There have been so many changes over the last year due to the global pandemic. One change we feel every day is in our financial lives. Working conditions are different with the remote workforce expanding, as well as the increased applications for unemployment benefits. And now, it’s tax season. You’ll probably have a number of questions that are different from any other year due to these changes. We’ve got you covered with the answers to your last-minute tax questions.
Am I Eligible for a Home Office Deduction?
Millions of Americans are now working remotely, so this is among the most common questions of the 2021 tax season. Most homeowners spent between $5,000 and $10,000 improving their homes in 2018 and at least some of that money was probably put toward home office improvements. However, unless you are self-employed or work as an independent contractor, home office costs are not tax-deductible. If you have a job but are working from home, any home office space you have will not be tax-deductible. If you’re self-employed, you may be able to claim a tax deduction. To be eligible for the home office space deduction, you must have dedicated space in your home for work and it must be used only for work. The law stipulates that you must use this section of your home “regularly and exclusively for business.” It doesn’t have to be an entire room. A corner in any room of your home that is only used for work would make you eligible.
If you are eligible, you may be able to deduct expenses the standard way, wherein you deduct 100% of your home office expenses. Another way to do it is to deduct a portion of your overall expenses. If you pay $1,000 rent or in mortgage payments, for example, and allot 10% of your home to business space, you can deduct 10% for home office expenses. You can also deduct the same amount for other expenses such as utilities, insurance, cleaning, and emergencies (such as exterminator costs) related to your business. Property taxes and home depreciation costs are deductible, as well.
Do I Need to File Jointly if I Got Married in 2020?
Although many weddings were postponed in 2020 due to the pandemic, many couples went ahead and tied the knot anyway. The short answer to this question is no, you don’t need to — but you can file jointly (and a tax professional might advise you to do so). After you get married, you aren’t permitted to file as a single head of household, so your options are to file jointly or individually.
The general rule of thumb is that you get the most tax breaks when you file jointly, but every situation is different. Filing jointly may get you the highest standard deduction which is $12,700, whereas individually your highest standard deduction is $6,350. Joint tax returns also give you opportunities for more deductions.
That said, don’t get married for the tax breaks; sometimes, they don’t help as much as you might need them to. It’s estimated that 2% of women prefer a longer engagement (around 12-18 months), which could produce a unique set of tax breaks in itself, such as charitable tax breaks and some pre-wedding or bridal expenses.
When is the Deadline For Filing My Taxes?
The deadline for filing your taxes has changed. For the 2021 tax season, the IRS has announced an extension from April 15 to May 17, 2021. The IRS understands there are unusual circumstances this year and have granted a month’s relief in terms of extensions for many filers. This applies not just to filing your taxes but repaying any taxes owed, as well. The deadline for that is also May 17. If you need more time to repay taxes, you can request an extension to October 15. That said, not everyone is eligible for this extension. Filers paying for estimated taxes, for example, will still need to observe April 15 as their deadline. See the IRS website or talk to your tax preparer right away for details about your specific situation.
If I Lost My Job, Do I Need to Report Unemployment On My Taxes?
Yes, unemployment income must be reported on your tax returns, but it is usually untaxed. The American Rescue Plan that just passed in the Senate includes a tax break that up to $10,200 of 2020 unemployment is free of federal income tax.
Other finance questions with taxes include inheritance. Income such as inheritances is tax-free up to a certain amount, as well. Inheritance money is tax-free and does not need to be reported. Property inheritances present some complicated tax issues. For estates valued at over $10,860,000 for married couples and $5,430,000 for single individuals, any amount in excess will be subject to estate taxes.
Tax season can be stressful, but knowing the answers to these common questions can help you feel confident when you file. Of course, you should always consult a tax preparer or other financial professional if you have further questions associated with your tax returns.