LEXINGTON, Ky. (LEX 18) — Many people may never want to think about 2020 again, but with tax season approaching, we'll have to wait a little longer to say goodbye to the year completely. It was a year that threw many curveballs that will change how people do their tax returns.
One of the biggest impacts of the pandemic was unemployment. If you received unemployment benefits, you will need to pay income taxes on that money. Bill Farmer with HTI Tax Services in Lexington says if you're used to getting a W-2 form, you should now be on the lookout for a 1099-G form.
“Hopefully you had withholding from your unemployment,” said Farmer. “The state of Kentucky will hold up to five percent and the federal government will hold withholding out, but you had to ask for it in advance. If you didn't ask for it in advance, hopefully you saved some of that money to pay the tax on your unemployment.”
Farmer says if you got extra income from odd jobs picked up during the year, like Uber or Door Dash delivery, that money will also be taxed.
It’s also good to know what items are deductible. For taxpayers who racked up medical bills, some medical expenses not covered by insurance can be deducted. When it comes to state tax returns, medical expenses aren't deductible in Kentucky. However, Danny McQuinn with Advanced Tax Services in Lexington says if you spent a lot of money out of pocket, it could be worth itemizing these deductions in your federal tax return.
“They take your adjusted gross income times 7.5 percent and then you get a number. Whatever medical expenses are over that, you can put in your itemized deductions,” said McQuinn. “So, then you want to add that to your mortgage interest, real estate taxes and charity to see if you itemize or take the standard deduction.”
When it comes to people who started working remotely, you can’t claim a home office deduction unless you’re self-employed. Farmer says reimbursement for expenses like high-speed internet and home office equipment is a conversation to have with your employer.
For business owners who received Paycheck Protection Program loans, expenses paid out with that money are deductible.
As for the stimulus checks, you don't have to pay taxes on that money.
Finally, remember the date - Tax Day is Thursday, April 15, 2021.