2020 tax tips from real questions answered by our experts
Editor’s Note: In February, we hosted a Reddit Ask Me Anything (AMA) with Mike and Andy, from The Tax Institute at H&R Block. Reddit is a community-based website with over a million topic forums and AMAs are places for people to ask anything to an expert on a topic. Mike and Andy answered some of the Internet’s most burning tax questions for 2020, ranging from tax reform to cryptocurrency, sports betting, remote work, and more.
Do you have tax questions about freelance work or about cryptocurrency? Check out the answers below to get a few 2020 tax filing tips that could help with your return this year.
2020 tax questions
Filing Early vs. Filing Late
Q: Are there benefits to filing early? And what happens if I file after the deadline?
A: Yes! The biggest benefits to filing early are (1) you get your return in the queue for processing, and (2) you protect yourself and your dependents from identity theft by giving the fraudsters less time to file ahead of you. If you miss the filing deadline and you owe tax, you will be hit with penalties and interest.
Q: I received a paycheck in the first weeks of 2021 for work I completed for a freelance job in December of 2020. This paycheck income is not showing on my W-2. When should I report this income: in April 2021 for my 2020 taxes or next year?
A: Even though you worked the hours associated with the check in 2020, the income will only be taxable in the year that the check was issued to you. Assuming your employer didn’t issue the check until after 12/31/2020, the income will be included on your 2021 Form W-2 (or Form 1099-NEC if you are a freelancer) and your 2021 Form 1040 tax return. Find out more about freelance income in our Filing Guide for Gig Worker Taxes.
Q: When purchasing Bitcoin or other cryptocurrencies, do I need to report it on my taxes? I haven’t cashed out any of crypo to but I have used it to buy products.
A: Purchasing cryptocurrencies for investment and holding those for investment without selling any of the currencies will not trigger a taxable event on your return. (Different rules apply for cryptocurrencies that you acquired by mining, rather than by purchase). Only once you sell the purchased cryptocurrencies will it become a taxable event on your return.
Q: I am new to sports betting but confused on what I need to report on my taxes. Can I lump all bets in a given time period into a “same session winnings” or do we truly need to claim every single bet and itemize the losses?
A: The first thing to know for all sports bettors is to keep records! Make sure you’ve got records for each wagering transaction, including the date, wager amount, and any wins/losses. Depending upon where you do your gambling, they may provide you with an account statement but better to be safe and maintain your own records.
To your question about netting transactions, unfortunately, that is not permitted. You need to report each wagering transaction separately. You can’t reduce your gambling winnings by your gambling losses and report the difference. Assuming you’re not a professional gambler, you must report the full amount of your winnings as income and claim your losses (only up to the amount of winnings) on your tax return separately. In addition, you can only claim the losses as an itemized deduction. If you claim the standard deduction instead of itemized deductions, you’re not permitted to deduct your losses at all. You are correct that this doesn’t always reflect your total gain or loss on those wagering transactions, but those are the rules for reporting sports betting income. Here is more information from IRS on this (page 10) – https://www.irs.gov/pub/irs-pdf/p529.pdf
Stock Market Gains:
Q: With the recent news in the stock marketing, I am curious about how they’re taxed. If I buy stock with post-tax money (my net paycheck) and there are gains, am I taxed twice?
A: The gain will be taxable, though you won’t be taxed on the full proceeds of the gains, only the net amount of your gain (the difference between what you sell the stock for and what you originally paid for the stock). This is because this difference is considered income in the form gain due to the increase in the value of the stock. The fact the stock was purchased with after-tax wages won’t change this result as the gain on the stock still represents income in itself.
Working from Home:
Q: With so many people working from home, what are some possible common tax benefits/implications you might recommend looking out for?
A: The two most common things to watch for are expenses associated with working from home and state tax implications if you’ve been working from home this year.
For expenses that may be deductible, the first step is to determine if you’re a W-2 employee or self-employed. Self-employed individuals can deduct their work-from-home expenses, including office space and equipment used regularly and exclusively for work, assuming you regularly meet clients there (even through video conferencing). Self-employed individuals with a home office can also deduct mortgage interest, insurance, utilities, repairs, and depreciation attributable to the qualified workspace. Unfortunately, W-2 employees can’t deduct work-from-home expenses on the federal return due to legislation passed in December 2017. However, a handful of states still allow employees to deduct these expenses on the state return.
Another state consideration may impact those people who, pre-COVID, typically worked in a state different from where they live. For example, if you live in Missouri but typically work in Kansas, your employer may have continued to withhold Kansas taxes even after you switched to working from home in Missouri due to COVID. Likewise, your W-2 may show that you worked in Kansas all year, even though you worked several months from home in Missouri. On your 2020 taxes, you may need to allocate your wages differently than as shown on your W-2. This can get complex, so be sure to discuss this situation with your tax professional and bring records of when you began to work from home and when you returned to work at your office if that has occurred.
Remote Work out of State:
Q: In 2020, I worked remotely in a state different than where my office is located because of coronavirus. What does this mean for tax implications? If I have worked in several different states remotely, do I need to pay tax for every state I worked from?
A: It depends on the states involved. If you are not covered by a reciprocity agreement and each of the states involved has a tax on earnings, then you will likely pay tax to each state based on the amount of income earned in that specific state. Your home state generally taxes you on all your income no matter where earned (again, assuming your state taxes earnings). However, your home state typically allows you to claim a $1/$1 credit for taxes paid to the other states – preventing you from being double-taxed.
Where to go with your 2020 tax filing questions
Have other questions not listed here? Get connected with a real life tax pro to get answers to your top tax questions.
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Form 1099-MISC can be confusing because it can report various types of income. Learn how to read the 1099-MISC boxes with the experts at H&R Block.