Tax Season Looks Different in 2021
webmanager • May 17th, 2023
While the end of the COVID-19 pandemic is now in sight, the economic ramifications aren’t ending just yet. Recent actions by federal and state entities have complicated 2020 tax filings, but we’re here to help you sort through the changes.
Due to the American Rescue Act’s impacts on the tax code, the IRS has moved the 2020 tax filing deadline from April 15 to May 17, 2021. However, this only applies to individuals (including C corporation filers). The filing deadline for passthrough entities (S corporations and partnerships) passed on March 15.
If you plan to file by May 17, you do not need to request an extension. However, if we haven’t received your complete tax package by now, you’ll be on an extension timeline.
If your 2020 income will disqualify you for the $1400 stimulus check, you may want to file for an extension. The stimulus payment calculation is based on the last year filed, so, if you’re eligible to receive the stimulus based on your 2019 return, and your 2020 income is too high, and will put you above the phaseout limit, you should extend to secure the $1400 check first.
California business owners who received PPP funding must also file extensions. CA AB 80, the PPP forgiveness deduction conformity bill, has added additional complexity to business filings, and the FTB is expected to release additional guidance. If you file now, you may have to amend later if AB 80 is passed, which will cost more in fees and delay of eligible refunds.
The American Rescue Act, the latest in the federal government’s series of COVID-19 relief bills, was signed into law on March 11. However, most high-income individuals will not receive any benefits.
Individuals and their adult dependents with income under $80,000 or couples earning $160,000 or less will receive the full stimulus check of $1400 each.
The American Rescue Plan also significantly changed child tax credits for 2021. For the tax year 2020, eligible taxpayers can claim a credit of $2,000 for each dependent under 17, which is refundable up to $1400. In 2021, credit is expanded to $3,000 per child ($3600 for children under 6). This year, the credit is fully refundable, and taxpayers can opt to receive half of the credit in advance through periodic payments starting in July 2021. Currently, this is only slated to apply to the 2021 tax year.
The act also extended supplementary federal unemployment benefits of $300 per week through September 26, 2021. For individuals who received unemployment payments in 2020, the first $10,200 is now nontaxable for household with combined income of less than $150,000 in 2020. And those changes are just the start.
The act extended the provision of family and sick leave credits for COVID-related leave through September 30, 2021. These credits, designed to support small and medium-sized businesses, are fully refundable against payroll taxes and compensate employers and self-employed individuals for eligible leave. In addition, the limit on employer-provided dependent care assistance increased to $10,500 from $5000, which is fully deductible.
And there’s some positive news for hospitality businesses—if you’re a restaurant business and received revitalization grants from the SBA, you don’t need to include them in your taxable income.
Virtual currency transactions must be reported on your 2020 tax return. If you received, sold, or exchanged virtual currency in 2020, you must tell the IRS (check the box). But this doesn’t only apply if you purchased crypto with real currency. If you acquire virtual currency through “mining,” this is considered ordinary income, and may be subject to self-employment tax. Your virtual currency is treated as intangible property (stocks, bonds for example). So, if you sell your crypto, you recognize capital gain or loss. Transacting in virtual currency can further complicate your filing, so it is essential to understand the rules. For more information, check the IRS virtual currency FAQ.
Right now, California’s PPP forgiveness effort remains up in the air. The AB 80 bill, which would allow deductions of up to $150,000 of expenses paid using PPP funding, is pending on the California Senate floor. However, it has not yet been signed by Governor Newsom. If it passes, this bill will lead to significant state tax savings for businesses that accepted PPP funds. Currently, the state is trying to clarify whether enacting the bill would lead to a loss of federal funding from the American Rescue Act. We’re watching the situation closely and will let you know as soon as we know more.
Samy Basta brings you more than 20 years experience in tax, financial, and business consulting to his role as founder of Basta & Company. His focus is primarily strategic business planning, empowering clients to set priorities, focus energy and resources, and strengthen operations. In addition, Samy and his firm provide strategic counsel, and technical insight, on a wide range of needs, including tax saving strategies, tax return compliance, as well as choice of entity.
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