Your Guide to 2020 Taxes
Hey Friends! So 2020 has been, well….. 2020, especially for finances! We just had a big bunch of tax changes back in 2018, and from a professional sense we think of the 2020 stuff as just some “tweaks.” With most people having been thrust into a new financial position, however, you may find yourself encountering areas of the tax law you’ve never had to deal with before so we’re recapping some of the most common things we’re talking to our clients about to avoid surprises in 2020!
Unemployment – Believe it or not, unemployment benefits ARE TAXABLE! In most other years’ unemployment doesn’t add up to much over the course of a tax year, but with the extra 600 on top of the regular benefits, the amount you received for unemployment could have a real impact on your tax situation for 2020. If you haven’t had tax withheld (and even if you have) it might be worth chatting with your tax pro to see if you’ll be surprised by a big tax bill this year!
Freelance income - If you’ve been picking up some freelance work while looking for a new full-time gig or are newly self-employed keep in mind that you need to set aside money to pay the taxes on that earnings! Our usual recommendation is to hang on to a third before expenses in most cases. If it’s going to be a material part of your income for 2020, you should also chat with a tax pro about estimated taxes!
Lower Business Expenses – If you’ve been freelancing since 2019 BC (before COVID) or earlier, you’ve probably deducted some expenses off your business income. Even if your earnings have taken a hit in 2020, keep in mind that you’ve probably also cut back on expenses and your net income (and your tax liability) may not have dropped as far as you might think! Get organized and calculate your expenses early so you’re not surprised when you’re light on write offs come tax time!
Self-Employment Tax Deferral – One piece of the CARES act that was particularly interesting was the ability of self-employed taxpayers to defer 50% of their self-employment tax from 2020 to their 2021 and 2022 tax years. In general we’re a fan of deferring taxes, but keep in mind the tax is still owed in those future years, even if you’re not still freelancing at that time so it could represent a “surprise” in the future if you don’t plan for it.
Charity – Many of you probably got a shock when you found out on your 2018 and 2019 taxes that with the new higher standard deduction those donations you made didn’t have any tax impact! Well for 2020 there’s a new deduction for up to $300 of cash contributions to charity in addition to the standard deduction. Save those “thank you” emails this year!
Tax Home – If you skipped town once COVID hit and are working remotely from another state, you could owe taxes in that state for 2020! Some employers were slow to update their payroll systems to withhold in other states for their employees who moved, but others were right on the ball. Check with your employer and let them know where you’re residing if you’ve left town to make sure you’re having the correct state taxes withheld! If you’re self-employed, keep track of where your income was earned as you’ll likely need to break out that income for multiple states!
While these are the biggest issues we’re talking to our individual and freelance clients about there’s never a shortage of special individual circumstances so please, consult your own tax pro before taking any action. Also feel free to follow along on IG for more memes and tax tips!
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