We have not faced a tax season after a pandemic in our lifetimes. As with everything related to 2020, there are many unknowns. Preparing in advance for your taxes is wise on any year, but even more so considering the pandemic year we have faced. Although Fricke & Associates, LLC. is new to pandemic taxes too, we want to come alongside you and support you with our financial experience and insights. By considering these tax issues early, you can hopefully avoid significant stress during the early part of 2021.
· Double Check on Whether You Need to File—Your unemployment benefits, stimulus check, or other relief through the CARES Act alone may require you to file.
· Understand Teleworking Tax Differences—The typical teleworker is required to pay taxes on their income earned where they reside and in the state where they work. Since COVID-19 has forced many employees to work from home, there has been a sudden influx of teleworkers who may have to pay in multiple jurisdictions. If you are teleworking in different states, make sure to request that your employer withholds taxes for each one. Even if you only work for one hour in another state, you may have to pay taxes there. Avoid surprises by making sure that your taxes are being withheld properly. Some states offer reciprocity with other states so you could receive a credit for income taxes paid out of state. If you are unsure, reach out to Fricke & Associates, LLC. We will help you get your taxes squared away.
· Prepare for Payroll Taxes—Payroll tax deferral offered relief during some of the most trying months of the pandemic. Unless Congress decides to forgive the deferred taxes, the payroll taxes will be due by the next tax season. Employees can expect their employers to have to start making up for the deferred taxes in early 2021. If possible, start setting aside money to pay back your deferred taxes. Also, you can request that your employer not defer the payroll taxes and continue to pull them out, so you are not hit with a financial nightmare at the start of 2021.
· Know Your Deductions—Even though bedrooms, living rooms, and even kitchen tables became makeshift offices, if you are a W-2 employee, you cannot claim a deduction for a home office even if you were forced to work at home based upon COVID-19. That deduction was designed for independent contractors and self-employed individuals. There are specific regulations related to home office expenses. Although many people may try to file for this deduction in error, the hassle is not worth it, and it could lead to an audit.
· Return 529 Funds—College students have been significantly impacted by COVID-19 as many campuses have moved to fully online classes and no residential housing allowed. If you or your college student had taken out money from your 529 plan for housing or food costs, repay these funds. The plan will not allow you to hold onto the money until the next semester or school year. You only have 60 days to return the funds before you start paying fees on top of the principal amount.
· Consult with The Experts—In this unprecedented time, asking for help from professionals is prudent. We can help you navigate this confusing and complicated tax year.
If you are ready to schedule a consultation, reach out to Fricke & Associates, LLC. 2020 has been a crazy year so let us help you make 2021 a little easier.