As tax season gets into full swing after the roller coaster year that was 2020, tax experts say this year will be unlike any other when it comes to filing taxes.
The first big change comes as the IRS has moved the initial filing date to Feb. 12, whereas returns usually would already have started being accepted in January.
“People who are really anxious to get their tax returns done can’t do anything because we can’t do anything until then,” said Julie Sturgeon, a certified public accountant. “So there should be floodgates of a lot of activity going on starting on Feb. 12.”
This change has essentially caused tax preparers to lose a third of tax season, added Karol Johnson, an enrolled agent and partner at All Valley Tax.
As can be expected, the pandemic has been at the forefront of many tax changes this year for a few reasons.
Anyone who got a stimulus check in 2020 will have to report it on their taxes, but that money is not taxable income — so it won’t affect your return, according to Johnson.
Instead, Johnson explained that anyone who was underpaid in their stimulus could get the difference sent to them as part of their tax return.
“There’s some really positive things,” she said. “Let’s say you had a baby last year. We can get the extra stimulus payments on this year’s tax return.”
With Congress in talks for a third stimulus payment, those who have had their income increase the past year, or have yet to receive their second stimulus payment, may want to wait to file this year, as it can affect their payment, Johnson added.
Paycheck Protection Program loans
For business owners who received PPP loans in most states, Congress clarified language in the most recent relief bill to make PPP expenses, like rent and payroll, completely tax-deductible.
Currently, California doesn’t allow these deductions, but Assembly Bill 281 was introduced in the Legislature to conform California law with federal law, Sturgeon said.
“What I’m hearing is that if businesses have received a PPP loan, and it’s forgiven, their best bet is to go on extension and to wait and see what happens with the state, rather than filing and then having to go back and amend return,” she added. “That makes it a little bit more complicated and probably doesn’t sit very well with a lot of business clients, because they want to get their tax returns done.”
While stimulus money may not be taxable, unemployment benefits certainly are.
Many who didn’t withhold any money from those payments for tax purposes are in for a shock when that money comes due this tax season, added Deborah Ramirez, a KPMG accountant.
“Even if you had taxes withheld, you’re probably still going to owe money because there was no way to withhold taxes out of that federal freebie, the extra $600 they were giving earlier in the year, and then the $300 they’re giving now,” Johnson said.
This year, as changes are continuing to take effect, it is more important than ever to be prepared, Ramirez said.
“Regardless of if you’ll be doing those taxes in person or virtually, these changes mean that we’re going to need more time to gather the necessary documents with less time in the tax season,” she added.
Johnson and Sturgeon agreed, with Sturgeon adding, “I would recommend people gather their documents, anything that they do have, start getting that all together just to get it all organized and be ready to go when things open to start moving along.”
For more information from the IRS on tax changes in 2021, visit irs.gov/newsroom/get-ready-for-taxes-whats-new-and-what-to-consider-when-filing-in-2021.