Money Rehab with Nicole Lapin - 5 Big Tax Changes That Will Save You $$$ This Year

Episode Date: April 6, 2021

Just because 2020 was a dumpster fire doesn’t mean your taxes have to be. Nicole explains why you may qualify for free income tax help, what to do if you didn’t receive your stimulus checks, and how to figure out if you can write off medical expenses from 2020. From This Episode: If you’re filing your own taxes, look on Line 30 for a place to fill in the Recovery Rebate Credit if you didn't get your stimulus check.  Find out more about the Earned Income Tax Credit here. Find out more about VITA here. VITA is an organization that offers free tax coaching to folks in low-mid income brackets, as well as persons with disabilities, the elderly and individuals with limited English proficiency who need assistance in preparing their taxes.  Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. Hey guys, are you ready for some money rehab? upended by an unlikely player. GameStop. Today's episode is affectionately called Just Because 2020 Was a Dumpster Fire Doesn't Mean Your Taxes Have to Be. And when I say dumpster fire, you know what I mean. Holding onto money is hard enough as it is, but throw in a pandemic and it's damn near impossible. Our question today comes from Kevin.

Hi, Nicole. I'm wondering what kind of tax changes are happening because of COVID-19. from Kevin. Hi, Nicole. I'm wondering what kind of tax changes are happening because of COVID-19. Well, Kevin, every year, thousands of Americans miss out on tax perks that they're qualified for, and I do not want that to happen to you. So here are the five biggest differences in tax season this year. Number one, the deadline is now May 17th instead of the traditional April 15th deadline. Now, if you file for an extension beyond that, it's not a big deal. I've already filed for my own extension. You'll have until October to file. But please remember, this is an extension to file and not to pay. If you owe taxes, you still have to pay them by May 17th. Now, the reason you might want to get this done earlier rather than later,

even though there is an extension, is first, the sooner you do them, the sooner you get a refund if you're expecting one. And second, if you qualify for the third stimulus check but weren't eligible for the ones last year, remember last year's stimulus checks were based on your finances or what you made the year before, which would be 2019. And because of the 2020 aforementioned dumpster fire, all of our finances changed dramatically. Tens of millions of people lost their jobs. And if that happened to you and you didn't qualify for the first couple rounds, but you do qualify for the last one of a check of up to $1,400, the only way for the IRS to know that is if you file your taxes. So even though there's an extension, try not to push it if you're in those two categories. Remember, the stimulus checks are not taxed, though. Think of

them as an advance on a tax credit. Normally, you'd get a tax credit like you would a refund, but in the case of the stimulus checks, you'd get a tax credit like you would a refund, but in the case of the stimulus checks, you get it early so that you can spend it because so many of us need it. Number two, if you qualified for the second stimulus check and you didn't receive it, you can tell the IRS basically, yo, where is my money? The official name for the credit, remember I said,

these stimulus checks are basically an advance on a tax credit. Well, if you didn't get that advance, now you get the tax credit part. It's called the recovery rebate credit. So if you're filing through an online system, TurboTax, whatever, your recovery rebate credit is going to be generated for you. But if you're filing your own taxes, you're going to see that on a special line. And I'm going to link all of that info in the show notes. You can also find it on our Instagram at Money Rehab Show.

Don't make this mistake. The IRS is not going to calculate your recovery rebate for you. You're going to have to do it yourself. On the line in your taxes looks like a little box where you can say yes or no, but you actually have to write in a number. So in order to figure that dollar amount out, you have to go to the IRS website. I know that might sound scary. It's irs.gov. You might think you're walking right into the lion's den and the IRS is going to come and audit you for just going on their site.

That is not the case. They actually have some very helpful tools for checking eligibility and tracking your refund. Depending on whether or not you end up receiving a refund or owing money after doing your taxes generally, your recovery rebate credit is now going to either be added to that refund or it will be subtracted from the money you owe. Number three, charitable deductions have gotten way more love this year in an effort to encourage more charitable giving in the wake of the pandemic. Now you can deduct up to 100% of your adjusted gross income or AGI.

What the heck is AGI? It's your total income minus all the other deductions you've already taken. It's a big increase from the 60% that it normally is. So that is if you are itemizing your deductions. If you're taking a standard deduction, though, you can take a new above-the-line deduction that will help you write off up to $300 of charitable contributions you made in cash. Number four, if you found yourself with hefty medical bills last year because of COVID-19 or just because you had a shitty medical year like yours truly, you might find some tax relief. You can deduct, this has always been the case, above 7.5% of your adjusted gross income for medical expenses. So for example, if your AGI

was $100,000 for easy math, you could deduct out-of-pocket medical expenses beyond $7,500. You have to itemize your deductions in order to write those expenses off on your tax return. But let's say you had to go to the hospital, you had to get COVID-related medicine, all of that can be deducted from your tax return along with any other reason you had unreimbursed medical expenses. If you had to also take sick days because you yourself had COVID or somebody you love had COVID and you had to take care of them, talk to your employer about getting some tax love for that. Number five, the earned income tax credit. It helps low and moderate income workers and families get a tax break. Typically, eligibility for this tax break comes from a certain income of the past year, but not this year.

This year, if your earned income was higher in 2019 than it was in 2020, which is basically everyone, you can use the 2019 amount to figure out your EITC for 2020. If you are not sure, the IRS actually does have a handy-dandy calculator. I'm not lying about this. I do geek out about savings calculators, and I will link those in the show notes if you also want to geek out or test them out. And it will tell you if you're eligible for this so-called look-back earned income tax credit. earned income tax credit. You'll definitely want to look into this, whether or not you use the calculator or ask your accountant on your filing status and whether or not you have kids. This could mean up to $6,660 on your tax return. I actually need a little bit of help with this. And you guys know that doctors have doctors and shrinks have shrinks and trainers have trainers

and even personal finance experts have experts who know way more about certain subjects than they do. Like in this particular one, it's about the earned income tax credit. And I know a little bit about it, but I don't know everything about the earned income tax credit, but I sleep with someone who does. My romantic partner is a super big proponent of the earned income tax credit. He actually created it in California in 2015. And because of him, I'm talking about him like he's not here, but he's sitting next to me on the couch right now. How many people have how many billions of dollars? program called Cal EITC for me, which we started in 2015. There are about 5 million Californians who've received over $10 billion of state and federal earned income tax credits because of

our organizing work. And if you're listening, you might wonder, well, why do you need organizing work to ensure that people get their earned income tax credit? And here's why. Wait, wait, baby, before you get all political and all that stuff, can you just like tell me what the earned income tax credit is? Yeah, you bet. You've heard about all these tax breaks for ultra billionaires and big monopolies. The earned income tax credit is a tax break for working people. So if you earn a low income or maybe a middle income, you get a tax break, too.

And it's called the earned income tax credit. And it specifically means that you get a tax break too. And it's called the earned income tax credit. And it specifically means that you get cash back. And the amount of cash you get back depends on how much you've earned and how many kids you have. So what's different this year than last year? Well, there's a few things. First of all, you are going to get more if you have kids. And in the case that perhaps you earn more in income in 2019 than you did in 2020, you can count your 2019 income towards getting more earned income tax credit. But you don't need to know all of these answers yourself. You can get a tax preparer to help you.

And I need you to hear this really clearly. Are you talking to me or to everybody? Because sometimes you say it like that to me when I'm in trouble. That's not true. Who needs to hear it really clearly? That is not true. For everyone listening, it's usually I'm in trouble. That's not true. That is not true. It's for everyone listening. It's usually I am in trouble, but for everyone listening, I need you to know that there'll be tax preparers. We'll try and charge you a couple hundred dollars or maybe even a couple thousand dollars to help you get your earned income tax credit. Don't fall for it. If you're eligible for the earned income tax credit, that means

you're eligible to get your taxes done for free by a VITA tax preparer. That's V as in Victor, I, T as in Tom, A as in Adam. Google VITA tax preparer, and you'll be able to find a place to get your taxes done by a VITA tax preparer for free in your area. Unfortunately, a lot of vulture tax preparing firms prey on low-income people who don't know about the earned income tax credit and then end up taking sometimes half or more of your earned income tax credit in unnecessary fees. That sucks.

It really does. I don't know how people sleep at night, but we're here to make sure that doesn't happen to you. The other thing we need you to know is that even if you don't owe taxes, you can still get the earned income tax credit. But a lot of people who don't owe any taxes don't think to file a tax return. We need you to file a tax return, even if you earned a very low income, because we don't want you missing out on your earned income tax credit.

So basically you get money without paying any money. That's correct. There are many people listening who owe no taxes, who earned a low income, and will get cash back because of the earned income tax credit. That's pretty sweet. I think it's pretty awesome. You're so smart, baby. I'm just trying my best to help people. And keep up with me, obviously.

I need to work better on that. That's true. So is that the look back situation? Is that what we're hearing in the news that there's this look back for the EITC in 2020? That's part of what we're hearing. And another part of the look back is this. If you're listening and you haven't filed a tax return in a couple of years, you might be able to get your earned income tax credit going back as many as three years. The most important thing is that's a big deal. It is a big deal. And it can mean, it can mean thousands of dollars per year. There'll be people who've filed for their EITC going back a few years that could get $15,000,

$20,000. If you're in doubt though, go on the internet, find a local VITA tax repair, V-I-T-A, and get your taxes done for free and you'll find out. And I would totally like to brag about you because I like to brag about you all the time, but how do you know all this stuff about EITC? How are you so smart? Well, I grew up raised by a single mom and we faced a lot of financial turmoil when I was a kid. In fact, when I was a teenager, we lost our home to foreclosure. And my mom, like so many other single moms, worked as hard as a mom can work. And one of the things that helped her pay her bills was getting the earned income tax credit.

So about six or seven years ago, I started reflecting on the reality that since I grew up in California, five minutes away from me, five minutes away from my lover and 41 years ago or so, I'm almost 42, that the biggest thing that's changed in California is that more and more and more people are working harder for pay. That's not enough to afford life's basic needs. So I wanted to do something to get more money in the pockets of low-income people. And I learned in 2015 that California was one of the states that didn't have a state version of this earned income tax credit. Now, if you live in California, you know that California has the highest rate of poverty in the country. Almost

eight out of 10 Californians live paycheck to paycheck. We need more policies that make work pay better. And inspired by trying to accomplish that, I organized a citizen-led campaign to get the state to create an earned income tax credit. And in the time since, we've been able to win three big expansions of it. Originally, the state earned income tax credit reached 400,000 people a year, and now it reaches over 3 million people a year. You're so badass. I love you, and I want to talk to you for longer, but you have a 1 o'clock call, so get out of here. I love you, too.

Thank you so much to my in-house EITC expert, Joe Sandberg. Now, here's today's tip you can take to the bank. This is not a tax change per se, but it's a change in how we all worked at home. If you're one of the millions of workers who worked out of their house, you're not going to be eligible to claim a home deduction since that's reserved only for self-employed folks. Sorry. Now, just because you were forced to work from home this year during the pandemic does not necessarily mean you can deduct your home office. This goes for anyone who works for a company or an individual. And that's it for today's episode.

I'll chat with you tomorrow for some more money rehab. But in the meantime, don't do anything with your money or your taxes that I wouldn't do. Money Rehab is a production of iHeartMedia. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Catherine Law. Money Rehab is edited and engineered by Brandon Dickert with help from Josh Fisher. Executive producers are Mangesh Hatikadur and Will Pearson.

Huge thanks to the OG Money Rehab supervising producer, Michelle Lanz, for her pre-production and development work. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all. You spend my money, money, money You spend my money, money You spend my money, money, money You spend my money, money, money