It has been said many times because it's true: We are in unprecedented times as the global community seeks to deal with the COVID-19 pandemic. It has altered the way we live and work.
This "new normal" that many of us are now grappling with may bring to light some tax deductions and strategies that you may not have been aware of previously.
As the delayed July 15 deadline to file your taxes gets ever closer, here are four tax strategies that may help you decrease what you owe on your 2019 taxes -- and in the years that follow.
No. 1: Deductions for the self-employed and those with side gigs
Even before the pandemic hit, there was a growing number of self-employed workers in the U.S. -- either working full-time or as a side gig. And given all the disruption that we have experienced this year, there is a good chance that most of us either already have, or will at some point, need to work a side job. It could be working as a freelancer, a contract worker for a company, or driving an Uber or Lyft. Whatever it is, if you are self-employed, even part-time, know that there are a variety of deductions available to you.
If you work from home as a freelancer or contract worker, you may able to deduct office space, office expenses, utilities and internet service, phone, even membership in professional societies or publications. If your side hustle involves travel, you may be able to deduct gas mileage, travel-related expenses, and other costs of doing business. You may also be able to deduct insurance premiums if you pay for your own health insurance. Be sure to check with your tax preparer for all the opportunities available to you.
Please note, if you are a company employee forced to work from home, you probably don't qualify for these home office deductions. These deductions were eliminated for telecommuters in the Tax Cuts and Jobs Act of 2017.
No. 2: Good deeds and donations are rewarded
A phrase that has really resonated with people throughout this crisis is, "We're all in this together." Perhaps never before has the entire country -- and world, for that matter -- shared similar struggles and hardships.
It is a good reminder that your charitable donations can be deducted from your taxes, whether they are cash or checks, payroll deductions, or goods donations like clothing, cars, and/or furniture to organizations like Goodwill, or food contributions to a local food bank. The Coronavirus Aid, Relief, and Economic Security (CARES) Act increases the charitable deduction limits, but that will only apply to 2020 giving. It is good to give back -- and be rewarded for it.
No. 3: Retirement contributions benefit you today and tomorrow
While it may be tempting to temporarily reduce or eliminate contributions to your 401(k), IRAs, and other retirement accounts now, there are a lot of good reasons not to, as my colleague Christy Bieber outlined in a recent article. Beyond the great investment reasons, there are tax benefits to contributing to your retirement accounts.
If you contribute to a 401(k) plan at work, your contributions are tax-deductible each year. In 2019, you could contribute up to $19,000 to your 401(k), not counting any employer match, and more if you are over age 50 -- so any or all of that you could deduct. If you also contribute to a traditional IRA, you qualify for a partial deduction on the IRA. If you only contribute to a traditional IRA, you get a full deduction. That adds up to big savings. If you contribute, say, $10,000 per year to your 401(k) and are in the 24% tax bracket, that could be a savings of $2,400.
No. 4: Clean energy can pay
Many states, if not most of them, have set targets to use 100% clean energy by 2050, and some even sooner than that.
It is not only an environmental imperative; it makes sense from a financial standpoint. The federal residential energy efficient property tax credit applies for up to 30% of the cost of the qualifying clean energy home improvement project. The credits are available for solar-powered electricity, solar water heaters, geothermal heat pumps, small wind turbines, and renewable fuel cells. If installed and placed into service after Dec. 31, 2016, and before Jan. 1, 2020, the tax credit is 30%. If placed in service after Dec. 31, 2019, and before Jan. 1, 2021, it is 26%, and if after Dec. 31, 2020, and before Jan. 1, 2022, it is 22%.
Also, individuals can get a 10% tax credit for qualifying energy-efficient home improvements, like exterior windows, doors, skylights, certain roof installations, insulation, heating and air conditioning systems, water heaters, and biomass stoves. This is for expenditures paid or incurred during the taxable year.
These are just a few of the tax-savings strategies that you can employ that not only save you money now but in the years to come.