Tax season is right around the corner, which means it’s about time to start thinking about 2020 income tax preparation. In fact, your accountant might say it’s past time to start thinking about tax prep. Hopefully, you’ve kept good records, made quarterly estimated tax payments if needed, and stayed on top of the health of your business this year.
We’re assuming you also put your stimulus check to good use.
As tax time nears, many individuals and businesses feel a little uncomfortable about the effect the stimulus payment may have on their federal income tax returns for 2020. The good news is that there’s not much to worry about.
Stimulus Payments and 2020 Taxes
Here’s a quick rundown of what you need to know about your stimulus check as it relates to your 2020 income taxes. If you have questions about your particular situation, we recommend calling a professional accountant or CPA for help.
- When the IRS calculated stimulus payment amounts, it used 2019 adjusted gross income (AGI) – or 2018 if 2019 wasn’t available – to determine the amount of your stimulus payment. You should have received this money earlier this year by check or direct deposit.
- The IRS will be sending Notice 1444 out to all eligible stimulus check recipients. This form shows the amount of funding for which you’re available. Watch for this notice in the mail; you’ll need it when you prepare your income taxes for 2020.
- If the amount of stimulus money you received matches the amount shown on Notice 1444, no action is needed, and no taxes are due on the money.
- If you received more than the amount shown on Notice 1444, don’t sweat. You don’t have to pay back the excess. This is a rare example of the IRS ruling in favor of the taxpayer. No further action is needed.
What About Shortfalls?
If your stimulus payment was less than the amount shown on Notice 1444, you are actually eligible for more stimulus money. Rather than sending you another check, however, the IRS requires that this shortfall be reflected as a recovery rebate credit on your 2020 federal income tax return. Include Notice 1444 with your other tax records.
Likewise, if you are eligible for a stimulus check but have not claimed or received it yet, all is not lost. You can claim your stimulus payment by filing a 2020 federal income tax return. As in the above scenario, your rebate will take the form of a recovery rebate credit.
A Note for W2 Employees
Company employees who have been working from home this year may also receive additional relief from their employers. Small businesses can pay their employees an Emergency Pandemic Relief payment designed to help defray some of the expenses incurred in setting up a home office for work conducted on behalf of the company. This relief payment is not taxable for the employee, but businesses can deduct these payments on their 2020 taxes.
The Emergency Pandemic Relief payment applies only to W2 employees; contractors and freelance workers are not eligible. Speak with your employer or HR department to determine whether your employer is participating in this program.
Adams Accounting Solutions Is Your One-Stop Shop for Stimulus Payment Questions
Income tax preparation can be complicated, and this has been an unusual year for many. Adams Accounting Solutions will help you get your tax paperwork in order so that you get your taxes filed on time in 2021. Give us a call at 913-888-9100 for more information or to schedule an appointment.
