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Simply Money

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8 important reminders as tax season begins

What follows are 8 personal and business-related tax reminders, of which, I’m betting, at least one or two will apply to nearly every reader.

1. Unemployment benefits are taxable

Most people don’t realize this, but unemployment benefits are generally subject to federal taxes (and roughly 45 states tax them, as well). Those taxpayers who didn’t request withholding might owe more for 2020 than they originally expected.

2. Forgiven debt on principle residences can be excluded

This applies to mortgage debt discharged prior to January 1st, 2021.

When your home mortgage debt principle is forgiven by your lender (via, say, a short sale or a loan modification), in the past, the forgiven amount was taxed. The Further Consolidated Appropriations Act (which was extended through 2020) allows some taxpayers to exclude the cancelled debt amount from their income.

3.The carryback for net operating losses for businesses is extended

If you’re a business owner, this could benefit you.

A loss carryback is when a business suffers a net operating loss (NOL) one year, say, in 2020, and then chooses to apply that loss to a previous year’s tax return to receive a refund by amending the already completed return. It’s confusing, but via the CARES Act, some businesses will eventually be able to use up to a five-year carryback for new operating losses (NOLs) suffered in 2020, or beyond. (Conversely, a “carry forward” applies a tax loss, say, this year, to be applied to future taxes owed.)

Please note that carryback and carry forward guidelines are constantly changing, and that the percentages and time limits vary from state to state, so if you’re a business owner, speak to your tax professional to see if you qualify.

4. A new round of PPP loans is available for business owners

The Paycheck Protection Program (PPP) was the $953 billion business loan program implemented last year as part of the CARES Act. The program had a rough start, with too much of the money going to wealthy businesses and even universities with massive endowments. But eventually, most business owners who wanted money (and who qualified) were able to receive some.

A second round ($284 billion) of PPP money is now available for businesses, with $60 million earmarked exclusively for entities that didn’t get any during the first go round. 

5. Required Minimum Distributions from retirement accounts are once again… required

As I’ve previously written, as a reminder, the CARES Act waived Required Minimum Distribution (RMD) requirements for 2020, but that provision was not extended into 2021.

6. Earned Income Tax Credit flexibility

Here's a potentially nice, flexible option, that will apply to some taxpayers: If you qualify for either a Child Tax Credit or an Earned Income Tax Credit, you can actually choose between your 2019 or your 2020 return, depending on which year financially benefits you the most.    

7. If you borrowed money from your retirement account...

The CARES Act allowed people with retirement accounts to pull money out for COVID-19 related issues (the application of the rules was quite broad). While you have three years to pay that money back into your account, IF you don’t intend to repay it within those three years, you should pay one-third of the tax owed when you file your 2020 return.

8. Don't itemize? You can still claim some charitable deductions

It’s widely assumed that 2017’s Tax Cuts and Jobs Act, which raised the standard deduction, made it less likely that you’ll be itemizing charitable donations now or in the future (though some people “pool” their deductions and benefit by itemizing during certain years). But for those of you who aren’t itemizing for the 2020 tax year, you can still take a $300 above-the-line deduction for your 2020 charitable contributions.

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