While the pandemic’s created heartaches and headaches galore for everyone, taxpayers may find themselves benefiting a bit when they go to file their 2020 returns.
That’s especially true if you live in the suburbs and normally work in Philadelphia, but instead spent most of the year working from home, said Caryn Nelson, a West Chester-based CPA. You will be able to claim a credit for those days at home from the 3.5% wage tax Philadelphia levies on nonresidents.
As always, numerous changes occurred to the tax code, especially for businesses.
“As far as regular changes, there aren’t many more than usual, but there are many related to COVID,” Nelson said.
“It’s no different this year than any other, except we’re working from home and setting our own hours,” agreed Michael Casey, a CPA with Savran Benson LLP in Bala Cynwyd.
Here are a few things to know, according to local CPAs. As always, check with your own accountant to see how the changes might impact you.
The standard deductions increased. For a single person, it increased $200 to $12,400 and grew $400 to $24,800 for a married couple filing jointly. Those who file as head of household now get $18,650, up $300. The income brackets increased as well.
Stimulus checks do not count as taxable income. However, if you didn’t receive payments or may have received the wrong amounts, you might be able to claim the difference for a refund.
The required age for taking minimum IRA distributions climbed to 72 from 70½. And those over 70½ who are still working can, for the first time, make a contribution to their IRA. There also were no required minimum IRA distributions for 2020.
The CARES Act allows withdrawals of up to $100,000 out of IRAs and 401(k) for those under 59½ without the usual 10% early withdrawal penalties if hardship can be demonstrated.
For those not itemizing, there is a new $300 deduction for charitable contributions. In addition, the normal limit of 60% of adjusted gross income on deductions is potentially suspended.
Payroll Protection Program loans are forgivable and tax free for the IRS.
There’s 100% deductibility for meal expenses, compared to only 50% in prior years, as a way to help restaurants.
The mileage deduction for self-employed people dropped from 58 cents per mile to 57½ cents.
If you’re self-employed there are new sick leave and family credits available to apply for if you couldn’t work because of COVID-19 or cared for someone ill from it.
The medical expense deduction, which was supposed to jump to 10% of a recipient’s adjusted gross income, remains at 7.5%.
As far as preparing to have your tax return done, the usual advice applies about not waiting until the last minute, especially with the IRS likely facing a backlog. Staying organized is more important than ever.
“They are significantly behind in everything they’re doing,” Nelson said, noting that extensions she filed by mail last July weren’t even opened until November.
The IRS recently announced that it won’t begin accepting and processing individual income tax returns until Feb. 12, The New York Times reported. Usually, it begins that process in late January. Do note that even though the filing deadline was pushed back three months in 2020, the filing deadline remains April 15.
Jeff Bookman, a Bala Cynwyd-based CPA, recommended keeping as many electronic records as possible.
“What I really tell people to do this year is absolutely, if you can, file your return electronically,” he said, as a means of having a receipt, receiving refunds faster and the chance to avoid penalties.
Bookman said there is still reluctance on the part of some taxpayers, who don’t want key information like Social Security numbers and bank account numbers submitted electronically, to go the paperless route, but he’s never experienced any problems with the method.
As far as 2021 goes, stay tuned; the accountants expect taxes to increase — just not to what extent.
“With the new administration, we won’t know what the landscape will be,” Casey said.