As we bid goodbye to 2020 and say hello to 2021, it’s also time to say hello to tax season.
This is one tax year that’s going to confuse a lot of people. You may have received help in the form of PUA unemployment insurance, PPP loans, or EIDL grants. About 13 million were on the PUA program alone.
Each of these programs has tax implications that you may not be aware of. How can you make sure that you’re ready for 2020 taxes?
Read on to find out exactly what you have to do to get your taxes right.
PUA Unemployment Insurance
Did you collect unemployment through the Pandemic Unemployment Assistance program or regular unemployment?
That income is taxable by the IRS. Some states tax your unemployment benefits, too. When you sign up for unemployment, you can elect to have about 10% withheld for federal taxes.
If you elected to have taxes withheld, it still may not be enough. You may end up owing money to the IRS and your state.
If you didn’t have taxes withheld at all, you will have to pay taxes on your unemployment income.
PPP Loans and Taxes
For small business owners and self-employed people, the PPP loan program provided a lifeline to get through a tough period of lockdowns.
PPP loans allowed businesses to have the loans forgiven if the loan was used for payroll, rent, utilities, and mortgage interest.
The catch is that after the program rolled out to millions, the IRS announced that businesses couldn’t deduct the expenses paid for by the loan.
The loan isn’t considered taxable income, so those expenses are considered double-dipping.
Fortunately, that issue was corrected by lawmakers. Businesses can now deduct those expenses paid for by the loan. However, it’s not clear if states will allow you to deduct the expenses or not.
Another program was the EIDL loan program. Businesses that applied for a loan under this program received a grant between $1,000 and $10,000, depending on the number of employees at the business.
Many rushed to sign up for this loan in the hopes of getting “free money” from the government. This money is taxable income, so there’s nothing really free about it.
Behind on Your Taxes?
Let’s say that your taxes caught you by surprise this year. What do you do if you owe a large tax bill? You do have options, but you have to be proactive.
You can go on an installment plan or file an offer in compromise. Check out this page if you need help figuring out the best option for you.
File Your 2020 Taxes With Confidence
The year 2020 has been a challenging one on many levels. Don’t let your 2020 taxes be challenging, too. You just have to know what to expect before you file your taxes.
It’s safe to assume that the IRS treats everything as income. That includes PUA, and “free money” from EIDL grants. You need to make sure you include these funds with your annual income.
Be sure to check out the Finance section of this site for more money tips.