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Those who've collected unemployment may want to start planning for tax season

Posted at 12:14 PM, Dec 10, 2020
and last updated 2021-01-08 12:14:34-05

The millions of people who were unemployed this year may want to start planning now for tax season. Unemployment income is taxable.

If you didn't already choose to have those taxes taken out, a CPA tells us there are other options.

You could get ahead of it and make an estimated tax payment for the fourth quarter.

The drop in income may also mean you're eligible for other deductions and credits, like the earned income tax credit or the child and dependent care credit.

“That's an income-based one that's based on a sliding scale, depending on how much you make. So, if you made less money, you could see more of that,” said Lisa Greene-Lewis, CPA and tax expert at TurboTax.

Questions on stimulus payments will also be part of your tax return. That money is not taxable.

If you got too much, you do not have to pay it back. But if you didn't get the amount that you're eligible for, you can get it as a recovery tax rebate.

While working from home, some people stayed in other states. That could potentially put you on the hook for two state tax returns, depending on how long you stayed there.

Because of the 2017 tax law, deductions for working from home will mostly only apply to those who are self-employed.

Self-employed workers could also be eligible for new credits. You can claim them when you file or estimate those credits and keep them in your pocket now.

“If you were sick or you took care of someone that was sick or took care of a family member, there's a qualified sick and family leave credit, and they can be worth thousands of dollars,” said Greene-Lewis.

The IRS hasn't said when the tax filing season will open, but it's usually in early January.

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NEW TAX LAW

If you’re wondering how you’re affected, not to worry, we have your back. We’re doing the work to make sure our products are up to date and that you can use them to file your taxes with complete confidence.

That said, many folks are wondering what’s in the bill and how it might affect them. Here’s a recap of some of the major tax provisions in the new tax bill and how they may impact you.

Increased Standard Deduction: The new tax law nearly doubles the standard deduction amount. Single taxpayers will see their standard deductions jump from $6,350 for 2017 taxes to $12,000 for 2018 taxes (the ones you file in 2019). Married couples filing jointly see an increase from $12,700 to $24,000. These increases mean that fewer people will have to itemize. Today, roughly 30% of taxpayers itemize. Under the new law, this percentage is expected to decrease.

Increased Child Tax Credit: For, families with children the Child Tax Credit is doubled from $1,000 per child to $2,000. In addition, the amount that is refundable grows from $1,100 to $1,400. The bill also adds a new, non-refundable credit of $500 for dependents other than children. Finally, it raises the income threshold at which these benefits phase out from $110,000 for a married couple to $400,000.

Personal and Dependent Exemptions: The bill eliminates the personal and dependent exemptions which were $4,050 for 2017 and increased to $4,150 in 2018. State and local taxes/Home mortgages: The bill limits the amount of state and local property, income, and sales taxes that can be deducted to $10,000. In the past, these taxes have generally been fully tax deductible. The bill also caps the amount of mortgage indebtedness on new home purchases on which interest can be deducted at $750,000 down from $1,000,000 in current law.

Health Care: The bill eliminates the tax penalty for not having health insurance after December 31, 2018. It also temporarily lowers the floor above which out-of-pocket medical expenses can be deducted from the current law floor of 10% to 7.5% for 2017 and 2018. So for 2018, you can deduct medical expenses that are more than 7.5% of your adjusted gross income as opposed to the higher 10%.

Fastax Has You Covered

Don’t worry about memorizing these tax changes the majority of which are for 2018 taxes that you file in 2019. Fastax has you covered and will be up to date with the latest tax laws. Call us for tax help at 661 493-8512