Get Your 2020 Taxes Right
4/9/21 - Taxes are scary but getting free money from the government is great. CYG's accountant and the force behind Taxes for Artists, Claudia Yi León returns to tell us all about how to deal with the wild year of unemployment and (non)income that was 2020. From PPP loans (freelancers, you can still get one) to extended filing deadlines (May 17) to claiming your stimulus payment if you didn't file 2019 taxes, this episode is packed with info. Cross-reference our notes below and follow @taxesforartists for all the latest.
Transcript below.
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Top Line: Get used to uncertainty!
This pandemic + economic recovery and aid is a fast moving topic, changes can happen any and every day
There are 77,000 employees at the IRS and 143 million tax payers in the US - that phone is NOT gonna get answered right now
FIRST THINGS FIRST:
New IRS Deadline to file AND pay your 2020 taxes is May 17, giving you an extra month to procrastinate
check your state to see if they’re conforming to this date; not all are! The Turbotax Blog is actually a good place to check
Big Caveat: First quarter estimated taxes for 2021 are still due 4/15
Remember that to estimate the minimum quarterly payments for 2021, you have to base that on what you paid in 2020, which, Catch 22, you won’t know until May 17. Your options:
Use last year’s amounts of est tax
Guess
Blow it off, the penalty is 3/4% per quarter
If it’s a day late it’s a quarter late, so you may as well wait until June
We had several big relief bills that have helped many of us, but also have thrown all planning and rules into disarray:
First Covid Relief Bill was March 6 2020
Covid Relief Bill signed Dec 27 2020
American Rescue Plan March 11 2021
In the middle of tax season after people had already filed!
2020 Relief Greatest Hits:
Stimmies of $1200 + $600 + $1400 were based on the latest available filed returns.
The first two stimulus checks were based on either 2018 or 2019’s filed returns. If you didn’t qualify based on those income levels, but now qualify with 2020’s reduced income, or you received the wrong amount or none, you can reclaim those missed checks on this year’s return - Recovery Rebate Credit
Latest thresholds are $75K/$150K, phasing out at $80K/160K.
Previous were similar at $75K
$500/child, $600/child, $1400/child
IMPORTANT: Stimulus is NOT TAXABLE
$10,200 per person of UI is nontaxable for household incomes under $150K. If you already filed, you early birdies, you caught quite a worm! The IRS has stated that you do NOT need to file an amendment, and they will recalculate your refund and send it back to you. So don’t file an amendment, they’ve got enough on their plates
Enhanced Unemployment - was $450/wk if you received any state UI. Now extended til Sept 4, giving you an an extra $300/wk
Other Stuff:
Healthcare: Did you get hit with an ACA Premium Tax Credit repayment? Are you aware of what that is?
Many taxpayers register on the Healthcare Marketplace and understate their expected income, either through mistake or trying to be too clever by a half. This results in a higher health care subsidy, which means a lower monthly premium
What you may not realize is that at the end of the year, when you report your ACTUAL income, you end up paying an extra tax, the Premium Tax Credit, which is the amount of subsidy you have to give back
Claudia’s advice to taxpayers: if you are on that border of affordability, don’t understate your income if you don’t want to be hit with a big tax at the end of the year.
You need to know that if your income turns out to be lower at year’s end, you will get that premium tax credit back for the ACA subsidy you didn’t take earlier in the year.
But as a pandemic special: You won’t have to pay back the PTC in 2020!
Also, random but awesome, the first relief bill permanently made tampons and other menstruation products, OTC drugs medical expenses for FSA and HSA plans and therefore tax-free.
PPP LOANS
If you didn’t apply for or receive PPP, you may still be eligible as a small business, freelancer, gig worker aka anyone who receives a 1099 and/or fills out the Schedule C part of your tax return.
PPP (presumed to be forgiven) and the EIDL advance are tax free if used correctly.
If you got a loan under $150K, the forgiveness application is very easy, you just certify “I used this money correctly.”
But please use it correctly and save the receipts for 5 years in case of SBA audit (not IRS audit as this money comes from the Small Business Administration).
How much will I get? Loans are equal to 2.5 months of wages or wage equivalents (profits in the case of sole proprietors).
New rules as of this month allow small biz sole proprietors/gig workers to use Gross Income (before you use your expenses) to make this calculation
Less than $150K Gross
You have 24 weeks from receipt to use the funds
You have 24 weeks plus 10 months after receiving the PPP loan to apply for forgiveness.
Second PPP:
If your revenue dropped 25% or more in any quarter of 2020 compared to the same quarter in 2019, you can qualify for a second PPP loan, and you have less than 300 employees
TAX IMPLICATIONS:
Note that PPP is tax-free and its expenses are deductible on your federal return, but not all states are following suit!
The Tax Foundation has an up-to-date list of states and their federal conformity with respect to PPP tax treatment.
Can I still get one?
Biden just signed a bill March 30th that extends the deadline for PPP until May 31! So you can apply for both a first and/or a second PPP loan.
This is great for procrastinators, because if you are a sole proprietor and already got a PPP loan based on your profit, not gross, TOUGH TITTIES, no mulligans! No do-overs
But wait there’s more for 2021:
$300 above-the-line charitable contributions for 2020 and 2021. Political campaign donations are NOT tax deductible, so find another cause!
Business Meals are 100% deductible 2021-2022
Child tax credit for 2021 is $3000 or $3600 for kiddies under 6, up from $2000. The credit is supposed to be an up front “periodic” payment, with the first payments starting on July 1, 2021.
Earned income tax credit increases quite a bit, which is a refundable tax credit aimed at lifting the working poor out of poverty
Premium tax credit is more generous for health insurance subsidies, extended to people on UI and those making 400% above the poverty line. No PTC penalty for 2020!
Paid sick leave and PFL credits for employers have been extended to September, as well as the employee retention credit
CREDITS
Executive Producer: Gina Delvac
Hosts: Aminatou Sow & Ann Friedman
Theme song: Call Your Girlfriend by Robyn
Composer: Carolyn Pennypacker Riggs.
Producer: Jordan Bailey
Visual Creative Director: Kenesha Sneed
Merch Director: Caroline Knowles
Editorial Assistant: Mercedes Gonzales-Bazan
Design Assistant: Brijae Morris
Ad sales: Midroll
[Ads]
Aminatou: Welcome to Call Your Girlfriend.
Ann: A podcast for long distance besties everywhere.
Aminatou: I’m Aminatou Sow.
Ann: And I'm Ann Friedman. Today's episode features a human who 100% keeps us organized and keeps us from being in trouble with the federal government. I'm talking about CYG's accountant, Claudia Yi Leon, who is truly the best like truly like one of those professionals who I just feel like so safe in in the arms of her spreadsheets, like so cradled [laughter] and supported. And I love that we can bring some of her knowledge to all of our listeners
[theme song]
Aminatou: I mean my blood pressure is already rising because you know how I feel about tax time about tax professionals. But I will say this about Claudia. Claudia was the first time that I talked to someone who was remotely involved in the tax business, who when I left I didn't feel like a complete like, like, like idiotic person. And I also felt that they had tried to explain to me the thing that they were doing. And it was a revelation for me. I was like oh, you can talk to someone who does taxes and then not have to be in a catatonic state afterwards.
Ann: I know it's shocking. So Claudia is the, is the co-owner of Many Happy Returns, which is an accounting firm based in Los Angeles. She also runs the Instagram account Taxes for Artists where she posts like a lot of super, super helpful info for people who are self employed or who are dealing with tax issues that are outside the standard. Like I just get a W-2, some stuff that you might need to know about pandemic taxes and about thinking about your accounting in this particular like chaotic moment.
[Interview starts]
Gina: Welcome back to the show, Claudia.
Claudia: Thanks, Gina. It's great to talk to you again. Yeah, so I don't know a couple things happened last year. I guess...
Gina: Yeah, 2020 what happened.
Claudia: I guess everything happened and nothing happened. But you know, it's been a year of personal growth. And the main thing that I want to tell everyone is, as you approach the coming year in terms of your taxes and squaring away 2020 is if you haven't learned this already, you got to get used to uncertainty. So all you type A personalities drop that down to a B, C or D because we can't control, what we've learned from 2020 is we can't control anything, including the economy, and including the incredibly, incredibly well intentioned help that the government has been pushing through in the clunkiest manner possible. But God bless them. They're, they're doing their best. Let's put it this way. A lot of it is coming through the IRS. The IRS has 77,000 employees and there are 143 million taxpayers so just know that phone is not going to get answered. [laughter]
Gina: Well, and it's funny you mention the phone. The last time you were here you were helping us get our taxes right in a broad, cosmic sense, getting things together, getting our money in order. Today, we want to talk very specifically about how to get your 2020 tax return, right? Because there is relief available, because there are new things that have been rolling out. So first things first, we have a new filing deadline. So when should we be planning to send our taxes in?
Claudia: Yes. So if you haven't heard by now, the new IRS deadline to both file and pay your 2020 taxes is May 17th, which gives you an extra month to procrastinate. No, an extra month to get your shit together and figure out what benefits you can derive. And this is important because the pandemic and the economic recovery and aid it's a very fast moving topic, new rules are rolling out literally every day. So for example, right now, the filing and paying deadline for 2020 is May 17th. However, check with your state to see if they're conforming to this date. Not all states are. The TurboTax blog is actually a good place to check to see if your state is conforming to the May 17th deadline. Another thing that is a big like curveball is that for those of us who are self employed, you know, own our own small businesses where we don't get money taken out of payroll, we have estimated taxes to pay. The first quarter 2021 estimated taxes are still due April 15. Not May 17th. As of today, just assume that you are going to pay your Q1 estimated taxes for 2021 April 15th.
Gina: And we record we're recording this a little bit ahead. But for anyone listening to this April 9th and beyond do a quick double check. But you still have a couple of days to get your estimates done. So if we're waiting to file till May 17th and we might not know how to estimate. What should we do?
Claudia: That's the big catch 22. Exactly. So usually, the minimum amount of quarterly payments that you are required to pay are usually based on your previous year's taxes. So 2021’s estimated taxes would be based on 2020’s taxes, which aren't going to be done by April 15th if you're taking advantage of the extended deadline. So here are the options I'm going to give you if your income was kind of like samey samey to, to the previous years. Just use last year's estimated tax amounts. That's option one. Option two, I'm just gonna say guess. Just guess, dude, if you made half as much as the previous year, pay half, if you made twice as much, pay double. Three, blow it off because the penalty is three quarters of a percent per quarter. So if you're okay with paying a little bit of penalty if you're okay with paying like basically 3% per year of a penalty, blow it off, dude, it's okay. It's really, it's freeing sometimes. And just remember that if it's a day late, it's a quarter late. So if you, if it's April 16th, and you're like, Oh shit, I didn't pay it, then you may as well wait until June because the penalty will be the same.
Gina: Right? So if you're not listening to this episode, the day this came out, and you're like, Oh, fuck, now I'm screwed. Like Claudia just said. Sorry, a little bit late pay a little bit of penalty. File in June. Things are chaotic.
Claudia: Yeah, your three quarters of a percent screwed like that's not like, yeah.
Gina: So unless you've been raking it in Q1, you'll probably be okay.
Claudia: Exactly.
Gina: You told me before we got on the call, Claudia, you're going to tell us the greatest hits of 2020 relief. Walk us through the singles, like where are we at in the Greatest Hits?
Claudia: Yeah, my billboard list of, of 2020’s relief bangers are [laughter] stimulus checks. So there are stemmies of like, $1200, $600 and now there's a $1400 dollar one. And that's like per person. So you know, if you're married filing jointly, and you qualify, you would get like $2400 you know, if you had four for the first relief bill. The first relief bill also gave you money for, for a child like $500. You know, the second relief bill as well you got $600 per person and $600 per child. The numbers were a little different. If you were filing as head of household, but yeah, kind of in those amounts. So this is how that worked, if the the first two stimulus checks of $1200 and 600, were based on either 2018 or 2019 filed returns, so whichever one the IRS had on hand, so if you didn't qualify based on those income levels, but now, because your income was drastically reduced in 2020, during the actual pandemic, you qualify. You can actually reclaim those checks that you missed on this year's tax return. It's called the Recovery Rebate Credit, make sure that you look for it in your, you know, in your tax software, or you ask your, your tax preparer to sign you up for the recovery rebate credit, and then you'll just receive those missing checks as a tax refund.
Gina: And so what were those limits? Like, who qualified for those stimulus checks? I'm sure people knew whether or not they hit their bank accounts. But if you were expecting one and didn't get one…
Claudia: Right, exactly, yes, so the first two, so all of them the thresholds were like $75,000, or $150,000 married filing jointly, if you made below that amount, then you qualified for stimulus, and then they phased out as your income got higher. The latest one, which is that $1400 one, that phases out by $80,000 for single or $160,000, for married filing jointly, what's great about this latest stimulus is that you get $1400 per person, and you also get a $1400 per child. So that's very generous and that should help you through, through the spring, I hope. And very important, stimulus is not taxable. So don't worry about it, just grab it, spend it and move on. The next banger is… [laughter]
Gina: Number two with a bullet.
Claudia: Yes, actually, this just happened a few weeks ago. Congress decided to retro-actively make $10,200 of unemployment insurance, non taxable, and that's per person for household incomes under 150,000. So that means that if you file single and you made under $150,000, and you also collected unemployment, $10,200 of it is not taxable. If you're married, that $150,000 cap still, still applies. So it's like okay, it's an okay threshold if you're married, but it's a great threshold if you're single. If you already filed, you early birdies caught the worm, didn't you the IRS has stated that you do not need to file an amendment they will recalculate your refund and send it back to you. So they have your, they have your tax return. It's all computerized, they're just gonna like send it through the old you know, punch card machine… and spit out a refund for you, if you, if you require, if you qualify one and require one. And so actually, they right now they're saying please don't file an amendment because you're just gonna like, you're just gonna slow down for everyone. So just like chill and wait. And again, the uncertainty is good.
Gina: We know that's not what you like to do early birdies. But just if you listened to our last episode, you know, we talked about the IRS’s magic algorithms. The algos are crawling over all, over looking for your UI trying to get that rebate to you.
Claudia: Exactly, that AI is on your UI.
[laughter]
Gina: I am shocked we're not billboard charting record producers. With out collective IRS wit. [laughter] Alright, so greatest set number three.
Claudia: Yes, the last banger is enhanced unemployment. So, um, you know, after the first the very first relief bill back in March 2020. We were given $450 a week of additional federal unemployment, usually, unemployment is doled out by your state. So if you qualified for $1 of your state's unemployment, then you would get an additional $450 a week from the federal government. And of course, it was extended to self employed and gig workers who are usually kind of locked out of, of the whole unemployment insurance system because they're not on payroll. So that was great. And now, enhanced unemployment benefits have been extended until September 4th after the last relief bill. But that gives you, it gives you an extra $300 a week it's not quite as good, versus $450, but you know what we'll take it. And so yeah, those are the greatest hits.
[music]
Gina: These are some good greatest hits.
Claudia: I got some B sides for you. [laughter]
Gina: Yeah, hit us with those greatest hits.
Claudia: So let's talk about health care. So did you get hit with an ACA premium tax credit repayment? Do you even know what I'm talking about?
Gina: I'm shaking my head, I have no idea.
Claudia: I don't know how many people are aware of this. But when taxpayers register on the healthcare marketplace and understate their expected income, either through a mistake or through trying to be too clever by half. This results in a higher health care subsidy, which means you pay a lower monthly premium. So that's awesome. You know, you go in there, you're like I don't know, I'm making like $5000 a year and then you get this huge break on your premiums. Well, when the end of the year comes, you may not realize it, but you report your actual income. And you end up having to pay an extra tax. It's the premium tax credit, which is basically the amount of healthcare that you should have been paying that you should not have had subsidize... So in general, my advice to taxpayers when dealing, a taxpayer who’s kind of on that border of getting a subsidy, not getting subsidy, and especially freelancers who are not quite sure you know how much you're going to make.
Gina: Yeah, or income can change so much year to year.
Claudia: It really does. If you can afford it, just pay the premium without a subsidy. Because if it turns out that your income is much lower at the end of the year when you file your taxes you will actually get back that subsidy on your tax return. Which you know, depending on like, what your financial and savings situation is, might be a welcome surprise and more welcome than getting hit with an extra penalty for understating your income at the beginning of the year. It's not a perfect system. I have to say you know, I loves me some healthcare marketplace but yeah, I wish there was a better, a better way to do this. This is what we have so, so just just know that if you don't get the subsidy right now, it's not like gone forever. You'll get it back as a tax credit. But as a pandemic special.
Gina: Yeah!
Claudia: Yeah, for 2020 if you guys did that thing I just told you not to do which is understate your, your income to get a big, fat juicy healthcare subsidy. Yeah, you don't have to pay it back in 2020. So y'all lucked out. But don't expect that in 2021.
[laughter]
Gina: There's some, like extra easter eggs in this too.
Claudia: Oh, yes, definitely. Um, so after the, the first relief bill, this is totally random, but super awesome. And, you know, I'm really, really past due and coming. The first relief bill permanently made tampons and other menstruation products, as well as over the counter drugs, medical expenses, for the purposes of using your FSA or HSA plans, which are these like medical savings plans that are tax free. So basically what that means is your menstruation products and your, your advils, and your condoms and your lubes are tax free,
Gina: As they should be.
Claudia: A they should be, let's party.
Gina: Yes.
Claudia: So that's, that's fabulous.
Gina: Okay, I have to ask about the favorite acronym of the whole pandemic, the PPP. There's been so many keywords over the course of this panini press, pan dulce, whatever people define the pandemic on TikTok. So the PPP was like ancient history, but it's not tell me what's going on with that, as we're thinking about filing for this.
Claudia: Yeah, it's the it is, it is the, the gift that keeps on giving. Yeah, if you guys have been scared away from PPP, because when it was initially rolled out, it had, like, a million rules that could not possibly be followed by anybody without a full time accountant.
Gina: So what's so what's PPP like now? And who is it for like, because when we think about small business, I might be thinking about a restaurant that's been struggling? I might be thinking about a retailer. If I'm someone who does gig work and has no employees, am I a small business under all of this?
Claudia: You are a, you are the smallest of small businesses, but you're still a business. Yeah, I mean, if you drive for like, you know, if you're an Uber driver, if you have like a small, a small home business and Etsy business, you are a small business, if you file something called a Schedule C, then you are a small business, if you are not on someone else's payroll, if if a company doesn't take out the Texas before they pay you for your services, you are a small business.
Gina: So I’m a gig worker, I get any, I get some 1099 income. I’m not necessarily organized as a small business. I don't, I haven't gone out and incorporated but like I can apply for this?
Claudia: Yeah, you are a small business, exactly. so what the PPP loan is, so it's called a loan. And I think that's why people are like, kind of shying away from it. But it is if it is used correctly, which is if you use at least 60% of it for payroll or payroll equivalents, which is just your profit if you're a gig worker, or you know, a small sole proprietor person. If you use the loan for at least 60% payroll or payroll equivalence, and the rest is like, like rent, mortgage, utilities, then you can have that loan forgiven... So when they first rolled this out, they're like, Okay, and then you're gonna have to, like, have all this paperwork to prove that you spent it and that it was da da da, it was a nightmare. Um, so basically, um, Congress, I believe it was the second bill fixed it up and they're like, you know, what, or, or why don't we just say, if you're loan was less than $150,000 just signed this paper that says, I certify that I use this money correctly, and your loan is automatically forgiven.
Gina: Nice.
Claudia: And so basically, my advice is get a PPP loan. And if you know if it's gonna be $150, under $150,000 and just use it all for pay, like if you have a S corp, use it all for payroll. If you have a single member LLC or a sole proprietorship, you know, you just get a 1099 just pay it all out to yourself. You're and you're done, you know, your paper, your your paper trail, which you do technically you are supposed to, you know, use it correctly save the receipts for five years in case of an SBA audit that the Small Business Administration has nothing to do with with the IRS audit, they are not, they're not in this game at all. So...
Gina: Right, so you're saying it's a different part of the Treasury Department? So it's still the cutting checks part of the government but… over in the SBA.
Claudia: Exactly. Yeah. So. So, you know, they just want to make sure that you use the correct I mean, they're saying save the receipt for five years, are they really gonna go like after, you know, my, like, $3,000 loan? Probably not. But save it anyway. And the amount you're gonna get, it's equivalent to two and a half months of wages or wage equivalents. And you would just use whichever, honestly, you would use you, I think, right now, you can use either 2019 or 2020 tax return. Use the one with a higher number, so you can get a, you know, a higher amount of loan. And actually, this month, there are new rules that allow these same small business, sole proprietors, gig workers, instead of using their self employed profit, they can use their self employed gross income, which yeah, which is, and that's the amount of money you made before you subtract out all your expenses. So you definitely want to do that. And that applies to, to sole proprietors with less than $150,000 gross income a year.
Gina: So just to refresh the fruit when you're thinking about, Okay, I got all my 1099s here, and I had all of my expenses here, the number that you end up seeing on your Schedule C is often much lower than the total amount that you made, because you had expenses as a percentage of existences. And so what Claudia is saying is a big is a, as our new President Joe Biden likes to say a big fucking deal. [laughter] And what is the deadline to apply for this, if for those sole proprietors, and small business folks who may not have applied for PPP at all?
Claudia: So Uncle Joe just signed the PPP Extension Act of 2021 that it was about to expire March 31st. It now expires May 31st. So you have several months to make that happen. And I think you really should, it's very, very easy to apply, you just need if you’re sole proprietorship, you literally just need to look at your previous year's tax return. And it, you know, like every, there's a lot of FinTech companies, you can either go through your bank or, or through your credit union that you have a relationship with. Or you can just, you know, go through any of these FinTech companies that have set up a portal. There's like I don’t know Cabbage, Lendio, Smart Biz, there's a million of them, if you just Google PPP, like a bunch of them will come up. And, and yeah, I mean, it'll--
Gina: So we don't worry about the Mike Judge sounding names of these funky corporations, they're actually doing something for real for us?
Claudia: The cheesier sometimes the better, because they just literally, like, stick your numbers in an algorithm and spit out a result in, you know, in a day or two. Which, which is great. Yes. So um, and so once you receive it, you have 24 weeks from the time it hits your bank account to use the funds. And you have 24 weeks plus 10 months from receiving the funds to apply for forgiveness and again that forgiveness is like that one paper, that you, that you sign that says yes, I used it correctly. So um, so that that's awesome. If you already got a PPP loan, you can actually apply for a second PPP loan, you'll basically get the same amount. And if so, the requirements for that is that your revenue must have dropped at least 25% in any quarter of 2020 compared to the previous quarter of 2019. And so if you have that recoup if you--
Gina: I'm assuming that's most people.
Claudia: That's most people exactly, especially that first quarter where everyone just like shut down and there was like no work and no economic activity, you also have to have and for the second PPP loan, they did fix those, you know, those problems that we saw on the first PPP and made the requirement that you have to have less than 300 employees. So you know, you do have to be a small business. So sorry LA Lakers, no PPP two for you.
Gina: So again, Taxes. So we already talked about the stimmies are free, no tax implications. What about our PPP?
Claudia: So the PPP is tax free. And the expenses that you use to pay for with your PPP are still deductible. So you get like a double whammy. Exactly. So that um, but haha, caveat, on your federal return not all states are conforming to federal, it really depends, you know, if they want to. Some states are deciding to tax it, some states aren't, it really just depends on that state's vibe and a place that you can check. The Tax Foundation, which is tax foundation dot org has a pretty up to date list of states, and you know if they're conforming or not to PPP taxation.
Gina: Wow, this is great news. And part of my takeaway from this is this tax extension is not just for me to fool around a little longer bingeing shows, but actually to figure out what the heck I need to do here. I don’t know if this is a conflict of interest to ask, but like, do you think that the average person who's a gig worker who’s trying to take advantage of all these benefits, like, is the tax software going to be enough to figure it all out? Are these algos going to help us or do we need professional help?
Claudia: I think you should be able to figure it out yourself. I mean, you know this tax software really, it really holds your hand and walks you through with their, with their questions, I think you should be okay. But again, like part of the reason we need time, we need extra time to file is because the software needs to be updated with these rules. And the software can't be updated with these rules until the IRS promulgates revenue procedures on how exactly to do this. So for example, right now, I have like five people that I can file. However, they owe premium tax credits, and the Treasury Department, you know, the IRS has not has not put out guidance on how exactly to do that. So you can't program the software, so tax preparers can't hit file.
Gina: So in addition to this May 17th, it sounds like everybody's filing for an extension.
Claudia: Yeah the IRS really needs an extension. I mean, they're just trying to push out those $1400 checks, you know, and they still have to like file, you know, they still have to like file everyone's tax returns, they got to fix that, like 10,200 unemployment insurance, non taxable, un-insurance situation, and they're still working on 20. You know, on 2019 tax returns.
[laughter]
Gina: Fun, fun.
Claudia: God, God bless them. Okay, so we talked about the greatest hits. We talked about some B sides. But wait, there's more.
Claudia: But wait, there's more for 2021?
Gina: Yes.
Claudia: So there is a $300 above the line, charitable contribution deduction, both for 2020 and 2021. And what that means is, I don't know if you guys have noticed, especially if you don't have a lot of itemized deductions, but your charitable deductions most years, they just go in a trash can of unused ability with respect to your, to your taxes, not to the benefit of humanity. So, yeah, please keep, keep making charitable contributions…
Gina: Right but like that, you know, in lieu of the Christmas present, the birthday gift, those $50, $100, $25, $10 donations, you weren't doing much if you weren't really, really incredibly itemized, right? Exactly. Yes. So now, the IRS is allowing $300 to be directly subtracted from your taxable income, which is awesome. So yes, so just make sure that it is a 501 C3 charitable organization, no political campaign donations, those are not taxable and go fund means for individuals are I'm gonna say 99.9999% sure that those aren't taxable.
Gina: You know, keep up those GoFundMe donations, keep up those mutual aid donations, but they're not going to help you here.
Claudia: Yeah, exactly. Yeah. Yeah. I'm not saying be stingy. I'm just saying…
Gina: Don’t try to be fraudulent with the government by deducting your political contributions [laughter] as wonderful as they are.
Claudia: Yes. Another thing that they they stuck in one of the relief, I think the second relief bill is and, you know, it's questionable whether this kind of tax incentive will will actually spur growth in the restaurant industry, which has been hit very, very hard by the pandemic, but but let's give it a try right now they've made meals 100% deductible for tax years 2021 and 2022. They used to be 50% deductible. But now you can, you can take, you take the whole meal as a write off. So yeah, just let's bring back the three Martini lunch.
Gina: Yes, as the world opens back up business lunches galore.
Claudia: Please, please.
Gina: I'll take you out to business lunch, Claud.
Claudia: Fabulous.
Gina: Once I get vaxxed, that'd be great. [laughter]
Claudia: Um, what else?
Gina: Oh, the kiddos.
Claudia: Yes, for the breeders listening. [laughter] The child tax credit for 2021 is now $3,000. It used to be $2000. So $3000 is, is quite, quite a boost. And if you have kiddies under six years old, you get $3600 per head. That's, that's a very big deal. The credit is actually supposed to be an upfront periodic payment. That's the way it was written into the bill. No more details have been provided.
Gina: Why the frequency? What kind of period? Heavy flow? Light trickle?
Claudia: Like spotting? [laughter]
Gina: Yeah.
Claudia: So the first payments and also written into the bill, the first payments are supposed to show up July 1st. So I'm sure there will be guidance. Again, uncertainty in the air, roll with it. Let's see.
Gina: So we don't even know if that's like, you have to file your 2020 taxes already. That's just like a credit that's going to arrive at some point after July.
Claudia: Yeah, I mean, literally have no idea than what I just told you. But I'm sure there will be the more information to come.
Gina Right, t's alright. We're two shruggie emojis here. But… [laughter]
Claudia: Exactly. But, But yeah, and you know, using this opportunity to plug Taxes for Artists. Follow the Instagram Taxes for Artists where I always try to post the latest, the latest information on all things tax stimulus, and--
Gina: -- In beautiful, shareable slides, so you can put it in your stories and be a hero to your friends
Claudia: Or means. Yeah, exactly. So that's coming down the path down the pike.
Gina: Great. And there's other tax credits happening?
Claudia: There's a few other little little bits and bobs that I'm just gonna gloss over. The Earned Income Tax Credit gets a big increase. It’s the, the EITC. It's a refundable tax credit aimed at lifting the working poor out of poverty. What what refundable tax credit means is, you know, if you paid say $500 in tax, but you get a $1,000 refundable tax credit, then you will get the full $1000 not just the tax that you paid, but you will get a refund above the amount of tax that you paid in.
Gina: So that's designed to put extra cash in the pockets of families who are kind of in that working, poor category and encouraged them to file taxes in order to get it.
Claudia: Exactly, exactly. Yes, so, so I definitely want to put that PSA out there that if you know a working poor family who generally don't bother filing their taxes because you know, they're like I made so little I you know, I'm not going to owe anything. Actually, you know what? Try it, give it a, give it a whirl because you may get the earned income tax credit. And here in California, we have our own earned income tax credit as well. So you can go to a VITA Center, which is a Volunteer Income Tax Assistance Center. It's run by the federal government but they have, they have offices all over the country.
Gina: And check out our previous episode, Claudia talked a bunch about the VITA centers and also how that can be a great volunteer opportunity as the world opens back up if you want to. If you become a tax nerd yourself and want to help out other people to be able to get their taxes done for free. It's a great opportunity on both sides.
Claudia: It really is. I mean you can give a family back like $6,000 in one fell swoop and that that's that's a great feeling.
Gina: Claudia, we've covered a lot of ground.
Claudia: There's a lot of things that happened this year.
Gina: It feels like there's only more to come.
Claudia: There will be.
Gina: So for that person who's listening through who's the diligent patient person, but like hasn't filed yet and is now feeling overwhelmed. What are your two takeaways for today?
Claudia: I would say… if you’re on instagram, I would follow IRS News because they’re always putting out little, little nuggets of information that you may or may not know. The IRS website is a great place to start, IRS dot gov, you can actually, yeah if you’re wondering where your payment is, you can actually track your payment, you can track your refund there. There’s a lot of stuff where you don’t have to pick up a phone that you can figure out. Also your stimulus might come in a debit card in a blank envelope, do not throw that away.
Gina: Oh yeah, we had one of those in my home. I was like, it looks like junk mail.
Claudia: It’s not junk.
Gina: This is an open plug for everyone who’s an anxious avoidant, it’s a good time to be opening your mail, because there might be a stimulus in there.
Claudia: Exactly, there might be goodies or like a, you know, Bed, Bath, and Beyond coupon in there. [laughter]
Gina: Yeah there you go, double mask and get a little treat with that stimulus check. [laughter] Use the website.
Claudia: Absolutely.
Gina: As always Claudia, thank you so much for your guidance. For more information on what you heard today, you can check out a bunch of resources we are going to put on our website. Claudia has written a bunch of this out, so we’ll have information you can cross check, if you didn’t catch any of the deadlines you heard here. Follow, follow, follow Taxes for Artists, impeccable advice, A++ memes, good and beautifully designed slides, and listen to our other episode, Get your taxes right, this is a spinoff edition, Get your taxes right for 2020 because dang was it quite a year that we are all going to be processing for awhile, but let’s get some tax benefit out of it while we’re out here.
Claudia: Absolutely, and yes don’t be hard on yourself if you, if you miss something or you felt like you didn’t do everything correctly, you didn’t hit all the targets this year, it’s been a hell of a year but it can only go up from now.
Gina: Knock on wood. Thank you so much Claudia.
Claudia: No problem, good talking to you, Gina.
[interview ends]
Aminatou: Claudia, love to hear from Claudia, love to hear from Claudia. Love it.
Ann: What a pro.
Aminatou: If you could both get Joe Biden on here to tell us about the stimulus, that would be great. But we’ll take Claudia for today.
Ann: I love the idea that our list is like okay, first choice to explain the stimulus, the President of the United States, second choice, our accountant Claudia Yi Leon.
[laughter]
Ann: And I’m like number two is not that bad, you know what I mean, like we’re doing great.
Aminatou: Number is doing better than number one when it comes to this issue, as far as I’m concerned. So uh thank you to number two.
Ann: Yeah the best. Anyway I will see you on the internet and in the spreadsheets.
Aminatou: See you in the spreadsheets, booboo
[outro music]
Aminatou: You can find us many places on the Internet: callyourgirlfriend.com, Apple Podcasts, Spotify, Stitcher, we're on all your favorite platforms. Subscribe, rate, review, you know the drill. You can call us back. You can leave a voicemail at 714-681-2943. That's 714-681-CYGF. You can email us at callyrgf@gmail.com. Our theme song is by Robyn, original music composed by Carolyn Pennypacker Riggs. Our logos are by Kenesha Sneed. We're on Instagram and Twitter at @callyrgf. Our producer is Jordan Bailey and this podcast is produced by Gina Delvac.