The tax code is about 2600 pages long, which makes it hard to know all of the tax deductions to take advantage of.
The tax year for 2020 is going to be one of the most challenging to plan for in years. The coronavirus pandemic has unleashed a wave of economic uncertainty and legislation to help prop up the economy.
If you want to get a head start planning for the next tax season, you want to know the best tax deductions you can take. Read on to learn what’s changing and what deductions you can take in 2021.
Business Tax Deductions
Business owners and self-employed people have the ability to write off a significant portion of their expenses. For example, they can write off 20% of their business income as a pass-through deduction.
That’s on top of deductions for all business-related expenses, such as advertising costs, office supplies, and rental payments.
Do you have a second property that you use for rental income? You can write off expenses such as repairs, property management fees, security deposits, and more. This page shows you what the deductions are for investment properties.
In 2021, self-employed people may be able to defer self-employment taxes for two years. You would pay 50% in 2021 and the remaining 50% in 2022.
Charitable Deduction Changes
One of the least talked about changes is about charitable deductions. In the CARES Act, charitable deductions are now above the line deductions. This allows you to deduct up to $300 in cash donations whether you itemize your taxes or not.
In previous years, you would have to itemize your taxes to see the benefits of donating to charity.
The SALT Deduction May Make a Comeback
You used to be able to deduct all state and local taxes paid on your federal taxes with no limits. In 2017, the Tax Cuts and Jobs Act limited the amount of the deduction to only $10,000.
This impacted residents of high-tax states like New York, California, New Jersey, and Connecticut. Right now, some in Congress are calling for a temporary repeal of the SALT limit.
PPP Loan Forgiveness and Taxes
Many small businesses were hit very hard by the pandemic. The CARES Act created the Paycheck Protection Program, which gave small businesses forgivable loans if they used at least 60% of the loan for payroll expenses.
There are tax consequences of having the loan forgiven. You can’t deduct the expenses that the loan paid for. If you took out a $50,000 loan and used it for payroll, the payroll expenses are no longer deductible once the loan is forgiven.
Best Tax Deductions for 2021
Taxes aren’t always easy to understand, and in 2021, it’s going to be a mess. By knowing what the best tax deductions are now, you can make a financial plan.
You can be sure that tax laws and deductions are going to change over the course of the year. Be sure to stay up to date on the latest news by visiting the Finance section of our site often.