Because the pandemic so dramatically altered how people worked and earned their living in 2020, taxpayers have a variety of decisions to make regarding what they should declare and deduct.
For example, even if you had to work at home, you probably cannot declare a home office deduction unless you are an independent contractor or gig worker. Changes made to tax laws in 2019 eliminated home office deductions for employees from 2018 through 2025. According to the IRS, employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for that deduction.
You may be eligible for relief from losses from the wildfires. Legislation at the end of 2020 enables such relief as long as the main home “was in a qualified disaster area.”
Student loan interest can still be deducted, but not as much as in previous years. Borrowers may generally deduct up to $2,500 of the interest of qualified loans. But if your student loans are in default, the Department of Education could collect from your federal (and possibly state) refunds. In fact, the Treasury Department could withhold your total refund, and put it toward debts owed.
For calculating refundable child tax credits or refundable earned income tax credits, the IRS will allow you to use your 2020 earned income amount, or your 2019 earned income amount if that figure is higher and can be used for a larger credit.
If you withdrew money from a tax-deferred retirement savings account before age 59 1/2, you typically face a 10% penalty on top of any income taxes. But this year, under the temporary rules of the CARES Act, those with needs related to COVID-19 could withdraw up to $100,000 from any combination of tax-deferred plans, including 401(k), 403(b), and traditional individual retirement accounts without penalty. The action had to occur by Dec. 30.
Business owners who received a loan from the Paycheck Protection Program can deduct any expenses paid with that money.
Block Advisors, which is part of the tax service agency H&R Block, says business owners can also deduct expenses for adapting their businesses for health and safety compliance; supplier costs to keep the business open; property damage due to public disturbances not covered by insurance; and software used to process payments or continue business operations.
If you have other individual federal tax questions, you can contact the IRS at (800) 829-1040. Other businesses and Specialty Tax questions can be answered at (800) 829-4933.
The IRS also has an automated refund hotline number, (800-829-1954) available 24 hours a day, seven days a week.