The May 15 tax deadline is only a few days away, so there’s no time to waste if you haven’t already filed your taxes. To help you maximize your freelance tax deductions and reduce your 2020 tax bill, here’s a handy checklist. You can also access a full summary in this PDF from CPA for Freelancers®.
The IRS will be able to calculate whether you are eligible and how much of the credit may be available to you if you follow the “Credit Figured by the IRS” instructions on your individual tax return.
Form 7202 is a new federal form from the Internal Revenue Service which aims to help those who are self-employed claim sick and family leave tax credits under the Families First Coronavirus Response Act (FFCRA). You may be able to claim these credits on your 2020 tax return, for leave taken between April 1 and Dec. 31, 2020, and on next year’s tax return (for 2021) related to leave taken between Jan. 1 and March 31, 2021.
Please note that you cannot claim these credits for the same period as any PPP loan forgiveness you may be eligible for.
Looking ahead to the 2021 tax year, Biden has proposed a temporary increase to the maximum CTC, to $3,000 for each child age 17 and under, and up to $3,600 for kids under age six. The proposed credit would be fully refundable and may be paid monthly.
You have been diagnosed with COVID-19 by a CDC approved test.
Your spouse or a dependent has been diagnosed with COVID-19 by a CDC approved test.
You have experienced “adverse financial consequences” due to the pandemic.
For example, you or your spouse: Are being quarantined, furloughed, laid off, or you are working less because of the virus or disease. Are unable to work due to lack of childcare because of the virus or disease. Own or operate a business and you have lost hours or had reduced hours due to the virus or disease.
This is a change from the 2017 Tax Cuts and Jobs Act which limited the offset to 80 percent of income. The CARES Act also provides that taxpayers can, for tax years 2018, 2019, and 2020, carry their NOLS back to their five prior taxable years, which could result in a tax refund.
For section 139 to apply, the disaster must be a qualified federal disaster, and the payments must be qualified disaster relief payments. The IRS interpreted COVID-19 as a federal disaster therefore payments for relief from this disaster are qualified under section 139 if: (a) the payments are made to reimburse reasonable and necessary personal, family, living or funeral expenses incurred as a result of the COVID-19 disaster; and (b) the expenses are not compensated by insurance or otherwise (qualified expenses).
Employees are not required to substantiate expenses with receipts, credit card statements, etc. However, for employers it is key to document the terms of any qualified disaster relief payments that are intended to reimburse employees for qualified expenses.
Given the deadline is approaching so quickly, there’s no time to waste in filing your taxes. Grab this checklist and make sure to allocate time this week to tackle your freelance taxes with form 1040 so you can avoid late fees and penalties!
Jonathan Medows is a certified public accountant licensed in New York, New Jersey, Maryland, and Pennsylvania. He is also a recognized expert in taxation for freelancers and the self-employed—often tapped for his expert knowledge and perspective on self-employment taxation by national and regional publications such as The New York Post, BusinessWeek, Forbes taxation blog, WebCPA, CPA Practice Advisor, and others. You can read some of Jonathan’s press coverage here.
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