Sunday, January 10, 2021

Income tax for 2020 (2021 tax season)

IRS expects hectic tax season, local tax preparer gives tips to be ready 

Filing one's 2020 U.S. personal income tax return -- due April 15, 2021 for most-- will be different for many people than it was a year ago. As the article points out, there are the stimulus payments. They are not taxable, but they are reportable since they are a (refundable) tax credit.

Two other big differences will be:
1. Unemployment compensation. It is taxable.
2. Self-employment income vs. W-2 wage income. Those having self-employment income, e.g. doing odd jobs or contract work, will need to file Schedule C. This could be the first time for many people. There are differences between sole-proprietor and self-employed, but they matter little regarding income tax. Those people should be aware of the Qualified Business Income Deduction (QBID, IRS link).

With a cursory view,  the QBID appears to be a significant tax break. That may or may not be the case actually, depending on one's particular situation. I wrote about this in 2019: IRS pinches middle and lower income self-employed

To save money some filers might be seeking the cheapest way to file. This IRS File Free page offers two ways. Needing Schedule C and a high enough income on Schedule C might preclude using the first way. 

The second way, Free File Fillable Forms, for income above $72,000, is relatively difficult. It handles any Schedule C situation. It is almost like filing a paper return, except it is done online. You need to know what forms you need, and it won't coach or guide you. The first way does coach or guide. 

Like the first link above says, filing a paper return could delay a refund for several months. Contra the first link above, some people with income not shown on a W-2 should not file Feb. 1. They should make sure they have all documents, e.g. 1099-B, 1099-Div, 1099-Misc before filing. These typically become available later in February and maybe not until March.

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