COVID Tax Deductions
And Other Important 2021 Tax Season Information
2020 was an unusual year to say the least. Face masks became a fashion statement, toilet paper was a luxury, murder hornet invaded the US, Tiger King was inescapable, socially distanced live streams were available for everything from classes to concerts, and do any of us really know how to pronounce the name of Elon Musk’s baby? Regardless, if you are reading this, congratulations you survived 2020 and now it is tax season! Putting a cherry on top of an un-top-able year there are some changes this tax season. But do not worry, it is not all bad! We did some of the work outlining COVID tax deductions and other important information you need to know about the 2021 tax season.
Tax Deadline Date:
May 17, 2021
Increased to $12,400 for single filings and $24,800 for married joint filings.
PPE is Tax Deductible
The IRS announced that Personal Protective Equipment is treated as Medical Expenses. The protective equipment used to prevent the spread of COVID includes hand sanitizer, soap, disinfectants, gloves, sanitizing wipes, and masks purchased after January 1, 2020. PPE purchases can not be tax deductible if they are eligible to be reimbursed or paid under flex spending plans and medical savings accounts.
Employee Retention Credit
Small to medium sized businesses facing hardships because of the Coronavirus received incentives from the CARES Act to keep employees on payroll. This is a 50% credit on up to $10,000 of wages incurred or paid from March 13, 2020 to December 31, 2020.
Early Withdrawals from Retirement Accounts
The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March 2020 allows people to withdrawal up to $100,000 without having to pay the 10% penalty; this is called the “Hardship Withdrawal”. Be aware that you still have to pay taxes on the money taken out early and that may bump you up to a higher tax bracket.
Tax Deduction for Money Owed to You
Did you loan someone money in the last year because they were going through a tough time financially? If friends or family owe you money and you do not think they will repay, you get a tax deduction. Technically, this has been around for a while but this year it will probably be most helpful.
Freelance or self-employed workers can claim a tax deduction for a home office. This includes using part of your home or a business location outside of your home in addition to having a home office.
If you are not itemizing your tax return you can still take a charitable deduction. The CARES Act allows a deduction for charitable contributions of up to $300. However, this only applies for monetary donations not clothes or home items donated to Goodwill or other local charities.
Tax Breaks for Teachers
Like the above-mentioned deduction for Personal Protective Equipment, teachers can deduct supplies for COVID prevention in classrooms. These include sanitizing and disinfecting products, physical barriers, tape or chalk for social distance guides, air purifiers, masks, and gloves. Kiplinger explains, “The deduction is available for up to $250 of unreimbursed cost of COVID-19 protective items paid by an eligible educator after March 12, 2020. An “eligible educator” is anyone who is a kindergarten through 12th grade teacher, instructor, counselor, principal, or aide in a school for at least 900 hours during a school year. The maximum deduction jumps to $500 for a married couple filing a joint return if both spouses are eligible educators – but not more than $250 each.”
Medical expenses above 7.5% of your adjusted gross income (AGI = total income minus other deductions you have already taken) can be deducted this year.