Tax Season: Can You Deduct COVID-19 Expenses?

Dated: January 30 2021

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Between working at home and kids learning from home, many Americans are hoping for tax breaks this year. However, like most tax matters, it’s complicated.

ORLANDO, Fla. – Tax season will begin on Friday, Feb. 12, 2021. After a pandemic year, some taxpayers are hoping for deductions, credits, and COVID-19 relief on their 2020 contributions.

Tax advisor Neville Ortiz Soto, a consultant with E-Tax PR en Familia, a tax preparation company with offices in Central Florida, answered questions about the effects of COVID-19 on the current tax season.

I became a remote worker in 2020. Can I deduct the use of my home as an office?

Starting in March, thousands of full-time employees were sent home and continued to work remotely for the rest of the year. Dining tables, sofas, and areas of the house were turned into makeshift offices. Some invested in desks, computers, high-speed internet, and office equipment to facilitate working from home.

However, you cannot deduct the use of your property as a remote office if you work for a company, said Ortiz Soto. “There is no specific protection for that line [regular employees working from home],” said the expert.

The “home office” deduction applies to business owners or independent contractors who must use Form 8829 to report “self-employment tax.”

If that is your case, keep in mind the area must be used “exclusively for business. It cannot be the dining room table where the children come to eat or the balcony where the children are playing,” Ortiz Soto said.

There are exceptions for home-based child care businesses, he added.

Can I deduct desks or office items purchased for remote work?

Although certain costs, including the use of the home, can be deducted as “employee business expenses,” Ortiz Soto warned that the classification was severely restricted for certain employees, in very specific categories during Trump’s 2017 tax reform.

“That was already a problem that was creeping in, and the problem is getting worse because now you have more people using the house [for work-related activities] and there is no specific protection for that sector,” he said.

Employees and educators eligible for this deduction on Form 2106 include armed forces reservists, qualified performing artists, state or local government officials on a fee basis, and employees with disability-related expenses.

Virtual school and distance education

As many parents learned last year, homeschooling is not easy. It also requires the investment of time and money. The average cost of home school can climb up to $1,800 per child per school year, according to Time4Learning.com.

However, there are no federal tax breaks for homeschooling expenses. Some states provide tax relief, but not Florida.

“Legislation last year focused on helping parents who had to leave work to assist their children with remote school become eligible for unemployment,” Ortiz Soto acknowledged.

Relief through Earned Income Tax Credit

This tax season, there’s a new rule that can help people impacted by a job loss or change in income in 2020.

Under the COVID-related 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 is true for the Additional Child Tax Credit.

For taxpayers with income less than $56,844 in 2020, they may be eligible to claim the Earned Income Tax Credit (EITC). The EITC Assistant, available in English and Spanish, can help determine who is eligible. The EITC is as much as $6,660 for a family with children or up to $538 for taxpayers who do not have a qualifying child.

For details, see the instructions for Form 1040 PDF or Publication 596, Earned Income Credit.

I bought a home in 2020. Will I get a deduction?

Low-interest rates, job relocations, and the opportunity to work remotely motivated home purchases in 2020. This means tax savings opportunities, for first-time buyers, according to IRS data.

You can deduct mortgage interest payments, which are generally higher at the beginning of the loan term. You can also deduct property taxes.

Florida residents can also claim the “homestead exemption” which could result in a $50,000 reduction from the assessed value of your home in taxes. After the first year, the assessed value for each subsequent year cannot increase more than 3%.

Applications must be submitted at your local county property appraiser’s office.

I owe money to the IRS, but cannot pay

Tax relief options seem scarce when compared to COVID-19’s unprecedented financial impact. However, Ortiz Soto stressed “the obligation to file a return on time.”

That does not mean you have to pay. At least not immediately.

Avoid tax evasion at all costs, and interest of 5% per month up to a maximum of 25% by filing on time, he added. File a Form 9465 and create “an automatic payment plan with terms of up to 72 months,” he advised.

Medical expenses

If you incurred medical expenses last year, the 2018 Tax Cuts and Jobs Act provides relief for deducting qualified medical expenses that exceeded 7.5% of your adjusted gross income. That provision became permanent under the CARES ACT. However, you can only take this deduction if you itemize.

Ortiz Soto noted that the standard deduction for 2020 is $12,400 for singles and $24,800 for married couples filing jointly. “The standard deduction today went up a lot, so for you to itemize medical expenses [the recommendation is] that you see all your deductions. They all have to be greater than the standard deduction,” he said.

I withdrew from my retirement account. Do I have to pay taxes?

If you withdrew money from your 401(k) plan or individual retirement account last year, you could benefit from favorable terms for “qualified participants” of the retirement plan under age 59 1/2. CARES Act protections allow this group to take advantage of their savings without incurring the usual 10% penalty.

Plan participants can withdraw up to $100,000 from their accounts and recognize it in income over a three-year period for tax purposes. They were also given three years to replace the money withdrawn to the account without any penalties or taxes owed.

A qualifying person is anyone who is diagnosed, or whose spouse or dependent is diagnosed, with COVID-19 or who experiences certain adverse financial consequences as a result of the pandemic.

I am unemployed. Do I file?

If you received unemployment compensation you have to include it in your gross income report. The refund or payment is based on federal tax withholding.

Taxpayers can expect to receive a Form 1099-G showing their unemployment income. To determine if your unemployment compensation is taxable, visit this link on the IRS.gov portal.

Is the economic stimulus check considered income?

Economic impact payments are not taxable and do not reduce the taxpayer’s refund when they file their return in 2021. In other words, if you received your economic stimulus checks in full, you do not need to include any information about it in your return.

I did not receive the economic stimulus payment

If you did not receive an economic stimulus payment or only received a partial payment, you may be eligible to claim the Recovery Rebate Credit on your 2020 tax return.

The tax credit is calculated against the 2020 income tax. Generally, the credit will increase the amount of your tax refund or decrease the amount of tax you owe.

Check IRS.gov for the latest tax information, including the latest on Economic Impact Payments.

The average tax refund last year was more than $2,500. More than 150 million tax returns are expected to be filed this year, the vast majority before the April 15 filing deadline.

© 2021 The Orlando Sentinel (Orlando, Fla.). Distributed by Tribune Content Agency, LLC.

By Ingrid Cotto

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Roxanne Dixon

Highly motivated Real Estate Agent with over 8 years of diverse experience in residential(Purchase/Sale), commercial, and investment(Annual Rental, Airbnb, Property Management) estate. Strong analytic....

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