March 5, 2021
by Kate Dodson, Esq., Terrence A. Grady & Associates Co., LPA
With April 15 quickly approaching, here are some tax filing tips for your 2020 tax returns.
Home Office Deduction - Not Available to All
With COVID-19, most of us worked from home in 2020 and incurred costs to convert our homes into offices. Unfortunately, employees (taxpayers receiving W-2 wage income) are not eligible for the home office deduction. The deduction is only available for self-employed business owners.
For self-employed taxpayers, the home office deduction is available if you can satisfy the following two requirements: (1) the portion of the home utilized for the office must be exclusively used for conducting business on a regular basis; and (2) the home office must be the principal place of business. IRS Tax Tip 2020-98 provides information on the home office deduction.
Charitable Contribution Expense Deduction
Charitable taxpayers may be able to claim a charitable contribution deduction for tax year 2020 that was previously not available. Under the old rule, only taxpayers that itemized their tax deductions could take a charitable contribution deduction. For tax year 2020, taxpayers who do NOT itemize their deductions are also permitted to take a charitable deduction of up to $300 for cash contributions made to a qualified charity.
What to Do If You Cannot Pay?
What should you do if you cannot full pay the tax due on your 2020 return? The best advice is to timely file your tax return and then work with the IRS to establish a payment plan on the balance due. Many taxpayers faced with the inability to fully pay their taxes consider delaying the filing of their tax return until they can. This decision adds insult to injury because the IRS automatically imposes failure to timely file penalties, in addition to the late payment penalties that otherwise apply. The failure to pay penalty accrues at 0.5 percent per month and the failure to timely file penalty is 5 percent per month of the tax due. These penalties accrue monthly and cap out at approximately 50 percent. Taxpayers can save half of those penalties by just timely filing.
Late Filing/Pay Penalty Relief
If tax year 2020 is the first time you will file or pay your taxes late, you qualify for relief of these substantial delinquency penalties through the IRS’s “First Time Penalty Abatement.” To obtain this relief, you must call the IRS’s collection division and request.