I wish that I could say let's put 2020 behind us
and never think about it again.
But I'm afraid we have to look back
at what was for many a very exhausting year
and do something only slightly less exhausting, our taxes.
2020 brings with it all kinds of special considerations
when it comes to your income tax filing.
Stimulus payments, did you receive unemployment,
working from home?
Let's put on some chill new age music
and see if we can demystify some of this.
So let's say somebody lost their job last year
and they received those enhanced unemployment benefits.
What does that mean for their tax filing?
Very important, unemployment is taxable
and they have to make sure that it's included
on this 2020 return.
They are not gonna get the form directly mailed,
it appears to them.
They're gonna have to go online and get the 1099-G form
that will tell them how much is taxable
and if they paid any taxes in advance on them.
What about the stimulus payments people have been getting?
The stimulus payments are not taxable.
So you do not have to worry about reporting it
when you get to your return.
Some people didn't get benefits of a stimulus payment
who deserved it.
If your income was higher in 2019 taxes that they used
or 2018, you may have not gotten the stimulus
because your income was too high.
But lo and behold, 2020 comes and you made less money
and you now qualify.
So you can now apply for the stimulus payments
when you file your 2020 taxes and get what you didn't get
because your income was too high
when they based it on the prior year.
What is the home office deduction
and how can I take advantage of it?
That's been a question that many people are asking.
If you have your own business,
yes, the home office deduction is yours for the taking.
If there's a room you use for business
and you don't have an office that you use.
But the bad news is a few years ago,
they changed the deduction for people
who are on W2 for employees.
So an employee cannot take any employee business expenses
as a deduction, including the home office deduction.
So let's say that I am that freelancer.
There are certain items that I'm buying specifically
for work that I want to deduct at 100%.
Can you tell me if they are legit deductions?
Go for it.
Okay, office plant.
I'm gonna give you that one.
The plant is exclusively for your office and the office
is exclusively business, I'll give you the plant.
A new laptop computer.
If it's exclusively used for business,
then 100% would be used for business.
If you don't have a personal computer,
the IRS would say keep your time,
deduct that percentage of the laptop.
How about children's books?
I have to give you a nay on that one.
How about books that advance my career?
Continuing education, whether it's a seminar,
a book would be deductible.
And what about meals?
So meals are deductible if business is conducted.
Meals are 50% deductible.
There is a change I wanna mention for 2021.
Meals are gonna be 100% deductible.
That helps to stimulate the economy
and get us all out going there.
When should people file their taxes?
If you're able and you have the forms,
the earlier the better to file.
There's a lot of people stealing people's identity
and you wanna claim your identity first.
Easiest way, file early.
How do charitable donations affect your taxes?
In years past, unless you itemized deductions, not much.
Yeah, so this is actually a change
that Congress has talked about for a long time
and was finally able to get done
in the CARES Act, which passed last March.
We wanna demonstrate that we do care
for the American people in every way.
What Congress said is,
look, even if you take the standard deduction,
you can get a tax break of up to $300
for charitable donations.
So typically, that was only limited to people who itemized.
So it was a big deal.
Congress' thinking here is this was a way for them
to get more money out to groups
that were helping people during the pandemic
without specifically sending them a check directly.
And whenever you donate to charity,
you're going to wanna make sure
that that organization is putting your money to good use.
But how do you do that?
Charity Navigator is the nation's
and actually for that matter,
the world's largest independent evaluator of nonprofits.
We get to help donors find strong organizations
to make donations to.
You wanna know you're giving to a 501
legitimate nonprofit organization.
And that's where we really can be very helpful
because our database has the full list
of legally registered organizations.
If you don't find it, it may not be real.
And that's an important thing to know about.
Getting audited, now, that's a scary prospect.
And one strange or slightly infuriating aspect of it
is that those who make very little get audited
just about as much as those who make a lot.
It's true, an investigation by ProPublica last year
revealed that over the last 10 years,
audits for those claiming the earned income tax credit,
the nation's largest anti-poverty program, remains steady.
While millionaires were 80% less likely
to be audited than they were in 2011.
All of this might lead you to believe
that if you're ultra wealthy,
the system works a bit differently for you.
I'm Ben Steverman, I cover wealth at Bloomberg.
Okay, Ben, let's say I'm a newly-minted
ultra wealthy person.
How do I make sure that Uncle Sam doesn't take
even a substantial portion of my income?
If you have a bunch of wealth, you have an advantage
over people like me or you who every time we get a paycheck,
the IRS knows about it
and they're gonna expect their cut of that.
We don't have a control over when we can take income,
but wealthy people do.
And I think that's the key to the advantage
that wealthy people have on avoiding taxes on their income.
We have situations where people have billions of dollars
but are only reporting maybe 10, $20 million in income
in a given year.
Wait, how is that possible?
The best example is probably Jeff Bezos.
His wealth comes from Amazon.com
and he's worth almost $200 billion.
However, he hasn't paid taxes yet on a good portion of that
because all that wealth is just in the share price
of Amazon going up and he hasn't sold that many
of those shares.
The thing is that if he never sells those shares
or if he can somehow transfer them to his kids,
he might never have to pay taxes on that money.
That's a loophole that is in the law.
Joe Biden has actually said
that he wants to change that rule.
The rule is called stepped-up basis.
And this idea that when your kids or whoever
inherits your money, all those gains that would be taxable
are wiped out and they can start fresh.
And they never have to pay taxes on that.
But if his fortune is all in stock shares,
how can he afford to buy anything?
So you can borrow against shares,
you can borrow against buildings you own.
That's something that Donald Trump
and other real estate developers do.
You can use that debt to maybe finance your lifestyle.
And you're probably gonna be okay as long as the value
of those assets you're borrowing against continues to rise
and then you can continue to refinance that money.
Geez, so I guess the lesson here is to stop working a job
and become a high net worth shareholder then.
Yes, investors pay much lower rates than workers do,
even if we're talking about the working rich.
The working rich can end up paying a top tax rate
of about 50% if you're looking at New York or California,
which have the top income tax rates.
But these are people like doctors and actors
and entertainers and athletes
that end up paying this rate.
It's not investors because capital gains and dividends
are taxed at a much lower rate.
Donald Trump paying 750 or almost nothing in taxes
is maybe an extreme example of something
that business owners do all the time.
Because you control these businesses, you're able
to generate losses that maybe are just losses on paper
but they can help offset other income.
One of the billionaire's favorite things to do is
to buy a sports team.
Sports teams are wonderful for creating paper losses.
There's this idea of depreciation.
Let's say you build a factory.
The value of that factory is gonna lose value over time
just naturally and the IRS says, okay, well, you can deduct
that loss of value of wear and tear and everything
on your taxes.
Well, sports teams, real estate buildings have the same rule
and you're able to depreciate those over time,
even if the actual value of those things
like the sports team for example is actually going up.
The wealthy can hire very expensive advisors who can come up
with these schemes to lower their tax burden or avoid
not just the income tax but the estate tax as well.
So the other thing that's happened is that the IRS budget
has just been slashed over the last several years.
You actually have about 40% fewer agents employed
by the IRS than were employed in 2010.
So you have a situation where nobody's really checking
a lot of this stuff.
My W2, your W2, your paycheck, the IRS has computer systems
that can quickly analyze that and figure out
that, oh, you didn't pay taxes.
But if I set up some complex trust strategy
using offshore vehicles and then I'm also taking
all this depreciation off of my business
and reported all these losses off of my business
and oh, by the way, I'm employing some family members
at that business, there are so many different ways
that a business owner and an investor
can just structure things in very complex ways
that the IRS just really doesn't have the resources
to even take a look.
And that's why people are saying we need
to spend a lot more money on the IRS and that if we did so,
we could actually find trillions of dollars possibly
in new revenue just from people
who aren't paying their taxes
or who are using some questionable schemes to avoid taxes.
So if you can't get that tricky with your income taxes,
just remember that stimulus payments aren't taxed,
unemployment payments are and this one's gonna hurt,
but file as early as possible.