No matter how old we are, each of us believed that once the clock hit midnight and 2020 turned into 2021, Covid-19 would disappear from our minds like a bad dream. But, unfortunately, it has not happened; instead a new Covid-19 strain is spreading all over the world. However, we should not lose our hope, since medicine is changing all the time and new types of vaccines are appearing day in and day out. Meanwhile, we should learn to live with the virus side by side, just keeping all the required safety standards. Let’s try to understand what impact Coronavirus will have on your taxes in 2021. We previously talked about COVID-19 in this blog.
Nearly $2 trillion relief packages were sent to hundreds of Americans in order to relieve the impact of the virus on their lives. We are rushing to bring good news, since stimulus checks are not considered as taxable income; instead, it will be counted as a refundable tax credit for 2020.
Paycheck Protection Program Loans are aimed to help small business owners struggle against the financial crisis caused by the Coronavirus, by providing them with Paycheck Protection Program loans. Keep in mind that you can implement these loans for covering several expenses, such as payroll, rent or utilities. And all the costs covered by PPP loans are not eligible for deductions from taxable income.
About Unemployment Benefits
Another damage that Covid-19 has brought to our lives is unemployment. Millions of people around the world have lost their jobs due to job cuts. Therefore, lots of people are rushing to get unemployment insurance in order to get out of this difficult situation. However, those who have been provided with unemployment benefits have to pay income tax, otherwise, they will have to pay quarterly estimated taxes. You can read more about these regulations on the IRS website.
The 529 Plan
Another benefit that you can get from the government during the Covid-19 pandemic, is creating an Educational Savings Account. Keep in mind that this sum can solely be used for qualified educational expenses; otherwise, you have to pay taxes for it. That’s because there are lots of schools and universities which operate remotely during the pandemic, they have to refund some of 529 or ESA costs. Keep in mind that this money can solely be used for covering your educational costs; in that case, if you spend it for covering other costs, you will have to pay income tax and penalties. However, there are several useful tips, which will help you avoid of any penalties and income taxes; so, if you have spent your educational saving account and do not want to overpay taxes, give us a call and we will help you solve this issue.
Covid-19 has brought several changes to the 2020 retirement plan as well, which may have a huge impact on your 2021 tax bill. Thus, those who are under age 59 can take up to $100,000 from their retirement account. However, you should be ready to pay taxes for any withdrawals made on your part. If you face such kind of problems, don’t panic, since you are provided with a time-frame of three years to put this money back into your account.
In most cases taxes are very simple; however, there are some sophisticated cases when you have to cooperate with tax professionals. So, if you face any tax issues and are looking for a professional tax expert, contact Prestige Auditors’ team and we will not only help you file your taxes in the proper way, but also find all the possible tax deductions that you are eligible for.