Do you want to save money on your 2020 tax return? Well, then don’t miss out on valuable tax deductions. Using tax software to prepare your return will make life a lot easier, especially now that it’s crunch time. ezTaxReturn.com can help you find last-minute deductions you may have overlooked and help you claim them. Here are some tax breaks you don’t want to miss.
Unemployment compensation exclusion
Usually, the IRS treats unemployment compensation as taxable income. However, the newly passed American Rescue Plan includes a new unemployment tax break. If you received unemployment compensation in 2020, you can exclude up to $10,200 of benefits from your federal tax return. Anything above that amount is still taxable. To qualify for the exclusion, your adjusted gross income (AGI) must be less than $150,000.
Medical and dental expenses
If you itemize, the IRS lets you deduct a portion of your medical and dental expenses on your tax return, so keep your receipts. The expenses must be related to the diagnosis, cure, treatment or prevention of a disease. You can include things like the cost of eye exams, hearing aids, in vitro fertilization, therapy and more. For 2020, you can deduct any expenses for you, your spouse and dependents that are more than 7.5% of your adjusted gross income. If you have medical bills that weren’t covered by insurance, ezTaxReturn can help you claim the deduction and lower your tax bill.
Student loan interest
From March 2020 until September 2021, the interest rate is temporarily set at 0% for federal student loans. However, those with private student loans must make their payments as usual. If you’re making student loan payments for you, your spouse or your dependent, up to $2,500 of the interest you paid is deductible on your taxes. Best of all, you don’t need to itemize to claim the deduction.
If you’re an educator, you can deduct up to $250 ($500 if both spouses are educators) of unreimbursed work-related expenses. Normally this refers to things like professional development courses, books, supplies and computer equipment but the rules have been expanded. This year, educators can include items bought after March 12, 2020 to prevent the spread of Covid-19 in their classroom. You can deduct the cost of face masks, hand sanitizer, disposable gloves, disinfectant and other items recommended by the Centers for Disease Control and Prevention (CDC).
Paying your mortgage can help you save money on your taxes. Homeowners who itemize can deduct the interest paid on mortgages up to $750,000 ($375,000 for married couples filing separate). The loan must be used to buy, build or significantly improve your main or second home.
To encourage more people to donate to charities and help those in need, the IRS created a special $300 tax deduction. If you gave a cash donation to a qualified charity before December 31, 2020, up to $300 is deductible on your taxes. You can also include any donations made by check, credit card or debit card. You do not need to itemize to claim this deduction.
Since the pandemic began, more people have been working from home and some have even used this extra time to start their own business. Home office expenses are deductible, but only for those who are self-employed. Your home office must also meet certain standards to qualify. For instance, the office must be regularly and exclusively used for business purposes. If the room serves as a part-time guest room, craft room or play area for your kids, you cannot claim the deduction. The rules also state that the space must be the main place where you meet with clients.
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