Home Office Deductions

IRS reminds taxpayers of the home office deduction rules during Small Business Week

 

IR-2020-220, September 23, 2020

WASHINGTON — During Small Business Week, September 22-24, the Internal Revenue Service wants individuals to consider taking the home office deduction if they qualify. The benefit may allow taxpayers working from home to deduct certain expenses on their tax return.

The home office deduction is available to qualifying self-employed taxpayers, independent contractors and those working in the gig economy. However, the Tax Cuts and Jobs Act suspended the business use of home deduction from 2018 through 2025 for employees. Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deduction, even if they are currently working from home.

Child Tax Credit 2020

CHILD TAX CREDIT

IRS Tax Tip 2020-28, March 2, 2020

Taxpayers may be able to claim the child tax credit if they have a qualifying child under the age of 17. Part of this credit can be refundable, so it may give a taxpayer a refund even if they don't owe any tax.

The taxpayer's qualifying child must have a Social Security number issued by the Social Security Administration before the due date of their tax return, including extensions.

A dependent who doesn't have the required SSN may be eligible to be claimed for the credit for other dependents.

Here are some numbers to know before claiming the child tax credit or the credit for other dependents.

  • $2,000: The maximum amount of the child tax credit per qualifying child.
     
  • $1,400: The maximum amount of the child tax credit per qualifying child that can be refunded even if the taxpayer owes no tax.
     
  • $500: The maximum amount of the credit for other dependents for each qualifying dependent who isn't eligible to be claimed for the child tax credit. This can include dependents over the age of 16 and dependents who don't have the required SSN.
     
  • $400,000: The amount of adjusted gross income for taxpayers who are married taxpayers filing a joint return before the credit is reduced.
     

$200,000: The amount of adjusted gross income for all other taxpayers before the credit is reduced.

Tax Reform Provisions that Affect Individuals

Tax Reform Provisions that Affect Individuals

Standard Deduction Amount Increased

Filing status 2020 tax year
Single $12,400
Married, filing jointly $24,800
Married, filing separately $12,400
Head of household $18,650

Insurance Penalty

The penalty for not having health insurance no longer applies for 2020 federal tax returns. However, some states have their own individual health insurance mandate, requiring you to have qualifying health coverage or pay a penalty with your state tax return.

California has a new state individual health care mandate, which takes effect on January 1, 2020, and requires Californians to have qualifying health insurance coverage throughout the year, or pay a penalty based on your income and the number of people in your household

 

Economic Impact Payment Information Center: Reconciling on Your 2020 Tax Return

 

QJ1. Will I need to provide information or reconcile the Economic Impact Payment on my 2020 taxes when I file next year?  

A1. Keep the notice you received regarding your Economic Impact Payment with your 2020 tax records. These notices are mailed to each recipient’s last known address within 15 days after the Payment is made. The IRS will provide information on what actions you need to take when you file your 2020 tax return when they are available.

QJ2. Is the Payment includible in my gross income?

 

A2. No, the Payment is not includible in your gross income.  Therefore, you will not include the Payment in your taxable income on your Federal income tax return or pay income tax on your Payment. It will not reduce your refund or increase the amount you owe when you file your 2020 Federal income tax return.

A Payment also will not affect your income for purposes of determining eligibility for federal government assistance or benefit programs.

Taxation of PPP loan forgiveness

The CARES Act provides that the debt discharge of a PPP loan is excluded from the gross income of the business for federal income tax purposes.

No Tax Deduction for Expenses Paid with Forgiven PPP Funds
IRS has confirmed their position that business expenses paid with Paycheck Protection Program (PPP) funds that are forgiven cannot be deducted for federal tax purposes.

Qualifying Children Claimed

Qualifying Children Claimed

If filing Zero One Two Three
Single, Head of Household, or Widowed $15,820 $41,756 $47,440 $50,954
Married Filing Jointly $21,710 $47,646 $53,330 $56,844

Investment Income Limit
Investment income must be $3,650 or less for the year.

Maximum Credit Amounts
The maximum amount of credit for Tax Year 2020 is:

  • $6,660 with three or more qualifying children
  • $5,920 with two qualifying children
  • $3,584 with one qualifying child

$538 with no qualifying children.

FTB – Personal Health Care Mandate

Beginning January 1, 2020, California residents must either:

  • Have qualifying health insurance coverage
  • Obtain an exemption from the requirement to have coverage
  • Pay a penalty when they file their state tax return

You will begin reporting your health care coverage on your 2020 tax return, which you will file in the spring of 2021.

Make sure you have health care coverage

To avoid a penalty, you will need minimum essential coverage (MEC) for each month beginning on January 1, 2020 for:

  • Yourself
  • Your spouse or domestic partner
  • Your dependents

Many people already have qualifying health insurance coverage through:

  • Employer-sponsored plans
  • Coverage purchased through Covered California or directly from insurers
  • Medicare

IRS Releases draft of new simplified new form 1040-SR for Seniors for the 2020 Tax Season

If you are 65 or older (or turn 65 any time in 2019), you will have the option to use a new simple tax form for seniors, known as the 1040SR, when you file your 2019 taxes in April 2020.

The IRS has released a draft of the new simplified tax individual income tax form, Form 1040-SR. The draft of the Form 1040-SR is two pages long. It allows seniors of any filing status to use the form. It also allows senior taxpayers with dependents to use the form. The draft Form 1040-SR allows taxpayers to enter income from wages, salaries, tips, interest, dividends, IRA distributions, pensions and annuities, and social security benefits and to report taxable amounts of IRA distributions, pension and annuities and social security benefits.

The draft Form 1040-SR also provides for reporting capital gains or losses on line 6 and prompts the taxpayer to attach a Schedule D, if required. On line 7(a), Form 1040-SR allows senior taxpayers to report other income that may appear on Schedule 1. Other income reported on Schedule 1 includes alimony and unemployment compensation.

On line 9, the draft Form 1040-SR prompts the taxpayer to enter either the standard deduction or itemized deductions from Schedule A. Taxpayers using Form 1040-SR will be able to claim the qualified business income deduction on Line 10.

The draft Form 1040-SR also allows taxpayers to claim the child tax credit or credit for other dependents, the Earned Income Credit and American opportunity credit.

2019 Earned Income Credit

2019 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates

Earned Income and AGI Limits

The tax year 2019 Earned income and adjusted gross income (AGI) must each be less than:

If filing… Qualifying Children Claimed
Zero One Two Three or more
Single, Head of Household or Widowed $15,570 $41,094 $46,703 $50,162
Married Filing Jointly $21,370 $46,884 $52,493 $55,952

Investment Income Limit

Investment income must be $3,600 or less for the year.

Maximum Credit Amounts

The maximum amount of credit for Tax Year 2019 is:

  • $6,557 with three or more qualifying children
  • $5,828 with two qualifying children
  • $3,526 with one qualifying child
  • $529 with no qualifying children

For more information on whether a child qualifies you for EITC, see:

  • Qualifying Child Rules, or
  • Publication 596, Rules If You Have a Qualifying Child.

2019 IRS Tax Changes

Tax Reform Provisions that Affect Individuals

Standard Deduction Amount Increased

For 2019, those who are married and filing jointly will have a standard deduction of $24,400.

Single taxpayers and those who are married, and file separately now have a $12,200 standard deduction.

For heads of households, the deduction will be $18,350

Insurance Penalty

The penalty for not having health insurance no longer applies for 2019 federal tax returns. However, some states have their own individual health insurance mandate, requiring you to have qualifying health coverage or pay a penalty with your state tax return.

California has a new state individual health care mandate, which takes effect on January 1, 2020, and requires Californians to have qualifying health insurance coverage throughout the year, or pay a penalty based on your income and the number of people in your household.

Summary of possible penalties
Household Size If You Make Less Than You May Pay
Individual $45, 500 $695
Married Couple $91,000 $1,390
Family of 4 $140,200 $2,085

 

https://www.ftb.ca.gov/about-ftb/newsroom/news-articles/health-care-mandate.html

2019 Child Tax Credit

Under the new Tax Cuts and Jobs Act (TCJA) the following child tax credit changes will take place in 2019:

  • The Child Tax Credit under 2019 tax reform is worth up to $2,000 per qualifying child. The age cut-off remains at 17 (the child must be under 17 at the end of the year for taxpayers to claim the credit).
  • The refundable portion of the credit is limited to $1,400. This amount will be adjusted for inflation after 2019.
  • The earned income threshold for the refundable credit is lowered to $2,500.
  • The beginning credit phaseout for the CTC increases to $200,000 ($400,000 for joint filers). The phaseout also applies to the new family tax credit.
  • The child must have a valid SSN to claim the nonrefundable and refundable credit.

Child Tax Credit Eligibility

The child you claim as your dependent has to meet six IRS tests:

  1. Age Test: The child you claim as your dependent must have been under age 17 (so, 16 or younger) at the end of the tax year.
  2. Relationship Test:  The child must be your daughter, son, foster child or adopted child. The child can also be a grandchild or a descendant of one of your siblings.
  3. Support Test: The child must not have provided more than half of their own “support,” meaning the money they use for living expenses.
  4. Dependent Test: The child must be claimed as your dependent on your federal income tax return.
  5. Citizenship Test: The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
  6. Resident Test: The child must have lived with you for more than half of the tax year (with a few exceptions detailed on the Child Tax Credit worksheet).

In addition to these six tests, income is also an eligibility factor. As your modified adjusted gross income (MAGI) increases, the child tax credit begins to phase out. You’ll get $50 less in child tax credits for every $1,000 – or portion of $1,000 – that your modified AGI exceeds:

  • $75,000 if you’re filing as the head of your household, single or as a qualifying widow(er)
  • $110,000 if your filing status is married filing jointly
  • $55,000 if your filing status is married filing separately

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