After a year unlike any other, it makes sense that filing your 2020 taxes will be different from years past. Understanding which tax deductions apply to you and your specific situation could decrease the amount you owe to the government and increase your tax return. There may even be a few things you aren’t thinking about after a year filled with so many changes.
Tax filing deadline is now May 17
The COVID-19 pandemic turned the working world upside down in 2020. The number of employed Americans working from home over the past year skyrocketed from 20% pre-pandemic to 71% by the end of 2020, per a Pew Research Center study.
While working from home can certainly change your tax situation dramatically, it’s also worth noting that deductions related to medical expenses, student loan interest, self-employment, and even charitable donations could all impact how much money you owe toward taxes this year.
The Internal Revenue Service (IRS) has extended the tax filing deadline to May 17, 2021, to allow taxpayers extra time to prepare their returns following the uncertainty of the past year and complications caused by the coronavirus pandemic.
You can take advantage of the extra month by working with a tax professional to ensure that your return is in tip-top shape and includes every deduction that applies to you.
Standard deductions vs. itemized deductions
A standard deduction is a dollar amount pre-determined by the IRS that your overall income is reduced by before it is taxed if you are not itemizing your tax deductions. While your standard deduction depends on your filing status, age, and other eligibility requirements, for 2020, the IRS standard deductions are as follows:
- Single or Married, filing separately: $12,400
- Married, filing jointly: $24,800
- Head of household: $18,650
As reported by Kiplinger, taxpayers ages 65 and older, or who are blind, can claim an additional standard deduction of $1,300 if married, filing jointly, or $1,650 if filing as single or head of household.
If your standard deduction totals more than what you would be able to deduct by itemizing your tax deductions, it is typically recommended that you choose to file with standard deductions. But even when filing taxes with a standard deduction, you may still be eligible to claim certain “above-the-line” deductions that are not dependent on itemization.
Because 2020 came with numerous changes for so many, here are some deductions to be aware of when filing your personal income taxes this year:
Home office deductions
If you started working from home in 2020, you may be interested in looking at what home office expenses are eligible for tax deductions. Using home office write-offs on your taxes isn’t a new thing, but it can be tricky to navigate.
Standard home office deductions allow eligible taxpayers to record deductions for their mortgage interest, taxes, maintenance, and other expenses based on the percentage of their home used for business purposes. But here’s the important part — not everyone working from home is eligible.
According to Turbo Tax, “If you’re an employee working remotely rather than an employer or business owner, you unfortunately, don’t qualify for the home office tax deduction.” Some employees working remotely, however, could still be eligible for state income tax deductions or tax breaks depending on where you live.
Additionally, if it’s a condition of your employment to maintain a home office or it’s necessary to maintain business operations (which may have happened in 2020), your home office could still be eligible for some deductions on a federal level, provided you meet certain criteria. The IRS website has a detailed publication that lays out the requirements for home office deduction, so if you’re unsure, you can check to see if you qualify.
If you were self-employed in 2020, it’s worth taking a look at the IRS’s self-employment tax regulations to determine which deductions you may qualify for based on your unique tax situation.
Self-employed individuals filing either a Form 1040 or 1040-SR Schedule C may also be eligible for an Earned Income Tax Credit (EITC) and can use the IRS’s EITC Assistant to determine eligibility. Under the FFCRA, there are also new special IRS provisions for self-employed individuals and tax credits related to sick and family leave in 2020, which you may qualify for.
Teachers, counselors, administrators, and other educational professionals saw the year 2020 change just about everything about the way they do their jobs. Per the IRS, eligible educators may qualify for deductions of up to $250 for expenses not reimbursed by their employer (or $500 for two-educator married households filing jointly).
These expenses can include things like supplies, continuing education courses, books, or technology related to your job. COVID-19 protective equipment such as masks, cleaning supplies, and other similar items can also be included if purchased after March 12, 2020.
Disaster-related tax credits
Individuals impacted by federally declared disasters like a hurricane, wildfire, tornado, or the like — of which there were many in 2020 — may be eligible for additional tax deductions.
Even taxpayers who choose to file with a standard deduction can reap the benefits of deductions related to disasters by filing a Form 4684 to claim a “Net Qualified Disaster Loss,” Kiplinger reported. Detailed instructions regarding new disaster-related tax deductions for 2020 can be found in IRS Publication 547.
With so much focus on the health care industry throughout 2020, it’s worth noting that the medical expenses you accrued last year on diagnosis, treatment, or disease prevention could be eligible for a tax deduction.
As U.S. News & World Report noted, taxpayers may be able to subtract qualified healthcare expenses from their adjusted gross income as itemized deductions (AGI), so long as the total of your unreimbursed costs do not exceed 7.5 percent of your AGI.
Additionally, if you contributed to a health savings account (HSA) last year, you may also qualify for an above-the-line tax deduction if you meet the IRS criteria for 2020.
Student loan deductions
Under the Biden administration, major changes are forecasted to happen where student loans are concerned, but we’re not quite there yet. For 2020 tax purposes, some taxpayers may be eligible to claim up to $2,500 in deductions based on interest paid toward student loans as an above-the-line deduction. The IRS lists criteria for student loan interest deductions on their website, so you can check there to see if you qualify.
Child tax credits
If you’re a parent, you’ve probably heard about the upcoming changes to the child tax credit under the American Rescue Plan, including potential monthly payments of up to $250 ($300 for kids under 6) per child. While these payments are expected to begin as soon as this summer and may be based on your 2019 or 2020 tax return, they won’t impact your 2020 filing.
For 2020, taxpayers can still claim a child tax credit of up to $2,000 per child under the age of 17, so long as they meet the IRS’s income and eligibility requirements.
If you adopted a child in 2020, you may be eligible for up to a $14,300 adoption credit through the IRS for qualified expenses, depending on your income level.
If you were fortunate enough to be able to help others during their time of need in 2020, you could be able to include a deduction for charitable donations on your tax return.
While itemized deductions for donations made to qualified charitable organizations are not uncommon, a new IRS provision for this year under the CARES act allows taxpayers to deduct up to $300 in cash donations to qualified charities as an above-the-line deduction. You can learn more about charitable donation deductions on the IRS website.