Can You Deduct Covid-19 Expenses on Your Tax Return?
The tax deductions permitted during the Covid-19 pandemic are complicated. While the IRS is offering some benefits, many deductions which might seem fair to the taxpayer are not permitted.
Non-independent contractors who are employed by a company cannot deduct the use of their property as a home office. (This is the case even if you were required by your firm to work remotely from home.) Generally, the purchase of a desk, chairs, improved lighting, computers, and home office equipment are not tax deductible. In some special cases, however, the use of a home office might be deductible (ask your accountant about this). But the ability to do this was severely restricted by the 2017 tax reform act.
Secondly, there are no deductions permitted for home schooling while schools are closed.
On the upside, there’s a new law aimed at helping people who lost their jobs in 2020. Under the Tax Relief Act of 2020, taxpayers may elect to use their 2019 earned income to figure the credit if their 2019 earned income is more than their 2020 earned income. The same holds for the Additional Child Tax Credit.
Also, taxpayers with income below $56,844 in 2020 may be eligible to claim the Earned Income Tax Credit. This tax break can save $6,660 for families with children or up to $538 a childless home.
Folks can continue to deduct mortgage interest payments and property taxes. Florida residents can also deduct the “homestead exemption” which could be as much as $50,000 depending on the assessed value of your home.
If you incurred medical expenses in 2020, The Tax Cut and Jobs Act of 2018, allows deductions of qualifying medical expenses that exceeded 7.5% of your adjusted gross income. This deduction can only be applied if you itemize.
Qualified participants under 59.5 years of age, who withdrew funds from a 401k or an IRA, are now permitted to do so under the Cares Act without incurring the usual 10% penalty. People who need their retirement money now, have up to 3 years to replace the money in a retirement account without penalty. A “qualifying person” is anyone who is diagnosed with Covid-19 or who experiences adverse financial consequences due to the pandemic.
Another bonus is the stimulus payments to individuals and families are not taxable.
Freelancers, gig-workers, and consultants can continue to deduct a dedicated home work space. Repairs to that space are also deductible. Also, indirect costs, such as utilities used in the workspace are likewise deductible.
An excellent idea is to consult a tax attorney or your accountant to help you navigate the treacherous waters of filing a tax return for 2020.