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TROUBLESHOOTERS: How your 2020 tax return may be impacted by the pandemic and unemployment

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PEORIA (HOI) -- Tax season starts Friday and your 2020 tax return may be more complicated than in years past.

Mark Steber, Chief Tax Information Officer for Jackson Hewitt Tax Service said the company recently did a survey that showed over 40% of people think stimulus checks are taxable.

The good news is that's not the case.

"If you put income on your tax return like the stimulus payment by accident or error, the IRS will not likely catch having said that you may need to put them on your tax return to get the full balance of the amounts that you are due, but not as taxable income," said Steber.

Unlike stimulus checks, unemployment benefits are taxable.

It's different than a check you get from your employer because you have to ask for taxes to be withheld from unemployment insurance payments.

Steber said these payments can be tricky in any year and they have to go on your return.

"Unfortunately a lot of people are not thinking about how to get less benefits when they apply so they don't opt you need to be prepared that you might have some catch up to do when you file your tax return."

He added it's important to keep up with your 1099G's, the tax form you need if you've been out of work.

Unemployment benefits are not considered earned income, meaning your earnings could be less along with your earned income credit.

"That law was changed right at the end of the year to allow taxpayers to look back at last years earnings for the computation of the Earned Income Credit and some other credits."

If you took money out of your Individual Retirement Account (IRA) or Simplified Employee Pension (SEP) the rules have changed for when you have to pay that money back.

"Back to those law changes, there were some very favorable provisions put in place allowing people who are COVID impacted to borrow and borrow freely from their retirement assets."

Seber said you have to pay that money back over 3 years or lass and you'll have an additional form to fill out, a 1099R.

For those who spent most of 2020 working from home, will you qualify for the home office deduction?

Steber said you don't qualify if you work for someone else, however there is a loophole if your spouse has a home business.

If you are self-employed he recommended gathering records for your income and activities you did as part of your expenses.

Steber added there are tax payer deductions for self-employment that are often overlooked.

If you were planning on starting your 2020 tax returns by looking at your 2019 returns, Steber said that shouldn't be your only source of information.

"2020 for the tax year will be one for the ages and it kind of is probably you know appropriate given that the year 2020 was also a year for the ages. Typically your tax return is a reflection of your life for a tax year."

He said while the IRS is starting later this year because of the Coronavirus Relief Bill passed in December, he encouraged everyone to file early and be patient.

It may take longer for you to get your refund and if you owe money you'll have more time to figure out how to save for that.

The last day to file your taxes is once again April 15th this year.

Jessica Cook

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