As you prepare your 2020 returns for the April 15 tax filing deadline, you're likely reflecting on how changes in your lifestyle amid the pandemic play a role in what you file with the IRS.
If you moved out of your apartment to work from home at your parents' place in a different state, which state income tax do you pay?
And can you deduct that new ergonomic office chair from your taxes since you bought it to work remotely?
What about the stimulus check you received — is that considered taxable income?
Confused taxpayers, don't fret. You certainly aren't alone. In fact, popular expert-on-demand site JustAnswer anticipates getting over 100,000 tax-related questions between January to April 15. To help guide you through your tax filing process this year, JustAnswer provided CNBC Select with the top five tax questions (plus one we had) that people are asking this year.
Ahead, we speak to tax specialist Angela Anderson, a certified public accountant and certified financial planner, who provides some answers.
1. What if I moved to another state during the pandemic?
You might have to pay income tax in multiple states if you had a change in scenery during the pandemic. But not always — this question really boils down to whether or not you became (or intended to become) a resident in the state you relocated to (by changing your driver's license, mailing address, car registration, etc.).
There are three different residency statutes for tax purposes: resident (full year), part-year resident and non-resident. For more information on these residency statuses, go here.
Generally, when a taxpayer resides in two states during the tax year, no matter how long, the taxpayer is referred to as a part-year resident for tax purposes, Anderson explains.
Being a resident, or even a part-time resident, usually requires having ties in the state, like a driver's license or voter registration. Renting out an Airbnb in Denver for a couple months while working remotely wouldn't qualify you to be considered a resident of the state of Colorado.
There are a few exceptions:
- These 13 states have said taxpayers don't have to adjust their withholdings to show that they are working remotely in-state due to Covid: Alabama, Georgia, Illinois, Indiana, Massachusetts, Maryland, Minnesota, Mississippi, Nebraska, New Jersey, Pennsylvania, Rhode Island and South Carolina.
- Nine states do not impose income tax on personal income: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.
- Some states are called reciprocity states, meaning you only have to pay taxes to your state of residence and not both the state you work in and your residential state. Learn more about the states with reciprocal agreements between neighboring states here.
2. Can I deduct my home office expenses? What about the new desk and chair I bought?
If you are a W-2 employee (as opposed to an independent contractor), the answer is no. This is a result of the 2017 Tax Cuts and Jobs Act (TCJA) that made unreimbursed employee business expenses for employees ineligible to be deducted.
If a person is self-employed, however, they can still deduct qualified home office-related expenses and any furniture purchased for business use, Anderson explains.
3. Do I owe taxes on my government stimulus payment? What about my unemployment checks?
You do not owe taxes on any stimulus checks received in 2020. However, unemployment compensation is, believe it or not, considered taxable income at the federal level and in most states.
"Stimulus payments were paid to qualifying individuals to help reduce the financial burden of Covid-19 on individuals and their families," Anderson says. You therefore don't have to report either of the $1,200 or $600 payments when you file.
Unemployment income gets reported on the Form 1099-G, the same form that state tax refunds are reported on. For a state-by-state guide on whether your state taxes unemployment, go here.
4. Will it take longer to get a refund this year?
The IRS is, no doubt, very busy. But it should take the same amount of time as usual to receive a refund. This timeframe is generally less than 21 days (from the time the return is accepted) if you file electronically and set up direct deposit.
"From my experience, the average timeframe to receive a direct deposited refund has been two to three weeks for federal and one to two weeks for the state," Anderson says.
Anderson doesn't recommend filing a paper return, which can slow things down. Paper checks might take up to six weeks to arrive in the mail upon filing.
And there are other glitches: "Filing a paper return is not advisable because the return could get lost in the mail or end up under a pile of papers on someone's desk at the IRS," Anderson adds.
5. I own a small business: How do I claim my pandemic loan on the return?
Last year, there were two types of loans give out to businesses as pandemic relief: Paycheck Protection Program (PPP loan) and the Economic Injury Disaster Loan (EIDL), the latter which included a grant and an advance.
Neither the PPP loans nor the EIDL is taxable income. For more information on small business Covid relief, visit the IRS website.
6. What are tax implications if I started day trading in 2020?
This depends if you incurred substantial capital gains or losses.
If you incurred losses, you will not have to pay capital gains tax. "In addition, you will be able to deduct up to $3,000 ($1,500 if single) per year of the loss amount until the loss amount has been exhausted," Anderson says.
Capital gains are taxed in two ways: 1) either short-term (held for a year or less) or 2) long-term (held longer than a year). "Long-term capital gains receive more favorable tax treatment," Anderson says, providing the below explanation.
For example, if a person sells an asset and it is considered a short-term asset (owned for a year or less), any gain incurred will be taxed at the ordinary income tax rate. With an ordinary income tax rate of 24%, that short-term capital gain will be taxed at 24% as well. On the other hand, if an asset was held for longer than a year, the capital gain will be taxed at the long-term capital gains rate, which is either 15% or 20%, depending upon that person's total taxable income for the year. Read more here on how capital gains and losses work.
Whether you incurred a gain or a loss and you receive a Form 1099-B or a Consolidated 1099-B, you will need to file the Schedule D (Form 1040) and the Form 8949.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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