This past year has been filled with numerous setbacks and complications. COVID-19 and its effects have negatively impacted almost everyone. How will the economic adversities of this year affect your tax filing? This article discusses how to file taxes during COVID-19 and how the process will look different this year.
When to File Your 2020 Taxes
The good news is that the IRS extended the individual federal income tax filing and payment deadline from April 15, 2021, to May 17, 2021. Colorado also extended its deadline for individuals to file and pay their taxes to May 17, 2021. This extension only applies to individual taxpayers for their 2020 income taxes. If you are owed refunds, the IRS suggests that you file your taxes electronically and as soon as possible, as this will ensure you quickly receive your refunds and any residual stimulus payments.
If you need additional time to file your taxes, you can fill out and submit the IRS’s Form 4868 to extend your deadline to October 15, 2021. In Colorado, you do not need to inform the Colorado Department of Revenue (DOR) or fill out any forms to receive the additional time; if you need extra time to file past May 17th, you are automatically granted a filing extension until October 15, 2021. However, this extension to file, both through the IRS and Colorado, does not grant an extension to pay taxes due. The IRS and the Colorado DOR still require individual taxpayers to pay their income taxes that are due by May 17, 2021; otherwise, you may be subject to interest and penalties.
How to File If You Received a Stimulus Check
First and foremost, your stimulus check is usually not taxable. Your stimulus check does not need to be added to your gross income, nor do you need to pay taxes on the stimulus payment. The first and second stimulus checks were considered advance payments of the Recovery Rebate Credit (RRC), so if you already received the entire payment, do not worry about including your stimulus checks on your 2020 tax return. Please confirm with your tax professional, however, as local laws may differ.
How to File If You Received Unemployment
The type of program you received your unemployment benefits through will affect the treatment of those benefits for tax purposes.
On a federal level, if you filed for unemployment in 2020, you will receive the IRS form 1099-G, which lists any unemployment benefits you received and any federal tax income withheld. The recently passed American Rescue Plan (ARP) affords some taxpayers a tax break for unemployment benefits (usually up to about $10,200 per person). However, in Colorado, the income tax statutes do not retroactively incorporate changes made in federal statutes. This means the recently passed ARP will not affect your Colorado 2020 state income tax returns, and the above tax breaks under the ARP do not apply to your taxes. Essentially, your state unemployment compensation in Colorado is taxable.
- Documents from a government agency concerning unemployment claims or payments, and you did not file for unemployment benefits.
- Form 1099-G showing unemployment benefits you did not anticipate. Often, the form will be from a state where you did not file for benefits.
- Notice from your employer stating that they received a request for information about an unemployment claim in your name while you are still employed.
In Colorado, if you received a 1099-G form but did not file for unemployment, follows these easy steps:
- Report it to the Department of Labor and Employment using this form.
- Contact all three consumer credit bureaus to put a fraud alert on your name and Social Security number.
- Keep all the documents and information related to the fraud in a file or folder.
How to File If You Worked From Home
The bad news is that most people cannot claim home office deductions, even though many Americans had to relocate their workspace to their homes this past year. As a virtual firm, we feel this pain every year. For example, if you are an employee of a business you do not own, you cannot claim the home office deduction. The requirements to deduct expenses for working at home are:
- there is exclusive and regular use of a portion of the home for the business
- the home is the principal place of the business
Many people working from home will not meet this requirement, as their home is not their employer’s principal place of business. If you do meet the above requirements, be sure to check out IRS Publication 587 for a full description of your home office deductions.
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