The Pandemic Tax Guide: Can You Claim Your Home Office? Are All These Tops For My Virtual Meetings Tax Deductible?

 ​   The pandemic brought many changes, correct? Maybe your dog is now your coworker. You bought a whole rack of new sweaters for all your Zoom meetings. Maybe you took advantage of all that time social distancing to embark on some self-improvement with online classes. Perhaps you incurred medical expenses. There may also be significant changes to the way you are doing your taxes.
 
   Here’s some common pandemic tax questions and issues that may have popped up for you.
 
Can You Claim Your Home Office as a Tax Deduction?
   As the IRS explains on its website, your home office must be used for regular and exclusive use and be the principal place of your business.
If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction.
You can deduct for the percentage of your home devoted to business activities.
There are two methods for deduction: simplified and regular.
You can use the simplified method for deduction: you can deduct $5.00 per square foot of your office, up to 300 feet. 
   In the regular method, you figure out what percentage of the house your office is: say it is 20%. You can then deduct 20% of the costs of maintaining that office. That’s 20% of rent or mortgage, 20% of property taxes and insurance, and 20% of electricity or phone bill.
Be sure you do this right. Working as an independent contractor or someone who files a Schedule C doesn’t necessarily mean you will be audited, but the IRS can take a closer look at independent contractors or someone who files a Schedule C.
 
Can You Deduct Clothing as a Business Expense?
   You can only deduct clothing if it cannot double as street clothing. So, if you bought a new blouse for a Zoom meeting, but then wore it to a socially distanced birthday party, that’s out.
Things like specific protective equipment and clothing for a performance can be deductible.
Keep your receipts for three years for any expenses you are deducting.
 
Can You Deduct the Cost of Starting a Business?
   Did you take all that time at home to finally start your side hustle or launch that business you’ve talked about? SCORE, a nonprofit and resource partner of the U.S. Small Business Association, highlights some business deductions you may have overlooked. Most businesses can deduct up to $5000 for startup costs. Local and state tax may also be deductible on your federal return. Some banking fees and charitable contributions can also get deducted.  You had to tell people about your new venture, right? Marketing costs may also be deductible. Employee wages and payroll taxes may also be included. Don’t forget retirement plan contributions and travel and entertainment.
 
Did You Keep Your Employees Despite COVID-19 Challenges?
   As the IRS explains, the employee retention credit was designed to make it easier for businesses that, despite challenges posed by COVID-19 chose to keep employees on the payroll. Heads up for 2021:  new legislation says eligible employers can now claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Therefore, the maximum ERC amount available is $7,000 per employee per calendar quarter, for a total of $14,000 in 2021.
 
Can You Deduct Medical Expenses?
   COVID-19 may have brought some added medical expenses for you and your family. According to the IRS, you may be able to deduct expenses you paid that year for medical and dental care for yourself, your spouse, and your dependents. You may deduct only the amount of your total medical expenses that exceed 7.5% of your adjusted gross income.  Some but not all of the items you can deduct are payments and fees to doctors, transportation to and from medical care, and payments for insurance premiums. If you took quarantine time to get in shape, quit smoking, or treat an addiction, those expenses may also be deductible.
 
Can You Deduct Online Classes?
   Did you take quarantine time to learn a new skill with online classes? Fees for those classes or educational expenses may be deductible. If you are employed and took the classes to improve your skills, as long as your employer did not already reimburse you, these may be deductible. Books and supplies can also be included.
 
Can You Deduct Educational Expenses?
   According to the IRS, The American opportunity tax credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you.  The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student. 
​
How to Claim Stimulus Money
   Economic impact payments are not taxable income. If you did not get your payment or received less than you should have, you can claim the Recovery Rebate Credit on your 2020 taxes.  As the IRS explains on its website, one must file a 2020 tax return to claim the Recovery Rebate Credit, even if one doesn’t usually file a tax return.
If you received a larger stimulus payment than you were due, you will not be penalized for it.  Check if your individual state is taxing stimulus payments.
 
How to Claim Unemployment Benefits
   Unemployment benefits are taxable income. The benefits are always subject to federal taxes. You will need to check your state to see if there are state taxes. You were given the option to have federal taxes withheld from your benefit payments. If you did not choose that option, you will need to calculate the federal tax owed.
 
   The first $10,200 in unemployment is forgivable.  The $1.9 trillion COVID relief bill waives federal tax on up to $10,200 of unemployment benefits for an individual in 2020.  This is for federal income taxes. You will need to check with your individual state regarding its tax breaks.
 
   You qualify if you earned a total of $150,000 or less in 2020.
 
Consult a Professional
 
   A professional tax preparer is absolutely money well spent.  Doing your taxes incorrectly can cost you more time, money, and headaches in the future.
 
   Companies like TurboTax and H&R Block offer inexpensive tax preparation options.  You may even be able to get help with your taxes for free. If you make $57,000 or less, you can get free help preparing your taxes through the IRS by making an appointment at one of its Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) centers. Check out this link to find one in your area: Free tax help