2 ways the pandemic can change your taxes for 2020, and how to prepare

  • Tax season, when it will be time to file your 2020 taxes, is right around the corner.
  • If you donated to charity this year, you can claim a deduction worth up to $300 on your tax return.
  • Remote work became the norm in 2020, but depending on where you worked from and for long, you may have additional taxes to pay.
  • This article is a contributed piece as part of a series focused on millennial financial empowerment called Master your Money.

Your financial life may have changed a lot this year, including experiencing some "firsts" that could mean your tax situation will be different when you file your 2020 tax return next year.

However, there are still opportunities to take control of your finances, including planning around your tax refund. I want to help you to get smart about your situation now, so you know what to expect and what steps to take now so there are no surprises at tax time.

Here are two tax issues to be aware of this year:

1. Claiming the new charitable tax break

Let's start with good news: a new tax break allows people who don't itemize the opportunity to claim a charitable deduction for cash donations (or a cash equivalent, such as a check, credit card, money order, or mobile payment).

You'll get to deduct up to $300 from gross and taxable income on your return, reducing the amount of taxes owed. Keep in mind, the donation must be made to a qualified charitable organization, must be a cash or cash equivalent donation, and must be made by December 31, 2020. Donations of clothing and other non-cash items don't qualify. 

The rules for recordkeeping still apply for the donation. If you donate less than $250, you must have either a bank record such as a cancelled check or credit card statement or a receipt showing the name of the charity, date and amount of the donation. If you donate $250 or more, you need a written acknowledgment from the charity.

2. Paying income taxes while working in a different state

The pandemic closed many offices and sent people home to work. If working remotely means you don't cross a state line you usually cross or, in some cases, don't enter a different city, you should keep detailed records of: 

  • When you started working from home
  • If and when your employer closed your office
  • If and when your employer reopened your office and invited you back to work
  • If and when you returned to your office

Generally, cities and states that have an income tax only tax income of people who live or work in that city or state. If you are one of the millions of Americans working from home, it is possible you will owe tax only to the state where you live and work beginning from the time you started working from home. These records will help you and your tax professional determine how to allocate your earnings between multiple states and cities should that be the case.

Accurately allocating your wages in 2020 as a remote worker and ensuring the correct amount gets reported to each state and locality will result in some taxpayers receiving a refund and others owing tax. The rules for each state are different and some rules are changing during the year so tracking the state and local rules and decisions will be important if you normally work in multiple states.

Kathy Pickering is the chief tax officer at H&R Block, and a member of BI's Money Council.

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