Last year saw upheaval in nearly every industry imaginable, taxes included. If it wasn’t existing laws that changed, it was new stimulus checks and payment protection loans coming in to shake things up. Luckily, many of these revisions make for ample opportunities for tax savings, both for individuals and businesses—if you know how to navigate them. Personal accountants and the IRS are keeping busy with all these changes, but took time out to highlight some of the most noteworthy and helpful changes to keep in mind when filing your 2020 tax returns.
One of the most disarrayed sectors in 2020 was education, and many teachers are still conducting classes virtually. However, those who’ve returned to in-person learning and are purchasing personal protective equipment with their own money are eligible for a new Educator Expense Deduction. Educators can deduct “above the line” for the PPE they’ve personally purchased to keep classrooms safe and healthy. In addition, they can deduct up to $250 (or $500 if married and filing jointly and both spouses are eligible educators) on professional development courses, books, supplies, computer equipment and other classroom materials.
“Teachers are woefully underpaid, in my opinion. They spend a lot of money to make their classrooms great places for kids, and some of them are being very innovative to provide a safe and healthy environment,” said Carla Keegan, co-founder and president of Keegan Linscott & Associates. “So it’s very important they’re aware of any deductions they can get.”
Another heavily impacted sector was (and still is) the restaurant industry. However, we can support our local restaurants with tax-deductible “business meals,” and the dish is only getting sweeter. Through 2020, businesses meals were allowed a 50% deduction, but starting this year certain meals are allowed a 100% deduction, so long as the meal is not “extravagant” and a substantial business discussion took place before, during, or after the meal. For more information, Intuit has an extensive “business meals” article detailing the specifics.
“Restaurants all need our business right now, whether you’re going in or ordering out,” Keegan said. “A lot of business gets conducted over food, whether it’s breakfast, lunch or cocktails. Not only does it support restaurants, it gets people back to having those face-to-face business meetings again.”
The Alliance of Arizona Nonprofits estimated that our local charities lost more than $400 million last year, either due to reduced donations or limited volunteering. These nonprofits continue to need support more than ever, and to help, the IRS established a special new provision to allow people to deduct up to $300 in donations when filing their taxes, even if they don’t itemize.
“If you’re not going to itemize, many people stop making charitable contributions. But if you make it above the line, and allow it to go from $300 in 2020, and now to $600 married filing joint, you can go and help some of these organizations that are out there helping. And for some of the higher net worth individuals, they increased in 2020 the ability to make charitable contributions up to 100% of your adjusted gross income, which means people can give away a whole lot more money,” Keegan said. “That is a great benefit for the organizations in our community that are looking for donations.”
And a quick special for Arizona homeowners, the solar energy tax credit was originally scheduled to go down to 22%, but has been extended at 26% for the next two years.
For businesses, paid sick and family leave time has been extended until at least March 31. Now, businesses can get tax credits against their employment taxes if they pay for wages for people who are home sick with COVID, for up to two weeks, and 12 weeks at a reduced rate to care for others.
“People who work at small businesses should definitely talk to their employers about this,” Keegan said. “You don’t want sick people coming into work. That’s the last thing you need. So the ability for people to stay home and still get paid is absolutely critical.”
In addition, new legislation has extended student loan repayment benefits through 2025. Employers can pay $5,250 annually toward an employee’s education expenses, such as student loans or tuition, without raising the employee’s gross taxable income. This can work as a bonus for the employee, rather than the business paying them directly and being taxed for it, and get a deduction for it.
The Taxpayer Certainty and Disaster Tax Relief Act of 2020, which was enacted in December 2020, extended employee retention credits. This refundable tax credit encourages businesses to keep employees on their payroll by providing 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.
“There are some great things happening for businesses that positively impact the people who are employed by them, because they’re encouraging businesses to keep people employed,” Keegan said. “There are so many options small businesses may not be aware of.”
Though 2020 was difficult for everyone, some may not have received a stimulus check if their income was high in 2019 ($75,000 individually or $150,000 married). However, if you then lost a job or began earning less, which would have made you qualify, you can file this year’s tax return and take a recovery rebate credit. This can get all the credits you would have otherwise been entitled to.
“It’s a great incentive to get your taxes done early,” Keegan said. “There are a lot of things out there to help people.”
If you did qualify and still haven’t received a stimulus check, and suspect potential theft, both the IRS and Post Office have criminal investigation divisions you can reach out to.
Speaking of criminal investigation, the IRS has issued multiple notices warning the public of stimulus check and related COVID-19 fraud.
“Criminals try to take advantage of our most vulnerable times and our most vulnerable populations,” said Don Fort, Chief of IRS Criminal Investigation in a press release. “But because we have seen many of these criminals and schemes before, we know how to find them and we know how to expose them.”
According to the IRS, most of these new schemes are actively playing on the fear and unknown of the virus and the stimulus payments. COVID-19 related scams involve setting up fake charities soliciting donations for individuals, groups and areas affected by the disease. Taxpayers can also report fraud or theft of their Economic Impact Payments to the Treasury Inspector General for Tax Administration.