Home office deduction
If you started working at home due to COVID-19, you may have had to set up a new home office. Unfortunately, the TCJA removed the home office deduction for W-2 employees. But if you're self-employed, you could still be eligible.
To qualify, your office space must be 1) used primarily for work, and 2) the main location of doing business. Detached structures like garages or sheds also qualify. Your deduction depends on the size of the workspace relative to your total property—if the office represents 15% of your square footage, you can deduct 15% of your mortgage or rent.
Earned Income Tax Credit
Aimed at families with lower incomes, the Earned Income Tax Credit Opens in new window (EITC) is a straight dollar reduction of taxes owed. The amount of the credit depends on how many children you have. It's also refundable, so if it's more than what you owe in taxes, the IRS refunds you the difference.
Eligibility depends on your income and household size. For the 2020 tax year, if you're single without kids, you qualify if your income is $15,820 or less; for married couples with children, the maximum joint income is $56,844.
Military deductions and credits
Military service members Opens in new window can deduct moving expenses, whether for their first jobs or not. They can also deduct the cost of buying and maintaining their uniforms. And while combat pay is nontaxable, it can still qualify for the EITC, potentially earning a larger credit.
State sales tax
The IRS lets you deduct what you pay in either state income or sales taxes. This flexibility makes this a great tax deduction, especially if you live in a state that doesn't charge income tax, such as Florida.
The IRS helps you calculate Opens in new window how much sales tax you paid during the year, based on where you live and your purchases. This way, you can compare whether you'd get a bigger break from sales or income tax.
Student loan interest and payments
If you're paying down student debt, you can deduct up to $2,500 a year in interest from your taxes—even if someone else makes the loan payments for you. (To qualify, the others paying your loans must do so voluntarily; they can't be cosigners legally required to make payments.)
For 2020, there's another tax break if your employer helps pay off your student loans. These payments normally count as taxable income, but from March 27, 2020, to December 31, 2020, you can receive up to $5,250 from your employer and exclude it from your taxable income.