Filing taxes is a common struggle even during normal years so we understand that with coronavirus, navigating the 2021 tax season is especially confusing. We tapped into our resident CPA, Anahit Begluyan, to help demystify some of your most pressing 2020 tax questions.
“I’m a W2 employee, can I take the home office deduction since I’ve been working from home, basically, all year?”
AB: Working at home in sweats? That definitely became the norm in 2020. Unfortunately, the Tax Cut and Jobs Act signed in 2017 by President Trump eliminated home office deductions from 2018-2025 for employees who receive a paycheck or a W-2 from an employer. IRS Publication 587, Business Use of Your Home, provides more on the home office deduction.
“My hours were cut at work so I started freelancing on the side to supplement my income. What should I keep in mind come tax time?”
AB: Though it may come as a surprise, the number of new ventures increase in a economic downturn because people think of new ways to earn income. With a freelance gig, be sure to keep track of your income and expenses. Keep adequate records of all work-related expenses including mileage, marketing, equipment, supplies, and software just to name a few. You will need these figures to prepare your tax returns.
Additionally, the IRS encourages freelancers to consider making quarterly estimated tax payments to stay current with their federal tax obligations.
“I stopped paying my student loans during the Federal Student Loan freeze. How will this affect my taxes?”
AB: Over 40 million student loan borrowers have reaped the benefits of extended loan payments. If you did not make student loan payments, you will not be able to deduct the interest expense. Beyond that, there will not be tax consequences for not paying your student loan during that period of forbearance.
“I was temporary furlough for 3 months in 2020 and received unemployment. Do I have to pay taxes on unemployment?”
AB: You and so many others! The Covid-19 pandemic increased unemployment rates and many people (including those who were self-employed) are receiving unemployment benefits during these unprecedented times. Unemployment benefits are taxed by the federal government. State taxes depend on where you reside. Some states follow the federal government and fully tax the benefits, others subsidize it, and some do not tax it at all. You may have elected to have estimated taxes deducted from your unemployment benefits at the time of application. Either way when your annual tax returns are filed you will square away the amount owed.
“I’m a graphic design freelance artist full-time but I don’t have an LLC, will I be able to write-off work-from home supplies such as my desk, chair, computer, etc?”
AB: Absolutely! However, it would be best to discuss your situation with your accountant to consider a creation of an entity as there can be many benefits including tax savings.