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tax deductions 2020

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Tax filing mistakes are so common that the IRS has been known to issue reminders to U.S. tax filers to double-check things like withholdings and the accuracy of estimated payments. Getting something wrong on your taxes can lead to a major delay in your refund or, worse, an audit. In fact, the IRS reports that audits have been on the rise for high earners. If you’ve ever been audited, then you know the hell-on-earth of going through credit card statements, chasing down invoices, and gathering the documents you wish you’d held onto during the tax year. And you know that sticky feeling you can have on your skin as if you’ve done something wrong.


Then again, there are the lucky ones who, after an audit, find that rather than owing the IRS money, the government owes them money. If you and your accountant misreport deductibles, that can go either way. You might get a slap on the wrist for taking a write-off that wasn’t yours, or you might be surprised with a pretty check because the government finds you failed to write something off that you had every right to.

It’s important to consult your tax professional on any of the tips below, but it’s also worth knowing some common deduction mistakes Americans make on their taxes.

tax deductions 2020

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Failing to have a dedicated workspace

Should you ever be audited, and you work from home, you’ll breathe easier if you have a dedicated workspace in your home. If you work from home, it’s possible that you move around from the balcony to the kitchen table to the couch, but in order to properly take the home office deduction, you need a dedicated workspace. You can see some of the qualifications for this here, but some major features include that the space must be used exclusively for business, must not contain personal furnishings, and must be partitioned off from the rest of the home in an identifiable manner. The standard deduction ($5 per square foot for up to 300 square feet of space) makes sense for most small businesses, however, if your business makes up a majority of your home, you might use a more complicated method that measures your business expenses against your home ones.


tax deductions 2020

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Leaving off medical bills

If you had quite a few medical incidents this year, you might want to report those to your accountant. In most cases, any medical bills that amount to more than 7.5 percent of your gross adjusted income are claimable. Perhaps on a regular year when you just go to some checkups and have a mole or two removed, you don’t get near that figure. But if you had a major surgery this year, along with follow-up visits, physical therapy, and more, even after insurance, your out-of-pocket may have been substantial. Talk to your accountant if you think it may be worth it to claim these bills.

tax deductions 2020

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Not recording your mileage

Did you know that if you don’t keep a proper mileage log for business miles driven, you might not get this deduction at all? Or you might at least get a much smaller deduction than the actual number. Business-related mileage is a big point of fraud when it comes to tax deductions, so the IRS could be keeping an eye on you if you write off a lot of driving for your work. When it comes time to do your taxes, you might just estimate how many miles you drove, based on your usual activities. But the best plan is to keep a current log of every mile driven for work. Consider keeping a notebook in your car, using your odometer, and writing down each trip in your journal.

tax deductions 2020

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Weighing pros/cons of standardized deductions

It’s always a good idea to go over the standardized deductions for common scenarios like filing married versus jointly, or for home offices. This is especially true if your circumstances have recently changed, like if you used to work in one corner of your home and have since built a separate home office in the backyard, or if you got married this year. In some cases, taking the standardized deduction means missing out on a refund to which you’re entitled. At other times, opting out of the standardized deduction can mean a lot of paperwork and headache for barely any more savings. So communicate with your CPA about the pros and cons of standardized deductions.

tax deductions 2020

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Forgetting everyone you paid

Depending on the nature of your work, you might pay others to help you get the job done, but not in any regular or standard way. If you are, for example, a photographer who does gig work, you might hire an assistant for some jobs. The client pays just you the lump sum for the job, and you pay out the assistant. But maybe you don’t always need an assistant or the amount you pay the assistant depends on the job. Either way, you shouldn’t pay taxes on the full amount for the gig since you didn’t get the full amount – you gave some to an assistant for the day. There are hundreds of possible scenarios like this to discuss with your accountant, if you occasionally hire help for your business, but don’t have a proper payroll for employees.

tax deductions 2020

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Overlooking that you’re head of the household

Maybe you don’t have children and you’re not married, but you financially support someone else. You could be the head of the household, and because of that, you could be entitled to a decent deductible. Even if you do have a child over the age of 18, if he or she is under the age of 24 and a full-time-student, he or she could qualify as a dependent. Or, if your child is under 19 and not a student, he or she could be a dependent. Given how many college students moved back home during the pandemic, more parents could be taking this write-off this year. In some cases, even your in-laws or step-family (from siblings to parents) could be your dependents if you pay the majority of the household expenses. Speak to your CPA and see if you qualify for this deductible.

tax deductions 2020

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Taking gambling losses on the chin

You might not think of times you sat at a slot machine with a whiskey in hand as earning income, but it might have been. If you look to gambling for part of your income and have had some success with it, you can likely write off your losses. You’ll itemize those deductions on form 1040, and it’s important you’ve kept an accurate record of your losses and earnings. Your reported losses cannot be larger than your earnings, but if you gamble through legitimate sources like casinos and race tracks, and are in the green, you can write off your losses. Keep in mind venues like race tracks may have your receipts on file if you’re struggling to find those.

tax deductions 2020

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Trying to deduct moving expenses

Most states no longer allow you to deduct moving expenses, even if you move for a job. This might sound like a recent, post-pandemic rule, since so many workers have moved to remote telecommuting. But in fact, this new rule came before the pandemic work-from-home craze. Some states didn’t conform to the new rule, and military personnel are exempt. But, in all likelihood, if you paid a pretty penny for a U-haul rental, movers, packing tape, and shipping expenses to work in a new city, you just have to eat those costs.

tax deductions 2020

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Deducting tax service fees

Did you pay a CPA $600 to do your taxes last year? Unfortunately, you can no longer deduct that under new rules. The IRS calls this a “miscellaneous itemized deduction” and no longer allows for it. This extends to paying for online tax preparation services, like TurboTax. Perhaps in the past you didn’t negotiate much with a CPA or compare prices, thinking, “I’ll just write it off.” Moving forward, you might want to put more thought into how much you pay someone to prepare your taxes. Maybe you want to finally learn how to use self-filing websites to save money, because you cannot write off this expense any longer.

tax deductions 2020

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A post-retirement IRA contribution

If you’ve retired, you cannot personally contribute to a traditional IRA anymore. You have to be working and prove income in order to make these contributions. However, if your spouse is not yet retired and is working, he or she can contribute to something called a Spousal IRA, from which you can benefit. You can see specifics of the regulations here, but some major points include the fact that your spouse’s earnings must be from wages, salaries, tips, 1099s, and work-related income, but cannot come from things like investment interest or profits from property held. Your spouse can contribute up to $6,000 a year to both his or her own personal IRA and the spousal one, or $7,000 if she or he is over the age of 50.

tax deductions 2020

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The hidden costs of charity work

It’s important to know that a new rule allows you to deduct charitable cash donations of up to $300. Because so many non-profits rely on donations more than ever during the COVID-19 pandemic, the IRS created this new incentive. But even if you couldn’t afford to donate money, if you donated your time, you may find deductions. Remember that you may spend money to volunteer, like on parking, or on supplies (paper plates, cups, etc.). Speak to your CPA about any costs you took on in order to volunteer your time as you may be able to write those off.

tax deductions 2020

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Jury fees

A lot of trials were postponed in 2020 due to the pandemic, so perhaps you didn’t get called to jury duty, even though you were expecting to. If you were part of the rare few who did go, you can write off what you made as a juror. Most employers ask that you hand over your juror’s fees to them, and yet, you report those as income. If you gave your juror’s fees to your employer because they continued to pay your salary while you attended trial, you can write off those fees. And don’t forget to write off expenses incurred while on jury duty like parking, meals, or transportation.

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