NJ Accountants Offer COVID Tax Advice For Residents, Businesses – Patch.com

ESSEX COUNTY, NJ — The coronavirus pandemic will change the way many New Jersey residents file their taxes. And if you got COVID-19 aid during 2020, it may pay off to brush up on what you might owe the government this year, a group of accountants say.

With the start of the 2021 tax season just around the bend, the New Jersey Society of Certified Public Accountants (NJCPA) recently issued an important reminder to Garden State residents and business owners: Many benefits related to the COVID-19 pandemic are taxable.

One of those? Unemployment insurance.

“New Jersey taxpayers who received unemployment because of the impact of COVID-19 have to pay income tax on it at the federal level, but not at the state level,” the Roseland-based group said, pointing out that taxpayers have to access NJ Form 1099-G at myunemployment.nj.gov.

State officials give more information about unemployment insurance benefits and tax liability here.

Here are some other things that taxpayers should keep in mind this year, according to the NJCPA:

  • Home office deductions. “Even though many taxpayers are working remotely due to the pandemic, employees who receive a W-2 exclusively from an employer are not eligible for the deduction under the Tax Cuts and Jobs Act (TCJA).”
  • Charitable donation deductions. “Taxpayers who have not historically been able to deduct their charitable donations are able to do so in a limited fashion this filing season. Under the CARES Act, individuals may claim a limited deduction on their 2020 federal income tax return. Married taxpayers (or those who file jointly) that take the standard deduction and made cash donations to charity in 2020 can get a tax deduction of up to $600. For single taxpayers, the limit is $300. However, note that the IRS has increased penalties over falsely claiming this deduction to 50 percent this year.”
  • Taking distributions from IRA accounts. “If taxpayers took advantage of their IRA distributions because they were impacted by the pandemic, they have the ability to 1) not pay the penalties if under the age of 59 ½; 2) pay the tax on that income over three years; and 3) repay all or part of the amount within three years, which is longer than the typical 60-day timeframe.”
  • Interest from 2019 tax return. “Those taxpayers who received a refund on their 2019 tax returns need to be aware that the interest payments are also taxable. According to the IRS, the interest payments were largely the result of the postponed filing deadline of July 15 due to the COVID-19 pandemic. The IRS will send a Form 1099-INT to those who received interest of $10 or more.”
  • Gig economy jobs. “Taxpayers finding employment in the gig economy (which could have increased due to the COVID-19 pandemic) will need to be mindful that the income is taxable since no withholding has been taken out. The IRS has recommended that individuals in this situation make quarterly estimated tax payments to reduce the prospect of paying a lot at tax time.”

Knowing what you’ve already received in the form of stimulus checks – as well as what you should have received – is an important first step for taxpayers,” noted Andrea Diaz, a partner at SKC and Co. CPAs, LLC.

“If you didn’t receive the amount you should have received, there is a way on your tax return to get the additional amount you are owed,” Diaz said. “For example, if you had a child in 2020, you may be entitled to receive the extra amount for the child.”

For those taxpayers who deferred paying Social Security and Medicare on their wages, there are also important issues to be aware of when filing 2020 taxes, Diaz added.

“When filing a tax return for an individual, it may show that they underpaid if they decided to defer their Social Security and Medicare tax withholdings,” Diaz said. “They need to make sure there isn’t an issue in reporting that on their tax return.”

Make a donation to charity? According to Gail Rosen, founder of Gail Rosen, CPA, PC, if taxpayers can take advantage of the charitable donation deduction for 2020, they should.

“The government wants to help nonprofits – they’ve been encouraging it,” Rosen said, adding that typically, only 10 percent of taxpayers itemize and the rest take the standard deduction.

Anyone who had to remote work between states will also be “particularly troubled” this tax season, said June Toth, a partner at zbt Certified Public Accounting & Consulting, LLC.

“Typically, if you live in New Jersey but work in New York, the employer will withhold New York state tax and then you file federal, New York nonresident and New Jersey tax returns, where you get a credit on New Jersey’s return for the tax you paid in New York,” Toth explained.

But the pandemic threw a monkey wrench into that routine, Toth said, noting that some young adults who were living in New York moved back to New Jersey to live with their parents for what was expected to be a three- to six-week stay … but which turned into a months-long situation.

“These taxpayers, who worked remotely, may not have changed their state withholding with their employers and may have to consider apportioning their income based on number of days worked in the states,” Toth said.

It’s possible they could end up paying taxes to both jurisdictions, Toth said.

SMALL BUSINESS OWNERS

The NJCPA also offered some tax season tips for small business owners in the Garden State, many of whom have struggled severely amid the pandemic.

According to the group, here are some considerations for small business owners when filing 2020 taxes:

  • Loans distributed under the Paycheck Protection Program (PPP). A forgiven PPP loan is tax exempt on federal tax returns. In New Jersey, the NJCPA supports legislation that addresses state tax issues for forgiven PPP loans. If passed, forgiven PPP loans would be exempt from tax in New Jersey, and PPP expenses would be deductible. The bill, S3234/A5149, has passed the Senate and needs to get through the Assembly.
  • Personal protection equipment (PPE) expense deductions. Business owners, as well as some individuals, such as teachers, are able to receive deductions for money they spent on PPE.
  • Payroll tax credits. If employers had staff out due to COVID-19, who were taking care of someone who has COVID-19 or their children were out of school, they can receive payroll tax credits for those unable to work. Payroll family leave has been extended through the end of March 2021.
  • Employee retention tax credit. This credit has been expanded significantly to include those who received a PPP loan, and it includes a wider array of employers who are eligible. However, they need to have fewer than 500 employees.
  • Issue and file wage statements. For this tax filing season, the deadline for employers to file Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements, was Feb. 1 (normally it is Jan. 31).
  • Provide Forms 1099-MISC and 1099-NEC. The IRS also made Feb. 1 the deadline for sending recipients their Forms 1099-MISC and 1099-NEC.

“A lot of businesses, when they applied for the PPP, understood that the receipt of funds was non-taxable, but they did not realize that the expenses associated with it would be non-deductible business expenses,” Toth said.

“According to a longstanding IRS rule, if you have non-taxable income, the expenses associated with that are not deductible,” Toth continued. “However, on Dec. 27, 2020, President Trump signed into law the Consolidated Appropriations Act which included much-anticipated relief for PPP recipients, allowing them to deduct the associated expenses.”

According to the NJCPA, taking advantage of the New Jersey Business Alternative Income Tax (BAIT), which allows some businesses to pay the state income tax associated with the profits of their business at the entity level instead of the individual level, can also help New Jersey-based business owners.

“New Jersey is one of nine states where flow-through entities, such as partnerships and S corporations, can take advantage of the state and local tax (SALT) workaround, so taxpayers are not limited to the SALT deduction cap of $10,000 on their individual federal tax return,” Toth said.

An analysis of the taxability of COVID-19 relief in New Jersey and federally is available on the NJCPA’s website.

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