Tax software won’t retroactively update to accommodate past tax law changes; there’s still stimulus relief available; individuals should file gig work income on their Taxes, and first-time Tax Filers don’t need to worry about tax filing. Additionally, if you are eligible for income-based Student Loan relief, you must meet the monthly payment requirements and take actions to achieve Student Loan relief. So far, that’s the summary and highlights of how these issues apply to you as an individual.
Stimulus Check Missing If You Have Been Declared Independently for 2020
A few years after graduating from college and starting your first-level job, you find yourself staring at a computer screen preparing your income Taxes and you suddenly realize to your dismay that you didn’t receive any Stimulus payments like many other Americans have over the last few months even though you’re an adult now capable of making your own decisions and finding your own employment.
If you can think back to those times you lived in your parents’ house in 2019, but are not living in their home in 2020, you will quickly recognize that you were a Dependent for 2019, but that you became Independently (adult) for 2020 for Tax purposes. Therefore, since you were a Dependent for Tax purposes at that time, you did not receive any Stimulus assistance that was paid out during 2020 – all of the money you should have gotten was simply not sent. There was no check, direct deposit, or anything sent from the government.
Taxpayers may have been able to claim stimulus funds by filing their taxes. However, taxpayers can’t receive their checks until they do so. Some people believe that if they don’t receive a form (such as a 1099) that they don’t have to file a tax return because of this misunderstanding. In reality, taxpayers need to report all of their business income regardless of whether or not the IRS has received a 1099 from their employer. The IRS has no record of any missing payments unless you file your tax return.
When freelancers (gig workers), independent contractors, and affiliate marketers report their income correctly, they ensure that they’re able to get paid properly and help pay taxes on those earnings. A 1099 is simply an IRS record of how much you earned; however, it is not a fully accurate indication of what you earned. It’s possible for you to have earned a lot more (or a lot less) money through various means.
Independent contractors, gig workers, and freelancers should always report their total business income regardless of whether or not they received a 1099. There is no limit on business income to file taxes. If you were paid through businesses as an independent contractor and did not file taxes, you can expect no record to exist with the IRS.
Your true tax return must match what you’ve really earned; it can’t just be based on how much money came into your bank account.
If you have a separate business bank account with good financial records, tax season will be easy! This eliminates all the work at tax time because it’s now possible to accurately and quickly complete your taxes.
Submitting Your Taxes For The First Time
If you’ve never filed taxes, you can get confused! You receive your income form in the mail/email and see all these numbers that you don’t understand, then hear things like Social Security tax and Medicare withholding, and everything seems hard to understand! That’s a NORMAL experience!
The process is actually very simple and goes like this:
- You receive an income form from an employer.
- You choose tax software or you use a tax professional.
- You complete or submit your income forms.
- You sign and mail your tax return.
- Either send what you owe or you will receive a refund.
That’s it!
If you hire a tax professional that’s usually the easiest way to go because they walk you through the process. There is definitely a learning curve with using tax software, and it’s still very pleasing to use.
Once you’ve filed your taxes, it’s much less intimidating. Changes in tax policy do not affect the taxes you paid in the past.
It is also possible for people who believe that their existing tax return will automatically be adjusted because of a new government tax credit and/or fund to be taxable are misinformed.
If an individual receives a notice regarding a new tax credit or tax benefit, the legislation has likely already passed; therefore, it will generally only apply to the upcoming tax. Given these changes to the tax laws and/or tax laws passed once a person has already submitted their tax returns electronically (e-file) using tax return software (e.g. TurboTax), the tax return will not automatically refresh by itself.
If any new tax credit was created or an already established tax benefit was extended during that calendar year; it will typically apply going forward to the determination of taxpayers’ tax liabilities.
This serves as a good reminder to anyone who has filed their taxes using tax return software such as TurboTax that they should not expect to see their tax returns electronically updated because of a new tax law.
Student Loans and the Slow-Paced Process of Paying Off Student Loan Debt
Many student loan borrowers feel as though they are stuck in a repetitive cycle.
Their payments continue to flow and their interest continually accumulates, creating many years of no substantial progress made toward paying off these loans. As a result, many borrowers end up paying twice to three times the total principal of each loan, which can quickly become discouraging.
The Department of Education does offer Direct Consolidation Loans to facilitate the consolidation of multiple student loans into one payment.
Under some circumstances, Direct Consolidation Loans qualify for temporary relief through the following federally funded provisions, including: 1) zero interest; 2) suspended payments; 3) student loan forgiveness programs; and 4) financial aid assistance.
While these strategies won’t necessarily help you obtain forgiveness, they can provide you with alternatives that have less financial burden.
Fundamentally though, it is not in your best interest to rely on government support as a way to solve your financial issues. One of the best possible options to eliminate long-term debt is normally to increase your income and/or reduce your debt at a faster rate than you would have otherwise.
The most effective approaches to solving money-related problems and creating wealth are not always the most glamorous, but they tend to be the most reliable.
What Are The Reasons For Asking These Questions
One of the things all of these different areas (stimulus payments, gig income, tax filing, and student loans) have in common is relative uncertainty.
The tax system and/or any programs run by the federal government and/or those loan programs can be confusing and are ever changing, and many people want to be able to make good decisions and prevent making mistakes.
Thus, it is imperative to have practical financial advice for dealing with any confusion in order to turn that into an action, and transforming that into a clear understanding of how to manage one’s financial situation effectively.
There is rarely a “magical” solution for a money-related question.
In many cases, the answer is as simple as:
- reporting your earnings properly
- report your verified income exactly as it’s recorded
- do not depend on policy changes or laws that allow you to correct any previous tax returns to your benefit
- explore loan opportunities that are better than previous ones
- take steps now instead of waiting until there’s a policy in place to help you out.
While they aren’t generally that exciting, these decisions can help protect your personal finances and assist you in avoiding having bigger financial issues later.
And in personal finance, avoiding mistakes is often just as powerful as making smart investments.
