TAMPA, Fla. - Maybe over the past year, your work situation has changed. You're working from home now. Do you have a home office tax deduction? What about that stimulus check that you received? Do you have to report that on your 2020 tax return?
Doing your taxes this year may be a little bit different. That's why it's important to do your research and work with a professional tax preparer so that the IRS doesn't come knocking at your door. Let's take a look at the biggest tax concerns that Americans need to be prepared for in light of the pandemic.
Home Office Tax Deductions
One of the biggest misconceptions is home office deductions for those that were required to work from home after the pandemic hit. When the economy shut down last March, just about half of all U.S. workers stopped commuting to their office and began working remotely from home.
Since this was a big shift for many, they had to upgrade their home office equipment, purchase new desks, chairs and webcams for all those Zoom meetings. Hoping to get a tax break for some of this, it might be assumed that this could be a write-off. Unfortunately, if you are a W2 employee, this is not the case.
The 2017 Tax Cuts And Jobs Act limited the amount that employees could write off for working remote for any costs that exceeded 2% of their adjusted gross income. If there was a substantial purchase on home office furniture or equipment, it is suggested to ask your employer to reimburse you or offer some sort of stipend to pay for home office supplies.
If you are a self-employed worker, such as a 1099 contractor or freelancer, you do have the ability to claim a home office deduction, but you have to have a dedicated space that isn't used for anything else. If you think that you can write off the dining room, the same place that your kids do their homework and you eat your meal: think again. The IRS isn't going to go for that.
What about those stimulus checks?
For many that received economic stimulus checks for the first two rounds and with another stimulus check pending, there's some confusion on if taxes need to be paid on any of this money. The short answer is no, but just because you don't have to pay taxes doesn't mean that you shouldn't file a tax return. There are a few important reasons why you'll want to file a tax return for this tax year especially.
First, there are many low-income Americans who haven't filed a tax return that should do so, because they may claim an economic impact payment that will only be received if they file a return. Also, for those that didn't receive a check, they may qualify for a recovery rebate credit by filing their 2020 return. This could be a significant payment for many, because individuals could be receiving up to $1,800 -- $1,200 from the first check and $600 from the second -- and this isn't including any payment for dependents.
I know there is some concern for those who haven't filed their tax return for years. While there are fees and penalties the IRS will seek if there is significant taxes that haven't been paid, due to the pandemic and all the economic impact payments that have been issued by the government, filing a tax return is something that should no longer be avoided. It’s also important to know there are tax-relief companies that can assist those that may have a significant tax bill.
If you are intimidated by the idea of hiring a tax professional, you do have the ability to do it on your own. There are actually three simple ways that you can do your own taxes that I share on my blog. You have the options to print off a tax return, complete it manually, and submit an online form, there are several tax software programs that make it super simple to do it online.
Online tax software companies like TurboTax, for example, not only make it super easy to do your online taxes, they also offer a free expert review for those filing a simple tax return. That way, you can do your tax return online on your own, but have the reassurance of a professional CPA reviewing your return ensuring it was completed properly.
They aren’t the only ones that offer a similar review. H&R Block offers a virtual meeing with a tax preparer after submitting all of your tax documents online. Filing your taxes has never been easier. If you’re interested in filing your taxes online you can check out a list of the best online tax software programs available today on my blog, GoodFinancialCents.com.
Filing your taxes doesn't have to be complicated. And with all of the stimulus money that has been approved, now is not the time to avoid filing that tax return.
Jeff Rose is a combat veteran, certified financial planner and founder of GoodFinancialCents.com