A lot changed in 2020, and for many of us, it was a year to forget. However, there’s still one last thing that needs sweeping under the rug before we move on: our tax returns. Tax season begins February 21, and this year the process will be very different for anyone affected by the pandemic. We’ve all faced difficulties throughout the past year, and many of us have faced a big change of circumstance – whether it’s through becoming furloughed, unemployed, or having to dip into our retirement fund. All of these will have an impact on our tax returns. But we also need to consider what effect stimulus checks have, even if you haven’t received yours yet. It’s the same for businesses who have had the CARES Act and PPP to help out.
You don’t have to do your tax return alone, though. From hiring an accountant to using tax software, there’s an easier way to tackle this extraordinary tax season.
New Tax Considerations
The coronavirus pandemic made a huge dent in the economy, resulting in stimulus checks being given out to boost Americans’ spending power. There has been confusion for many as to what this actually means when it comes to your taxes. But thankfully, your stimulus check doesn’t count as taxable income – although if you never received yours you can claim for it in your upcoming tax return. This is still true if you don’t usually file taxes.
Sadly, the pandemic has had a big impact on many people’s livelihoods, which has resulted in 30,000,000 Americans claiming unemployment benefits for the first time. These benefits need to be included along with any other income in your tax return. Many people have also been furloughed and lost some of their income. Depending on how much of an impact it’s had, you could qualify for tax benefits if you’ve moved down a bracket. Loss of earnings has even meant some people have had to dip into their retirement savings to make ends meet. In this case, to avoid paying a penalty you must be able to prove you did so because you were directly impacted by the pandemic.
Since many of us have had to change the way we work, with more jobs being done from home, you may think you’re able to write off any additions to your home office. However, this is only possible if you’re self-employed, so you can’t claim back on your fancy new office chair otherwise.
Small Businesses Face New Challenges
Many small businesses have struggled over the past year, which is why the Paycheck Protection Program (PPP) was introduced as part of the CARES Act. These forgivable loans helped companies pay their employees, and have to be declared on your tax return. Indeed, this year’s tax returns will be difficult for small business owners, and tax returns depend on how exactly the PPP loan was spent – with at least 60% needing to be spent on payroll.
Tax Return Solutions
Tax returns aren’t easy even in the most normal of years, but this time it’s particularly difficult. Paying a tax professional is one option, and although it’s an easy solution, it can also be quite expensive. Fortunately, tax software has adapted to 2020’s challenges, so you’ll still be able to do them yourself. Tax software companies have been working hard to adjust to the new changes and offer extra guidance to their customers. For example, TurboTax has created a new portal on its website to help users through the new processes, and if that isn’t enough you can talk to one of its tax experts for advice.
Similarly, H&R Block offers a wealth of information to its users, no matter if you’re filing taxes for yourself or your small business. The site includes a handy stimulus check calculator to see exactly how much you’ll receive. And, since the software is so user-friendly, you’ll have no problem processing your tax return.