How COVID-19 may affect 2020 tax filings in New Jersey
It's the start of a new year and that means it's also the start of tax season. New Jerseyans should know what to expect before filing 2020 taxes because COVID-19 may have had impacts on the returns.
As usual, have all your income documents available as well as deductions for things like out-of-pocket medical expenses, children's day care, real estate taxes and more, said Andrea Diaz, CPA and partner at SKC and Co. CPAS in Boonton.
Also, if a New Jerseyan has received any unemployment in 2020, be sure to have the unemployment documentation to take to an accountant. Diaz said New Jersey does not mail out any physical documentation to residents. Instead, they must log into the state's system to obtain such documentation.
For those residents who have been receiving the extra $600 and $300 weekly unemployment money due to COVID-19, Diaz said New Jersey will not tax that but the federal government will.
"If you did not withhold any federal tax on your unemployment, you will need to pay taxes on that when you file your tax return," she added.
Diaz also said that if state residents did have taxes taken out of their unemployment checks, because there is that option to do that in New Jersey, then they may have already paid in. But if they didn't pay any federal taxes on the unemployment money, then, yes, they will have to pay that when returns are filed.
As far as the stimulus checks that the federal government handed out to eligible New Jereysans and other Americans across the country in 2020, those are not taxable at the federal or the state level. But residents should also let their accountant know they received these stimulus checks. In case they didn't receive as much as they should have from the federal government, they can potentially receive more when filing a return.
As far as The Cares Act is concerned, Diaz said it allowed residents to take distributions out of their retirement accounts due to impacts of the pandemic — up to $100,000 penalty free.
Diaz said if someone plans to roll it back into the retirement plan over the next three years, they won't have to pay tax on all of that this year.
She also said COVID-19 will impact small businesses filing their 2020 tax returns. Many small businesses in New Jersey received multiple relief grants and Paycheck Protection Program help. The IRS has confirmed that the expenses are deductible and the PPP money is not taxable income when forgiven. However, grants from other relief programs received from the NJEDA and HHS are taxable.
For business owners that have left their offices and created home offices, home office deduction for business owners is going to be big this year. Diaz advises business owners to take advantage of tax credits available for them. She recommends having deep conversations with accountants to make sure they are capturing all of the available opportunities.
Unlike last year when the pandemic forced New Jersey to shut down on March 13, 2020, so close to the tax filing deadline, moving that deadline to July, Diaz said this year's tax filing deadline remains April 15.