*Editor’s Note: CC Biz Buzz is a monthly column series that runs in the Columbia Daily Tribune that features insightful commentary from a member of the Columbia College Robert W. Plaster School of Business faculty.
By Tom Stauder
Here are two important dates for the upcoming tax season: April 15, 2021, is the deadline for filing your 2020 return. However, if you are expecting a refund, the more important question is, “When’s the soonest I can file?” The IRS will begin accepting and processing returns on February 12.
Of course, it’s never too soon to start gathering the information you need, whether you prepare your own return or hire a professional. Just over half of all taxpayers use a paid preparer—53% according to IRS statistics for 2018, the most recent year available. Let’s look at a few items you’ll need to consider:
Stimulus checks: These are not considered taxable income and thus do not need to be reported on your tax return. However, your tax preparer or your tax software will be asking you how much you received. The reason for this is that some people may be due additional stimulus monies and can now claim them on their 2020 return. Here are a few examples.
- If your 2019 income was over $75,000 (single person) or $150,000 (married), then you didn’t get a full stimulus check. But if your 2020 income has dropped below those amounts, then you may now be eligible for the $1,200 per person and $500 per child from the first round and $600 per person from the second round.
- If you were 17 or older and claimed as a dependent on your parent’s 2019 return, neither you nor your parents received a stimulus check on your behalf. If in 2020 you are no longer a dependent, you can file a return to claim a stimulus check of $1,200 from the first round and another $600 from the second.
- If you had a baby in 2020, they were not included in your stimulus check. Yet you are eligible for the $500 from the first round and $600 from the second.
- If you didn’t receive a stimulus check because you moved or changed banks, you can claim it on your return.
- If you did get a stimulus check, but your 2020 income makes you ineligible, don’t worry; you don’t have to give it back.
Documents: On the income side, a W-2 from your employer shows your wages. Banks and other investment companies send out 1099s in various flavors: 1099-INT if you have interest income, 1099-DIV for dividend income, 1099-B for stock trades, a 1099-R for retirement income, or a 1099-SA for money you spend out of your Health Savings Account, not to be confused with an SSA-1099 for social security payments. A new form this year is the 1099-NEC, which stands for nonemployee compensation. You may get one of these if you are self-employed, or if someone paid you more than $600 for services rendered. Of course, there is also the 1099-MISC for various other amounts you might have received. Regarding stimulus checks, you may have received a Notice 1444.
Deductions: I’ll give you a list of things that are deductible, then point out that seven out of eight taxpayers end up not deducting them. First the list:
- Medical and dental expenses (including insurance premiums)
- State income taxes
- Property taxes on your home and your car (and your yacht, if applicable)
- Mortgage interest on your home
- Gifts to charity (cash or property)
There are more, but these are the main ones, known collectively as itemized deductions. You can faithfully keep track of all of the above for the year, but if the total is less than $12,400 (if you are single) or $24,800 if you are married, then you likely will take the Standard Deduction instead of itemizing your actual deductions. As noted above, the vast majority of taxpayers – 87% as of 2018 IRS statistics – do not itemize.
However (there is always another “however” in tax law), a big change for 2020 is that everyone can deduct up to $300 in charitable contributions whether they itemize or not. Alas, only cash, not property donations qualify.
Last year the IRS processed just over 154 million individual tax returns. About 73% of them showed a refund. Here’s hoping you will be in that group for 2020.
Tom Stauder, CPA is an accounting professor at Columbia College.