If you conduct business in a part of your home, you may be eligible for tax deductions. It doesn’t matter if you are self-employed or are an employee of another business, although you must use your home as one of the following:

  • Exclusively on a regular basis, as the home must be the primary location of the business conducted
  • As a place where you meet with clients, customers, or patients regularly as part of business operations
  • As a building used in connection with your business that is not physically attached to the home
  • On a regular basis for storage
  • Rental use
  • As a daycare facility

Deductions cannot be claimed on expenses incurred from parts of your home that are used for both personal and business reasons. The home office must be used exclusively for your business, and it’s required that it be the principal place in which you conduct your business. That means that you have to perform most business duties in that portion of your home, as well as spend the majority of your time conducting business in the home office in order to deduct the expenses. (more…)

Categories: General Tags: , , ,

Employee Training Expenses

February 11, 2016

As an employee, you may require additional training, or be expected to participate in mandatory seminars. In some of these cases, you may acquire expenses that you have to pay. Thankfully, there’s a chance these expenses may qualify for a deduction at tax time. In order to be deducted, the expenses have to be related to improving or maintaining your skills at your job, or be required by law to stay in your current position. The training can’t be a general skill that can qualify you for another job or a new industry, otherwise it isn’t deductible.

Expenses can only be deducted if they relate to your current job, though if you are laid off, on leave, or some other period of absence, there’s a possibility you can still claim a deduction. When you return to work, you have to accept the same position or field that you were in previously. Temporary absences are those that last less than a year.

Some expenses related to employee training that are deductible include:

  • Supplies, books, class fees, lab fees, and other incidentals
  • Travel and transportation costs relating to the training
  • Research that accrues expenses

As an employee, you should deduct training expenses using Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses. You’ll need to deduct them as a miscellaneous itemized deduction, which makes them subject to the 2% adjusted gross income limitation.

Self-employed taxpayers can file Form 1040, Schedule C, Profit or Loss from Business, Form 1040, Schedule C-EZ, Net Profit from Business, or Form 1040, Schedule F, Profit or Loss from Farming.

If your employer offered educational assistance to you, it will be reported on your W-2 and if the reimbursement is taxable in accordance with your income, it will be listed on the W-2.

Categories: Deductions Tags: , ,

Deductions for Donations

February 10, 2016

Making a donation can be rewarding, even at tax time. You can deduct donations that you make as long as you opt to itemize your taxes when you file your return.

The donations you make must be to a qualified organization, as those contributed to an individual aren’t eligible for deduction. Tax deductible donations must adhere to certain requirements set by the IRS.

You can only deduct the amount of a donation that exceeds the fair market value of anything you received from the person to whom you made the donation to, including exchanged goods or services.

Cash donations or other monetary gifts require written documentation from the party receiving the donation. The receipt should state the date of donation, the amount of money, and the organization or charity’s name on it. Generally, you can deduct the fair market value of any contributions made, however those that are in excess of $250, regardless of whether its cash or goods, require a receipt of acknowledgment that describes the property or lists the amount of cash donated, and should also list anything that was exchanged in accordance with the donation, such as tickets or other merchandise. All the information can be listed on one receipt.

You can use Form 8283, NonCash Charitable contributions, for any noncash deductions that are in excess of $500. Donations between $500 and $5,000, you’ll only need to complete section A. If the donation is greater than $5,000, you’ll have to complete section B additionally and have a qualified appraisal. You must include the tax return for any donated property over $500,000 in value.

Donations that appreciate in value, such as investments or vehicles have special requirements.

Categories: Deductions Tags: , , , , , ,

Deductions decrease the amount of income you are taxed on, lowering your tax liability. At tax time, you can chose one of two methods to claim your deductions. You can either itemize or opt for the standard deduction. The standard deduction amount is calculated depending on factors such as filing status, taxpayer age, and income levels. It is recalculated each year.

While taking the standard deduction is easier, there are some taxpayers who are ineligible to use this method:

  • Those who file using Married, filing separately status and one spouse itemizes. The other spouse must also itemize.
  • Taxpayers who file a return for any length of time less than a full twelve months, due to modification of annual financial accounting.
  • A nonresident alien or dual status alien. If you are a nonresident alien married to a U.S. citizen at the end of the tax year, you can chose to be taxed as a U.S. citizen and may receive the standard deduction.
  • Taxpayers with estates, trust funds, or partnerships

If you have deductions that exceed the amount of the standard deduction, it’s advised that you opt to itemize. You may be able to lower your tax amount if you chose to itemize. Complete Form 1040 Schedule A in order to claim itemized deductions. State and local sales tax, income fees, mortgage fees and interest, and disaster losses are al included in itemized deduction amounts. Additionally, you may be able to deduct charitable contributions and medical or dental expenses.

Typically, you should chose to itemize your deductions if you:

  • aren’t eligible to take the standard deduction
  • Incurred large medical or dental expenses that weren’t reimbursed by insurance
  • Gave a large amount of donations to charity
  • Paid interest or fees on your mortgage
  • Experienced a large amount of casualty or theft
  • Incurred large unreimbursed expenses for business

These types of expenses will likely give you a bigger deduction if you chose to itemize, but you may be limited by a set maximum deduction. Also, depending on your income, your total deductions may be phased-out as your adjusted gross income reaches certain levels, dependent on your filing status:

  • Single – $254,200
  • Married filing jointly or qualifying widow(er) – $305,050
  • Married filing separately – $152,525
  • Head of household – $279,650

The threshold limits are listed in the instructions for filling out a Form 1040. Using the worksheet for itemized deductions, on Line 29, you can determine whether your deductions are subject to a phase-out.

Categories: Deductions Tags: , , ,

If you have miscellaneous deductions that exceed 2% of your adjusted gross income (AGI) you may qualify to claim them on your tax return. Usually the different types of costs can fall under the miscellaneous deductions category, and be subject to the limitation of 2% of your AGI: Tax preparation fees, any employee expenses that were unreimbursed and certain other qualifying expenses.

On a Form 1040 Schedule A, where you would list your itemized deductions, you can claim some unreimbursed employee expenses. Only expenses that have been obtained over the current tax year and have been deemed necessary and ordinary to conduct business as an employee may qualify.

Additional to unreimbursed employee expenses, the following expenses may qualify to be deducted and are subject to the 2% adjusted gross income limit. These include costs from:

  • Any costs associated with collecting or production taxable income that is already included in your gross income.
  • Maintenance and management costs that are required to continue your own income.
  • The costs of paying or claiming a tax refund.

Deductions from the first two expenses must be deemed ordinary and associated for the purpose of maintaining your employment, skills producing your income or business.

Categories: Deductions Tags: , , , ,

Do you have expenses relating to your job? If so, you may be able to deduct them on your Form 104, Schedule A, Itemized Deductions, when you file your taxes. These deductions are taken as a miscellaneous itemized deduction, and are subject to adjusted gross income limitations.

Traveling expenses are generally non-deductible, however some transportation costs may be able to be claimed as a deduction if related to work. Local transportation expenses that are typically deductible are those that originate from the home location of work to another job site. If your office is your primary place of business, you can deduct travel expenses incurred when you travel from your home office to another business location. If you travel outside the community where you normally work, travel expenses between the resident and the short-term employment location are possibly deductible. If you frequent different work locations, your travel costs may also be deductible.

If you accrue expenses due to business entertainment or gifts from the company, the deduction may be limited. You should always keep an accurate record of the expenses to serve as proof of the deduction, for example receipts for purchases, etc.

Some employers offer reimbursement for different employee expenses. In these circumstances, the amount shouldn’t be added to your income on your Form W-2, and therefore can’t be deducted. (more…)

Categories: Deductions Tags: , , , , , , ,

Interested in Interest?

February 6, 2016

Borrowing money leads to compounded interest charges. Interest is a fee added to the money you borrowed, and is generally charged for the length of repayment. In some cases, interest can either be deducted or claimed as a credit, however it has to meet certain qualifications.

Prepaid interest has to be deducted throughout the tax year in which the interest applies, as it is only eligible to be deducted during that specific year. If you paid in points for your primary residence, you may be able to claim an exemption.

Investment interest (limited to your net investment income) and qualified mortgage interest (including points) if you are the buyer should be itemized and claimed on Form 1040, Schedule A when you file your return.

Interest from rent or royalties, farm interest, and business interest not related to the farming industry are also deductible. Student loan interest is claimed as an adjustment to income on your tax return.

Personal interest, such as the following, is not deductible:

  • Personal car loan interest
  • Credit card interest
  • Points for sellers, investigation fees or service charges
  • Interest related to tax exempt income

(more…)

Categories: General Tags: , , , , ,

Do you use your own car for business purposes? If so, you may be able to deduct the costs associated with driving for the business portion, up to certain limits. If you use your car for personal reasons as well, only the business portion of costs is deductible.

You can calculate the deduction using one of two methods: standard deduction, a predetermined amount, or the actual expense method, where you figure out the exact cost of your expenses. If you meet the requirements for both methods, your best option is to use whichever one gives you the largest deduction.

The standard mileage rate includes parking fees and tolls, two common expenses incurred during business use. If you want to use the standard deduction, you must meet seven requirements:

  1. You either own or lease the vehicle
  2. You drive less than five vehicles at once, and aren’t considered a fleet operation
  3. A Section 179 deduction hasn’t been claimed on the vehicle
  4. You didn’t claim depreciation on the car, unless you used a straight line method
  5. No other special depreciation allowances were claimed on the car
  6. You didn’t claim any actual expenses after 1997 for a car you leased
  7. You are not employed as a rural mail carrier that is subject to qualified reimbursements

(more…)

Categories: Deductions Tags: , , , , , ,

Sometimes, in order to get a mortgage for a home, you may have to pay fees or other costs, known as mortgage points. In general, points are a type of interest that you’ve prepaid, and they may be deductible at tax time should you opt to itemize. If you qualify to deduct all of your mortgage interest, you’ll likely be eligible to deduct mortgage points, too. However, if your home equity debt is greater than $100,000 or home acquisition debt is over $1 million, neither interest nor points are deductible.

Points are deducted within the year that they were paid, as long as:

  • The loan is secured by your primary home
  • Paying in points is an ordinary practice in your area
  • Your points payment was less than or equal to the average charged for your area
  • You report payment and deduct points during the same tax year
  • Points were not used for inspections, property taxes, legal fees, or titles
  • The funds to pay the points weren’t borrowed from a lender, and money paid at closing is the amount charged in points
  • You purchase or build a main home with your mortgage
  • Points are a percentage of your principal
  • The points are listed correctly and clearly on your statements

(more…)

Categories: Deductions Tags: , ,