The year 2020 has been strange for a lot of reasons. And now it’s time to file your tax return with all the changes due to new laws in 2020. Here are some of the things that have changed.
Schedule SE: Self-Employment Taxes Can Be Deferred
Schedule SE has been revised in 2020 to allow for the deferral of some self-employment taxes. Self-employment taxes due from March 27 to Dec. 31, 2020 are able to be deferred with half of the deferred amount due Dec. 31, 2021, and the rest on Dec. 31, 2022.
Even if you take the deferral, you can still take the above-the-line deduction for 50% of the total self-employment tax.
What You Need to Report for Stimulus Payments
Let me be clear on this: Stimulus payment are not taxable.
They are considered an advance of a special 2020 tax credit on your Form 1040, called the recovery rebate credit.
Stimulus payments are not taxable. They reduce the amount of refund or credit, simply because it’s money you already received.
If you didn’t receive one or both of the stimulus payments, you don’t have to reduce the recovery rebate credit by the amount you should have received.
In other words, if you didn’t get the econ stim payment aka recovery rebate credit yet, you’ll get it now when you file your return.
If you didn’t get the payment and don’t normally have to file your return due to your income threshold, you will need to file in 2020.
Unemployment Insurance and Form 1099-G
Unemployment insurance (UI) is taxable. You should receive a Form 1099-G from your state that shows the amount you were paid. If you didn’t, contact your state unemployment office.
The IRS has put out a warning that identity theft scammers used stolen personal information to file fraudulent claims for unemployment compensation. The benefits were then paid to the scammers.
But state governments then issued the 1099-Gs reporting UI to the innocent victims. They had their identity stolen, didn’t receive any money and now have a Form 1099-G that says they have to report income and pay tax on it.
The IRS cannot help you with the incorrect 1099-G. You will need to call the state agency that issued it, explain the circumstances and ask the agency to send a corrected form.
Foreign Accounts and Crypto Reporting
At this point, a foreign account that holds crypto still might not be counted as a foreign investment account. However, if you have any other type of overseas account and are a US taxpayer, you may need to report it. All US taxpayers (individual and business alike) with foreign accounts whose total value exceeded $10,000 at any time in 2020 are required to electronically file FinCEN Form 114 by 4/15.
The FinCen Form 114 is not filed with the IRS. It is instead filed electronically at FinCen.gov.
New IRS Red Flag
The IRS is paying attention to retirement plans for self-employed people. The primary issue is for sole proprietors who file a 5500-series form and attach Schedule C to their 1040 return. The deduction should be taken on Schedule 1 for the Form 1040 and not directly on Schedule C. The primary difference between the two will be the amount of self-employment tax.
Additionally, the IRS is checking to make sure that the taxpayer actually had earned income on which to calculate the contribution to a pension plan. You cannot use income from rent, capital gains, interest or other non-earned income sources to calculate your earned income.
The best plan for 2020 is to file an extension unless you are absolutely sure of all of the changes and how they will impact your tax return.
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