Tax season has officially arrived, and thanks to the pandemic, this one is shaping up to be like none before it. Typically, the filing period starts in late January. This year, however, the IRS announced it was delaying the start of the 2021 tax filing season to Feb. 12, 2021 due to needing additional time to prepare after the COVID relief bill passed Congress in late December 2020. According to the IRS, pushing the date allowed for “time to do additional programming and testing of IRS systems following the December 27 tax law changes that provided a second round of Economic Impact Payments and other benefits.” In spite of the delay, the tax filing deadline is still April 15.
Given the shortened window of time to file, it is especially important that taxpayers get organized and note some of the unique factors coming into play this year. Below are some common questions many are struggling with this tax season.
Q. Are business expenses paid for with Paycheck Protection Program (PPP) funds deductible?
A. Yes. On Jan. 6, 2021, the IRS issued new guidance that reversed earlier guidance, stating that PPP-related expenses are deductible. This guidance was the result of legislative change included in the budget bill passed in late December of last year.
Q. Do I have to pay taxes on stimulus checks?
A. No. The IRS does not consider stimulus checks to be income, but rather prepaid tax credits.
Q. Are unemployment benefits taxable?
A. Yes. Unemployment income is taxable, and taxes are owed if the recipient did not elect to have taxes withheld.
Q. Can I take the home office deduction if I worked remotely in 2020?
A. Generally, you are only eligible for the home office deduction if you are self-employed.
Q. What if I worked remotely out of state in 2020? Do I have to pay state taxes twice?
A. If you worked remotely out of state for more than 183 days, you will likely have to pay taxes in both the state in which you worked remotely and the state in which your job was originally based. There are exceptions, however, including if you worked remotely in a state that does not have state taxes, or if the state has a reciprocal agreement with your home state.
Q. I worked remotely in Ohio in 2020. Can I get a refund on my local income taxes?
A. Maybe. There are currently three lawsuits challenging the state’s law regarding remote-work rules for municipal income taxes. You can request a refund from the Regional Income Tax Agency (RITA), but the agency is making no promises that you will get it. KJK is closely monitoring the pending legislation and will provide updates.
To speed up refunds, the IRS is encouraging taxpayers to file electronically and use direct deposit. Additionally, while tax scams are always a concern this time of year, taxpayers should be aware that there is heightened risk due to the pandemic.
If you have questions or would like to discuss further, contact Kevin O’Connor at kto@kjk.com or 216. 736.7213, or reach out to any of our Tax professionals.
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