The 4 Best Tax Questions from this Tax Season

/ Planning Within Reach, LLC/
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Tax season has been extended.

Federal returns are due on July 15 instead of April 15 because of the covid-19 crisis. That being said, PWR has already wrapped up most of our returns this year and kept track of the best questions we received.

Is my state tax refund from last year taxable?

It depends. State tax refunds are taxable if you received a tax benefit for deducting state taxes last year. In other words, if you took the standard deduction last year, your state tax refund will not be taxable this year. Even if you itemized using the Schedule A and listed your state taxes paid, the refund still may not be taxable because of the $10,000 limit imposed by the TC&JA of 2017. In other words, if your itemized deduction last year would have been the same if you paid in the exact amount of state tax owed, the state refund won't be taxable.

How should my Roth conversion be reflected on my tax return?

You will receive a 1099R showing the amount distributed from a Traditional IRA. Enter that amount as you would with any 1099R. Then report the Roth conversion on Form 8606, Part II. This will help you compute the taxable amount of the conversion that will flow through to the 1040.

When do I owe the underpayment tax penalty?

The IRS imposes an underpayment penalty if you do not withhold 90% of the tax due for the current year or 100% of the tax due for the previous year. That 100% becomes 110% if your adjusted gross income (AGI) is over $150,000. There are special rules and exceptions and you can request a waiver with form 2210 if you have a valid reason, such as if you live or work in a federally declared disaster area.

Will the stimulus check be taxable?

No - if you are eligible for the stimulus check, it will be tax-free. Checks will be issued for $1,200 to each taxpayer and $500 per child. Single filers that earn $75K or less ($150K for married filing jointly) will receive the entire check. Then there is a phase-out, with the benefit being eliminated completely for those with adjusted gross incomes (AGI) of $99K for single ($198K married filing jointly).

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.