2021 COVID-19 Income Tax Deductions to Consider
Did COVID-19 impact your income taxes in 2021? If you’re not sure, some lesser-known tax deductions could help you reduce your tax burden. Because of the pandemic, many people worked from home, bumped up their charitable giving, and sadly, some even experienced the virus itself. If any of these apply to you, there are some deductions that you may be able to claim on your 2021 tax return.
Home office deductions
If you were one of the many people who started a small business, got into a side-gig, or began freelancing in 2021, and you worked out of your house, then you may qualify for a home office deduction. However, the home office deduction doesn’t apply if you worked from home as a company employee. Most self-employed people receive a 1099-MISC and can claim the home office deduction by completing IRS Form 8829 and filing a Schedule C (the latter of which reports your self-employment income.) In addition to the home office deductions, you might also be able to deduct other work expenses like office furniture costs, office supplies, rent payments, mortgage interest, insurance, taxes, utilities, and other costs. Always check with your tax preparer to see if you qualify.
Tax law changes in 2021 allowed some added tax benefits for those who donate to charities. If you itemize your deductions, the law now allows deductions up to 100% of your adjusted gross income (AGI). So, if your AGI was $75,000, you can deduct up to $75,000 worth of charitable contributions. However, if you’re taking the standard deduction, you may claim a deduction of up to $300 per individual or $600 for married filing jointly. The caveat is that you must have made your donation in cash. What’s more, the organization you gave to must be tax-exempt, so use the IRS’ Exempt Organization Search tool to be sure. And as always, keep your dated receipts, canceled checks, credit card receipts, or acknowledgment letters for all your charitable donations made throughout the year.
Sadly, many people were sick with COVID-19 this past year, bringing with it significant medical bills. Even if you were one of the lucky ones who avoided the virus, yet still had hefty medical or dental bills, you might qualify for a medical expense deduction. The IRS allows deductions for any unreimbursed medical expenses that exceed 7.5% of your AGI. If your total medical expenses are less than 7.5% of your AGI, then you won’t hit the threshold. But if your medical expenses are more than 7.5%, you can deduct the difference (the amount over your threshold.) Also, to claim the medical expense deduction, you’ll have to itemize your expenses. While it’s challenging to keep track of medical expenses and do the calculations, it’s worth the effort if it makes your itemized deductions greater than the standard deduction.
The window for deductions is closing soon, so be sure to organize your 2021 paperwork, receipts, bills, and donations by the end of the year. And if you have a more complicated tax situation, consider working with a knowledgeable tax pro…especially Qbix, if you work in the nonprofit industry. As a top provider of nonprofit accounting services, our team keeps informed of all the latest changes and updates that may impact your organization. If you or someone you know could use a hand with their nonprofit’s accounting, we’re happy to help. Let’s team up and tackle your accounting challenges together. Get a free consultation call scheduled today.
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