DENVER (CBS4) – Tax season is underway, and many Coloradans could be in for quite the shock. Most of us are facing new questions and challenges we’ve never faced before. To help navigate the unique tax season, Andy Phillips, Director of the Tax Institute at H&R Block, joined CBSN Denver with advice for filing 2020 taxes.
Nearly everyone’s taxes are impacted by the pandemic, especially those who lost their jobs and collected unemployment.READ MORE: Cars Spun Out & Abandoned As Winter Storm Grips Denver Metro Area
“There’s a common misconception that unemployment isn’t taxable,” he told CBSN Denver’s Kelly Werthmann. “It actually is. It’s always taxable on your federal tax return. Most states, including Colorado, tax it as well, so make sure you report it.”
Phillips said a lot of people do not have taxes withheld during the year from their unemployment benefits as they’re used to having a W2 where their employer withholds from each paycheck. With unemployment, he explained, if you do not have that withholding you may see a slightly reduced refund.
“What we’ve seen thus far is while there is an increased number of people claiming unemployment benefits on their tax return, they’re still getting a tax refund, so that’s positive,” Phillips said.
However, for the few folks who may find they owe this year, Phillips strongly advised to not delay filing.
“Complete your return now,” he said. “Sometimes people when they have uncertainty, they really delay which is never a good idea. If you file now and you owe a balance to the IRS or to a state like Colorado, you have until April 15 to pay. So, it’s better to complete your return now, come up with the few hundred bucks or whatever your situation is, and make a plan to address it before the due date.”
Phillips also said some people may be eligible for more stimulus payment than what they received last year. It could be added to their tax refund or reduce the amount owed.
“That can actually be a really pleasant surprise for some who may qualify for it,” Phillips said. “Maybe didn’t get all your stimulus payments during the year. Maybe you had a new child for 2020 and the IRS wouldn’t have records to know that you missed the stimulus payment for them. Maybe your income was really high in 2020 (the IRS used 2019 tax returns to determine eligibility for these payments) and maybe your income was too high to get a full payment, but your income went down due to COVID or another reason, you may find you’re eligible for more stimulus payment than what you got during the year.”
To help make ends meet, many people are taking on side gigs and work for companies like Uber and Door Dash. Phillips explained people who did step into the gig economy may not realize they’re considered a small business owner.
“That comes with some tax obligations,” he said. “Instead of having taxes withheld from every paycheck like you do when you’re working for an employer, you’re responsible for making payments during the year through quarterly estimated payments. If you haven’t done that, you probably want to take steps to complete your return early.”READ MORE: Businesses Near Convention Center Eager For Events: 'It's Our Livelihood'
Phillips added it’s also important for gig workers and small business owners to not forget to deduct their out-of-pocket expenses.
“Make sure you’ve got really good records is crucial,” he said. “If you work for a larger platform, they may track some of your expenses. Like if you’re a delivery driver your platform may track your mileage. What they’re not going to track is some of those out-of-pocket costs. Like maybe a driver also bought water and a phone charge for riders. So keeping track of all your receipts and making sure you share those with your tax professional or enter them into your ‘do it yourself’ software is crucial to make sure you don’t pay any more tax than you’re legally required.”
As for the thousands of Coloradans who have been working from home for close to a year, they may be eligible for some write-offs.
“If you’re an employee meaning you get paid on a W2, there was a large federal tax reform bill a few years ago and because of that people aren’t able to deduct out-of-pocket expenses as an employee,” Phillips explained. “But if you’re a small business owner, out-of-pocket expenses including some of your work from home expenses may be deductible.”
Phillips added it is important to be thoughtful when it comes to listing home office expenses and identifying that you have a space that is continually and exclusively for business.
“Other than special rules for day cares, if you’re working from home and you’re using your family room that also had a lot of personal use, you would not be eligible for home office deduction,” he said. “But if you have a dedicated space, you want to bring those records to a tax professional so you’re getting the deductions to which you’re entitled.”
Need more tax tips & support? Check out these resources from H&R Block:Union Organizing JBS Mass Vaccination Event: 'It's About Time They Are Prioritized'