COVID-19 has affected all of us in one way or another. There are some changes as to how we will be working the 2021 tax season here at Westbridge Accounting. The biggest change is that we will not be offering face-to-face appointments this year. Clients will have the option to meet virtually by Zoom or we can connect via text, email or phone.
The CARES ACT has also brought a myriad of tax code changes for individuals and small businesses. These include:
- Economic Impact Payments (aka Stimulus Payments) of up to $1200 per taxpayer and $500 per eligible dependent (with a second-round of $600 payments coming in January 2021). Taxpayers whose income in 2019 was too high to qualify for a full payment may be able to receive a tax credit if their income drops in 2020.
- Federal pandemic unemployment benefits added to state unemployment benefits. Heads up, they are both taxable!
- Penalty-free distributions from certain retirement accounts if under age 59-1/2 if the distribution meets the test for a qualified COVID-19 distribution. In addition, taxpayers have the option to report a qualified distribution as received equally over the 2021-2023 tax years. There is also an option to re-contribute the distribution back to the retirement account within 3 years and deduction the amount re-contributed.
- A $300 charitable contribution deduction to everyone regardless of whether or not they itemize deductions
- For the self-employed, a new tax credit for those unable to work due to contracting COVID-19 or having a family member affected by COVID-19. There is also an option to defer payment of some of your self-employment tax if you have a balance due.
- The Paycheck Protection Program (PPP) gave certain small businesses a tax-free, forgivable loan to cover payroll costs. In December, Congress gave small businesses a gift by allowing expenses paid with forgiven PPP loans to be deductible. However, for Massachusetts purposes, the forgiven loan amount for unincorporated businesses is considered taxable income (and the related expenses paid by the loan proceeds are deductible).
IRS Economic Impact Payment Center
COVID Retirement Plan Distribution Questionnaire
Medical and Family Leave Credits for the Self-Employed