That means that someone who was philanthropic could donate enough that year to “wipe out their entire tax bill,” said Cari Weston, director of tax practice and ethics for the American Association of Certified Public Accountants.
Medical deductions. The December Act made – again – a lower threshold for the deduction of medical expenses permanent. Taxpayers can still deduct non-reimbursed medical expenses that exceed 7.5 percent of their income, instead of 10 percent. To make the deduction, the filers must list.
The lower limit was 7.5 percent before the 2017 tax law temporarily increased it to 10 percent, Ms. Weston said. The last change will revert to the previous rule. Still, she said, the trigger is of limited help to most people.
For example, if you adjusted gross income of $ 100,000, you can now deduct medical expenses that exceed $ 7,500 ($ 100,000 times $ 0.075) If you had $ 10,000 spending in 2021, your deduction would be $ 2,500 ($ 10,000 minus $ 7,500). Under the previous rule, your expenses would not have exceeded the $ 10,000 limit so you would not have qualified for a deduction.
Business lunch deductions. This is more helpful for businesses, but can apply if you’re self-employed and take customers out for lunch or dinner. Companies can deduct 100 percent of business meals for 2021 and 2022 (but not for 2020) instead of the usual 50 percent. This is to help hard-pressed restaurants that have suffered restrictions during the pandemic. The deduction applies to both customer meals and employees on business trips and must apply to food and beverages provided by a restaurant.
How has the pandemic changed your taxes?
Are business stimulus payments taxed?
No The so-called economic impact payments are not treated as income. In fact, it’s technically an advance on a tax credit known as a Recovery Rebate Credit. The payments could indirectly affect state income tax payments in a handful of states where federal tax is deductible from taxable state income, as our colleague Ann Carrns wrote. Continue reading.
Are my unemployment benefits taxable?
Most of time. Unemployment insurance is usually subject to both federal and state income tax, although there are exceptions (nine states do not levy their own income taxes, another six are exempt from taxation according to the tax foundation). However, they do not owe so-called wage taxes, which are paid for Social Security and Medicare. With the new relief bill, the first $ 10,200 in benefits will be tax-free if your income is less than $ 150,000. This applies to 2020 only. (If you’ve already filed your taxes, see IRS guidelines.) Unlike employer’s paychecks, unemployment taxes aren’t automatically withheld. Recipients have to register – and even if they do, federal taxes are only withheld at a flat rate of 10 percent of the benefits. While the new tax break will provide a cushion, some people might still owe money to the IRS or certain states. Continue reading.
I worked from home this year. Can I make the home office deduction?
Probably not, unless you are self-employed, an independent contractor, or a gig worker. The revision of the tax law at the end of 2019 removed the home office allowance for employees from 2018 to 2025. “Employees who receive a paycheck or W-2 solely from one employer are not entitled to the allowance, even if they are currently working from home. Said the IRS. Continue reading.
How does the family leave the credit work?
The self-employed can take paid foster leave if their child’s school is closed or their usual childcare provider is unavailable because of the outbreak. This works similarly to the smaller sick pay – 67 percent of average daily earnings (for either 2020 or 2019), up to $ 200 a day. However, the care leave can last 50 days. Continue reading.
Have the rules for donating to charity changed?
Yes. This year, you can deduct up to $ 300 for charitable donations even using the standard deduction. Previously, only those who made a breakdown could claim these deductions. Donations must be made in cash (such as checks, credit cards, or debit cards) and must not contain any securities, household items, or other property. For 2021, the withdrawal limit for joint applicants will double to $ 600. Itemizer rules have also become more generous. The charity donation limit has been removed so that individuals can contribute up to 100 percent of their 60 percent gross adjusted income. However, these donations must go to charitable organizations in cash. The old rules apply, for example, to contributions to funds advised by donors. Both provisions are available until 2021. Read more.
“It helps boost the restaurant economy,” said Ms. Weston.
Changes in tax breaks for educational spending. The December Act also removed the recurring deduction for tuition and related expenses, but widened the income limits for the lifelong study loan, which will cover many of the same costs starting in 2021. The loan is worth up to $ 2,000 per tax return.
“This is a net positive for families,” said Mark Kantrowitz, former editor and vice president of research at Savingforcollege.com.