organize your documents into helpful categories such as salary income, investment income, expenses, and deductions—just use whatever system you think is easiest. Delta Community has now made its members’ 2020 tax documents available.
Use the most current tax forms from the Internal Revenue Service. As of January 2021, the IRS has incorporated recent tax law changes into its IRS Form 1040 and Form 1040-SR, which are the most common income tax forms used by taxpayers. The IRS has also shared these updates with companies providing tax software to individuals and to tax professionals to help them prepare and file returns for their clients. These forms address the new recovery rebate tax credit, which is explained below.
Although many people were working from home in 2020, just working at home does not mean that home expenses are a tax deduction for last year. If you use part of your home for business, you may be able to deduct expenses for the business use of your home. The home office deduction is available for homeowners and renters, and applies to different types of homes, but there are very specific criteria for who can make this deduction.
The IRS has two basic requirements for your home to qualify as a deduction:
The first requirement is regular and exclusive use. You must regularly use some part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room.
The second requirement is using your home as your principal place of your business. You must be able to factually document and demonstrate that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction.
For the government’s details on tax deductions for your home office, please look up IRS publication 587, Business Use of Your Home.
In the spring of 2020, U.S. government leaders passed legislation to send economic impact payments (through direct deposit to an account or by a paper check in the U.S. mail) to many Americans to help them pay expenses during the COVID-19 pandemic. In following weeks, eligible taxpayers who filed tax returns for either 2019 or 2018 automatically received an economic impact payment of up to $1,200 for individuals or $2,400 for married couples. Parents received an additional $500 payment for each qualifying child. If you received a stimulus payment last year, keep in mind that—
Because the 2020 stimulus (also known as an Economic Impact Payment) money is coming from the government, it is not considered taxable income and will not be subject to income taxes.
If your 2019 income was too high to allow you to qualify for a stimulus payment, but your 2020 income fell below the limit, you may still receive the benefit when you file your 2020 federal income tax return. The updated tax return forms will offer an option to claim this newest stimulus payment as a refundable recovery rebate tax credit. The federal recovery rebate credit is authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the COVID-related Tax Relief Act. It is a tax credit against your 2020 income tax. Depending on your circumstances, this credit can increase the amount of your tax refund or decrease the amount of 2020 taxes you owe.
As always, when preparing your taxes, be careful to thoroughly review every entry and don’t leave any information out, research your options for valid deductions, and meet the April 15 deadline. If you think that you won’t be able to hit that filing deadline, then you may apply to the IRS for an extension of time to file, but you need to file your extension request no later than the regular due date of your return.
Before you file, you should take a minute to double check and confirm that your savings, checking, or money market account information that you provided to the IRS is accurate. This will ensure that your tax refund or future stimulus payments will be deposited correctly and quickly. If you are unsure about your account numbers, we’ve provided detailed instructions for using the right account information for deposits on our Direct Deposit page.