2021 has been a struggle. It’s difficult to make ends meet during an ongoing pandemic where the world and how it operates as we know it has changed. Fortunately, there are many options for tax relief for people who qualify in 2021.
3 Financial Tax Breaks to Help During COVID-19 in 2021
- The Home Office Deduction
- Child Tax Credit
- Medical Expenses Tax Deduction
A brief introduction to all three tax breaks
The Home Office deduction is available to claim if you own your own business and you do most of your work from home in a separate space from your family’s daily activities.
The Child Tax Credit is yours to claim if you have dependent children 17 or younger in 2021 and your adjusted gross income for this year is below a certain amount.
The Medical Expenses Deduction is available for you to claim if you have medical expenses that equal over 7.5% of your adjusted gross income in total.
Be sure to read the IRS publications that accompany all three for more details and to make sure you don’t miss anything important.
What are some other options for tax breaks?
If you’re still looking for ways to save money on your taxes after reading this article, look at last year’s tax return transcript for more ideas for what you can claim this year, or make a list of your biggest expenses. You may be surprised by what you find.
There are many options for tax relief available to you depending on your lifestyle and line of work, as well. Sites like NerdWallet.com are also excellent resources for you and your family. If you’re greatly struggling financially and are in urgent need of legal advice or help, consult a bankruptcy lawyer].
Home Office Deduction
If you own your own business and work from home, you may be able to claim this deduction based on where you work. This space in your home must be the primary place you do business, and you can’t use it for other purposes. There are a few exceptions, such as if you use part of your home as a daycare facility or if you are storing items to sell in a room you use for other activities.
What can and can’t be claimed?
IRS Publication 587 covers this tax deduction in more depth. The list below is a basic overview of what you might be able to claim.
- Costs to make replacements directly related to your business, such as buying a new tool if one breaks and you run an auto repair shop in your garage.
- the percentage of your home’s square footage that you use for your office can be deductible. For example, if where you work takes up 10% of your home’s square footage, you can claim a deduction on 10% of your housing expenses.
- the percentage of your house that you use to store inventory.
Child Tax Credit
Our second piece of good family tax benefit news is the Child Tax Credit. You qualify for the 2021 Child Tax Credit if you have a dependent child who is 17 or under before December 31st, 2021. If you meet this requirement, you will receive a $3,000 tax credit for every dependent child. If your child is under 6 before December 31st, 2021, you will receive $3,600 in tax credit. It’s refundable, meaning that it may be able to reduce your tax bill to $0 and make you eligible for a refund check for the remainder that the IRS now owes you.
How to Qualify:
Aside from your children needing to be under 17 to qualify, you must make under $75,000 if you are filing alone, $150,000 if you are filing jointly with your spouse, and $112,500 if you are filing as the head of your household.
There are more requirements to qualify that the IRS states in Publication 972. In essence, you must have provided at least half of your child’s support during the last year and they cannot be filing a joint return of their own. There are also exceptions to these rules, and they can be found in more detail in that publication.
Medical Expenses Tax Deduction
Our final item on the list of tax breaks in 2021 is the Medical Expenses Tax Deduction. When filing your tax return in 2021, you can claim a tax deduction based on your medical expenses from 2020 if they qualify and are over 7.5 % of your adjusted gross income. IRS Publication 502 contains a full list of what can and can’t be claimed. Programs for addiction, payments to therapists, and prescription drug costs are all deductible. Things like health club dues, many cosmetic surgeries, and over-the-counter medications are usually not deductible.
Additionally, you cannot claim a deduction if your insurance paid for it or you were reimbursed in another way. Likewise, you cannot claim a deduction if you did not get charged for it in 2020.
Claiming the Medical Expenses Tax Deduction
First, you should itemize your expenses instead of taking the standard deduction on your taxes. This will allow you to save more money in deductions than you would with the standard deduction if you or your family have significant medical expenses. You should also use Schedule A to file. This form will allow you to tally up all of your expenses more easily.
Second, you might be able to save more money if you use a different filing status. For example, if you and your spouse have many medical expenses, but your spouse has more, remember that you will only be able to claim a deduction for your expenses. As such, consider filing separately from your spouse to save more with this tax deduction and not miss out on other tax breaks.
2021 has been stressful on all fronts, so give yourself a financial break. Finding and using tax breaks can at times mean the difference between breaking the bank and saving money. These three tax breaks can save you thousands if you qualify.
Description: This article explains three tax breaks in 2021 that are available to be used by those who qualify, how they work, what exceptions may apply, and how to best claim them so you save money on your taxes during a difficult year when everything’s changed.