Every year we listen to anxious and worried clients question what affects their taxes. We are here to help ease the worry by addressing a few concerns.
IS UNEMPLOYMENT TAXABLE?
If you are like untold scores of Americans, you probably applied for unemployment in 2020. If you received unemployment, it is important to be aware that these benefits are taxable and must be reported on your federal income tax return. You should receive a Form 1099- G to report such income.
The current percentage for withholding taxes from your unemployment benefits is 10%. If you choose not to withhold then consider paying quarterly estimated tax payments. Failure to do so may result in tax penalties and liability.
With regards to COVID, there is a special provision allowing for exclusion of up to $10,200.
CAN I CLAIM CAR EXPENSES?
The short answer is yes - if you are Self Employed. However, it is not as easy as simply gathering all of your expense receipts and deducting those from your business income. If you use your personal vehicle for your business then there are some rules to keep in mind.
You can deduct car expenditures as business expenses up to the limit of how much your car is used for business purposes. For example, if your business use is 50%, only half of all your vehicle expenses can be considered deductible. So how would the IRS determine what percentage of your vehicle use is business? They would ask for a mileage log that tracks which trips are for business purposes.
When claiming vehicle expenses, it is very important to keep track of your mileage for both personal and business trips - unless you plan to use the “Actual Expense Method”.
IS MY HOME OFFICE DEDUCTIBLE?
The short answer is yes, if you are self-employed. Note that you can only write off expenses relating to portions of the home used solely for business. Two requirements are: habitual usage of space, and primary place of business. Office deductions cannot exceed gross income but can be carried over to the following year.
So what could be considered home office expense? Your typical items are supplies, equipment, computer peripherals, and furniture.
You can also claim other expenses such as rent, insurance, repairs, and mortgage. These latter items require a few more specific details, but the important thing to remember is that home offices can have some tax benefits.
WHAT ARE POSSIBLE MEDICAL DEDUCTIONS?
You can claim medical expenditures on Schedule A (if you are itemizing). Medical expenses include: cost for diagnosis, treatment, or prevention of a disease. You may be able to write-off costs for yourself, spouse, or dependents. Deductions can only total 7.5% of gross income. You can only claim medical expenses paid during the same year.
Every tax situation is different. To get the best advice concerning your situation speak with a tax advisor to see what you may qualify for. Book an appointment online with us and we are always glad to consult with you.