3. Interest on Refunds is Taxable. Taxpayers who received a federal tax refund in 2020 may have been paid interest. Refund interest payments are taxable and must be reported on federal income tax returns. In January 2021, the IRS will send Form 1099-INT, Interest Income to anyone who received interest totaling $10 or more.
4. Charitable Deductions. In 2020, taxpayers who don't itemize deductions may take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations. Please note that this amount applies whether filing individual or joint returns. In 2021, this amount increases to $600 for joint filers ($300 for single filers).
5. Virtual Currency. If in 2020, you engaged in a transaction involving virtual currency, you will need to answer the question on page 1 of Form 1040 or 1040-SR. Any gains or losses on virtual currency are reportable as capital gains or losses on the 1040.
6. Form 1099-NEC. Individuals may receive Form 1099-NEC, Nonemployee Compensation, rather than Form 1099-MISC, Miscellaneous Income, if they performed certain services for and received payments from a business in 2020.
7. Pass-Through-Entity Tax, Individuals who may be involved in a pass through entity such as a S-Corp, LLC, etc. can now elect in the State of Maryland to pay the taxes on behalf of the entity instead of by the taxpayer. This can be a benefit to many taxpayers since the State and Local Tax (SALT) Tax can only be deducted up to $10,000 on your Schedule A on the 1040.
8. Maryland Disallowed Tax on Unemployment Insurance in 2020, Individuals who received unemployment insurance in 2020 and had taxes deducted on the Unemployment insurance can now be reimbursed the taxes paid. The State of Maryland has asked taxpayers to be patient as Maryland forms are now being updated to account for the recent change.
9. Employee Retention Credit Eligibility Rules Change, businesses that received Paycheck Protection Funding in 2020 originally were not allowed to apply for the Employee Retention Credits. That changes with the passing of The Taxpayer Certainty and Disaster Tax Relief Act of 2020. Employers can now apply, if applicable for up to $5,000 tax credits per employee in 2020 and $14,000 per employee in 2021 ($7,000 for the 1st and 2nd quarter of 2021.
10. Can I deduct home office expenses since now I am a remote employee? Sure, if you own and operate a business and use your home to conduct such activity. If you do not own a business, then you are not allowed to deduct home office expenses on your 1040 in 2020. This deduction was no longer applicable with the removal of the 2% miscellaneous deduction on the Schedule A of your 1040 with the passage of the Tax Job and Cut Act.
Don't hesitate to contact the office with any questions or concerns about these and other tax changes related to the pandemic.
Jerry E. Housand, Jr., CPA, CCIFP
Mullen, Sondberg, Wimbish & Stone, PA