2020 made us all look long and hard at the current state of our business industries and our personal finances. And with that came new laws and tax breaks that you may be eligible for.
Charitable Contribution Tax Breaks
The Taxpayer Certainty and Disaster Relief Act of 2020 allows you to take up to $300 in charitable contributions as a tax deduction for the tax years 2020 and 2021, without itemizing.
This change was made to help charities that were struggling during the pandemic, which means your charitable giving benefits you while also helping spur more momentum for philanthropy in these difficult times.
It’s also worth noting that if you are able to itemize your charitable giving, the CARES Act allows you to deduct 100% of your adjusted Gross Income (AGI) in 2021, rather than the standard 60% deduction rate.
Credit for Health Insurance Costs
If your medical expenses exceed 7.5% of your AGI, and you itemize your deductions, you can deduct them. This percentage was set to go up in 2021 to 10%, but the passing of the latest act made this lower rate permanent.
Medical expenses could include things like medical office fees, dental expenses, copays, health insurance payments, eyeglasses and eye exams, and more.
You can also get a refundable credit (known as the HCTC or health coverage tax credit) that equals 72.5% of premiums paid by certain taxpayers for coverage of the individual and any qualifying family members under qualified health insurance.
Temporary – Full Deduction of Business Meals
For 2021 and 2022, the Taxpayer Certainty and Disaster Relief Act has provided a 100% deduction for business meal food and beverage expenses, which is a big jump from previous years where the standard deduction was 50%. Keep in mind, this provision is still considered temporary.
Saver’s Tax Credit
If you are 18 or older and you make eligible contributions to your IRA or employer-sponsored retirement plan in tax year 2021, you can claim 10%, 20%, or 50% of your retirement contributions, depending on your AGI. This article from The Balance breaks down this tax credit with examples.
State and Local Tax Deduction
In 2020 and 2021, if your filing status is anything other than married filing separately, you can deduct up to $10,000 in state and local sales, income, and property taxes. In the case of married filing separately, the deduction is $5,000.
QBI, or qualified business income, is “the net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business, including income from partnerships, S corporations, sole proprietorships, and certain trusts,” according to the IRS.
If you receive QBI from a pass-through entity, you are eligible to deduct 20% of that amount from your taxes in the tax year 2021.
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