Will You Have a Tax Surprise?
It’s almost time to file your 2020 tax return. With the pandemic, there may have been changes to your income or situation that may cause unexpected changes to your income tax bill if you’re not prepared. To avoid that big tax shock, get prepared. Below are some things that may have an effect on your tax bill.
- Unemployment income is taxable. For those that received unemployment benefits in 2020, these benefits are considered taxable income by the IRS. Some people may have known their benefits were taxable and have had the employment office take out taxes before they received their benefits. Those that didn’t withhold taxes, may need to write a check to the IRS upon filing their return.
- Side jobs-extra income. Did you lose your job or have your hours cut due to the pandemic and have to pick up a part-time job to get by? If there were no taxes withheld, you will owe taxes on this income.
- Profit and/or loss. If your business took a big hit due to the pandemic and you paid estimated taxes, it’s possible that you may have overpaid or underpaid these taxes. This would be a good time to run a projection of your estimated taxes so that you can avoid that big surprise of an unexpected tax bill when you file your tax return.
- Penalty for underpayment. If your estimated tax payments weren’t enough you may be subject to underpayment penalties or you if you didn’t have the correct amount withheld from your paycheck, you may owe tax. You can remedy this issue by making higher amounts of estimated tax or adjusting the amount of withholdings from your paycheck in 2021.
- Good news-You can claim missing stimulus payments. Did you receive a stimulus payment? If any portion of your stimulus payment amounts were less than you were supposed to receive, you can receive the difference on your 2020 tax return as a tax credit.
Looking out for the above examples may help prepare you for any potential tax surprises this tax season.
At Summit CPA, we offer multiple resources to assist you with your tax and financial planning needs. If you have questions, contact our office at 866-497-9761 to schedule an appointment with our advisors.