6 Commonly Asked Tax Questions

The May 17th / June 15th deadlines to file your taxes are quickly approaching. After a whirlwind year of changes on global and personal levels, chances are you have some new tax-related questions in 2021. 

Did you receive unemployment or stimulus last year? Did you set up a new home office? Will your tax refund be delayed ?

Continue reading to find answers to your new, 2021 tax-related questions.

1. I moved to a different state during the pandemic. What now?

If you moved states and remained employed during the pandemic, you could be on the hook to pay income tax in more than one state. If you officially switched your residency to the state you relocated to, you might be able to avoid extra tax implications.

When you file taxes, your residency status is marked as resident (full year), part-year resident, or non-resident. To qualify as a part-year resident, meaning you resided in 2 different states during the tax year, you must have a new driver’s license or voter registration for the state you moved to. Some states have their own policies regarding income taxes which could affect you.

13 states will allow you to file taxes as usual and not make you adjust your withholdings to show that you were working remotely in their state because of COVID-19. Alabama, Georgia, Illinois, Indiana, Massachusetts, Maryland, Minnesota, Mississippi, Nebraska, New Jersey, Pennsylvania, Rhode Island, and South Carolina are the 13 states making this allowance.

Nine states do not tax income tax from personal income: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Reciprocity states only ask that you pay taxes in the state where you legally reside instead of both your state of residence and your state of employment.

2. I got stimulus and/or unemployment during the pandemic. What do I owe taxes on?

Federal stimulus payments will not be taxed. They were given to qualifying individuals to lessen the negative financial effects of the pandemic and don’t need to be reported when you file.

Unemployment, on the other hand, will be federally taxed and could be taxed on the state level, depending on where you live. This portion of your income is to be reported on Form 1099-G.

3. Are any of my new home office supplies deductible?

As a result of the Tax Cuts and Jobs Act of 2017, W-2 employees cannot deduct unreimbursed employee business expenses. However, if you are an independent contractor or self-employed, you can deduct qualified home office expenses, including furniture used in a home office set-up.

4. Do I claim my PPP or EIDL on my small business’s tax return?

Due to the economic impacts of the pandemic, two kinds of loans—PPP and EIDL—were available to businesses to provide financial relief. Neither type of loan will be counted as taxable income. For IRS updates on COVID-19 relief for small businesses, check out the IRS website.

5. I started day trading in 2020. Are there tax implications?

If you incurred losses, you are not required to pay capital gains tax, and you can even deduct $3,000 (filing jointly) or $1,500 (filing single) of the amount lost per year until the loss amount has been exhausted.

Alternatively, if you incurred capital gains they will be taxed in one of two ways. If it is a short-term asset, meaning it was owned for a year or less, capital gains will be taxed at the normal income tax rate which is currently 24%. If the asset is long term, held for longer than a year, capital gains will be taxed at the lower long-term capital gains rate. This could be either 15% or 20% depending on your total taxable income for the year.

Regardless of whether you incurred gains or losses, if you receive a Form 1099-B or a Consolidated 1099-B, you must file the Schedule D (Form 1040) and Form 8949.

6. I know the IRS is busy—will my refund be delayed?

While there should not be any delays in refunds this year the IRS has its hands full with stimulus checks and tax change updates – not to mention the extreme backup in processing paper received over the last year while IRS staff worked remotely. 

If you file electronically and set up direct deposit, it should not take more than the typical time the return is accepted. Alternatively, paper checks could take up to six weeks (or more) to arrive from the time you file.

You probably have more 2021 specific tax questions that you need answered, and fast. Insogna CPA has the expertise needed to navigate the current tax season! Contact us today for help preparing your taxes for 2020.

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