Traveling for Deductions

February 3, 2016

Some businesses require employees to travel in order to perform their job effectively. Travel expenses can be deducted, provided they are both ordinary and necessary to the job, through Form 2106, Employee Business Expenses, or Form 2106-EZ Unreimbursed Employee Business Expenses, and Form 1040, Schedule A, Itemized Deductions. Travel expenses incurred for personal reasons or that are uncommon to your industry are not eligible for deduction.

Traveling is defined as being away from your home location of business for more than a typical day’s worth of work, in which you will require rest before performing your job duties professionally again.

Your tax home is the basis for determining when you are traveling. The entire city or area in which you perform a majority of your tasks is considered you tax home, and it is not depending on where your residence is located. For example, you live in Philadelphia with your family, but you work in the Poconos. When you travel between the two places, it is not considered for business purposes, and is instead listed as personal. Therefore you cannot deduct those expenses. However, if you work in the Poconos and must travel to Boston for business, expenses are then deductible, regardless of whether you live in the Poconos or not.

If you work in multiple places, your tax home is defined as the place where most of your business is performed, or where administrative activities are carried out. (more…)

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Different non-business related taxes can be deductible at tax time. There are four different types of state or local taxes that are eligible for federal deduction:

  • Income taxes (including foreign)
  • Real estate taxes (including foreign)
  • Personal property taxes
  • General sales taxes

You can claim these taxes that you paid during the year on a Schedule A, as an itemized deduction.

Once you receive your Form W-2 from your employer, you can determine the amount you paid in state and local taxes. You have the option of deducting either income tax or sales tax, but you are only able to choose one. To deduct sales tax, you can use either the actual expenses, or use a standard sales tax amount based on different tax tables. Additionally, you can deduct estimated taxes you paid to state or local governments, as well as the amount of a previous year’s taxes that you paid during the current tax year.

Taxes paid to a foreign country or U.S. possession are eligible to either be deducted or claimed through a credit. Any kind of money paid to a mandatory employee benefit fund that aids in times of need may be eligible for deduction. (more…)

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Medical expenses can be quite costly, and take a lot of money out of your hands. Instead of deducting your hard earned cash from your wallet, consider taking a deduction of your unreimbursed medical expenses at tax time.

Beginning January 1, 2013, you are able to deduct your total medical expenses paid for you, your partner, and eligible dependents that exceeds 10% of your adjusted gross income. If you or your partner are age 65 or older, the limit is decreased to 7.5%, and remains in effect until December 31, 2016.

To determine your deduction, you’ll have to itemize your expenses and report them on a Schedule A of your Form 1040. Some deductible medical expenses include:

  • Fees paid to a doctor, dentist, surgeon, chiropractor, psychiatrist, psychologist and nontraditional medical practitioners.
  • Costs for in-patient care, including nursing home services, meals, and lodging in a health care facility.
  • Acupuncture, rehab treatment, or smoking cessation program, as long as the treatment is prescribed by a doctor.
  • Weight-loss treatment to help with a specific disease or medical condition, excluding the cost of special diet foods and health club memberships
  • Insulin and prescription drug costs
  • Prosthetic teeth, eyeglasses, contacts, hearing aids, wheelchairs, guide dogs, crutches or other medical supply
  • Conference costs and transportation relating to a chronic disease from which you suffer, although meals and lodging at the conference are non-deductible
  • Transportation costs to and from a hospital or other medical facility, subject to the standard regulations for travel expenses, including mileage rates
  • Insurance premiums that cover medical care or long-term care. Employees shouldn’t deduct premiums paid to an employer sponsored plan unless the premiums are listed on your W-2 in Box 1.

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Education expenses can add up quickly, and any kind of financial relief can really make a difference. You may be able to deduct certain education expenses at tax time. If you pay tuition for yourself, a spouse, or another dependent, you may qualify to deduct a portion of the expenses. However, it may be more worthwhile to look at using a credit for tuition and fees instead of directly deducting them. You should first check out eligibility for:

  • The American Opportunity Tax Credit (AOTC)
  • Lifetime Learning Credit (LLC)
  • Deducting the expense as an itemized business expense

If you want to deduct tuition and fees, you don’t have to itemize expenses. Instead, you can just adjust your income on your Form 1040. If you are married, you have to file jointly in order to claim education expenses, and you can’t be listed as a dependent on another taxpayers return.

Taxpayers are subject to certain limitations related to their modified adjusted gross income. Those with a MAGI that exceeds the limit will receive a reduction or even a complete elimination of the education expense deduction depending on which status is used to file. You can’t claim a deduction along with one of the educational credits for the same student in one tax year. Although, you may be able to combine your tuition and fees with eligible business expenses. These expenses can’t be claimed more than once.

You can’t claim a deduction if your tuition or other expenses were paid through a grant, scholarship, fellowship, or other eligible savings plan. You also can’t deduct expenses you paid using distributions from an educational tuition plan, though you can claim the portion that is equal to the contribution you made.

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If you happen to entertain your customers, employee or any others in your business you may be able to deduction expenses that are deemed ordinary and necessary for doing business. Expenses such as these may be deducted if they are related or associated with your business directly.

Proof of the expense must be provided and have information such as the cost, date and location of the entertainment. The relationship of those entertained may also be required to be furnished. Typical cases allow only for a deduction of 50% of meal and entertainment costs.

If you are an employee subject to reimbursement for entertainment expenses, any reimbursement through an accountable plan should not appear on your W-2 as income. If you were not reimbursed or were reimbursed through a non-accountable plan you can deduct expenses through Form 2106, Employee Business Expenses, or Form 2106, Unreimbursed Employee Business Expense. Deductions such as these will appear on your tax return as itemized and are usually subject to a limit of 2% of your adjusted gross income.

If you are self-employed you may take deductions by using Form 1040, Schedule C, Profit or Loss from Business or Form 1040, Schedule C-EZ, Net Profit Form Business. If you are a farmer you will use Form 1040, Schedule F, Profit or Loss from Farming to deduct these expenses.

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Anything you own, whether it’s something you use for personal reasons or an investment purpose, is considered a capital asset. Things like your home, furniture, and vehicle, as well as stocks and bonds are all examples of the types of capital assets many people own.

If you chose to sell one of these assets, the result will either be a capital gain or a capital loss, depending on the base cost of the asset and what you sold it for. Selling for a greater amount than you paid for the asset will result in a capital gain, while a capital loss occurs when the sale price is lower. Any loss from the sale of personal use property (a home or vehicle) isn’t eligible for deduction at tax time.

Capital losses and gains are considered either long-term or short-term depending on how long you held the asset in your possession. Anything less than a year is typically a short-term capital loss, while longer times are long-term. The day you acquired the asset from the day you sold it or got rid of it is the period of possession.

You have to report any transactions on capital assets at tax time using Form 8949, Sales and Other Dispositions of Capital Assets. Any capital gains or deductions of losses can be done on a Schedule D or Form 1040. Generally, the taxation rate is 15% or less for net capital gains, determined by your tax bracket. Some net gains are taxed at 20% depending on the income threshold of the asset holder in relation to an ordinary tax rate of 39.6%. (more…)

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Not everyone is required to file a tax return. Most people are, but for those who aren’t, it may still prove beneficial to do so anyway. If you’re not sure if you have to file a tax return, you should familiarize yourself with the rules before tax season approaches.

Income, age, and filing status all factor into determining whether or not you need to file. More requirements apply to those who are self-employed or considered a dependent of another taxpayer. You will need to cover all bases when deciding whether you’re required to file a return.

You’ll need To File If:

You’ll be required to file a return if your employer withheld federal tax from your salary throughout the year, or you are self-employed and made estimated tax payments each quarter. When you file, you may be entitled to a refund if you overpaid, but the only way to know is to file a return. (more…)

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Since the enactment of the Affordable Care Act, your taxes are now affected by your health care coverage status. The new policy states that all Americans must have qualified health insurance, though there are a few circumstances in which an exception may apply.

Generally, 3/4ths of the taxpayers who file a return will only be required to check a box on their form that indicates that they have health insurance. This applies to those who are covered under an employee sponsored health plan, or government plans such as Medicare, Medicaid, or military health benefits.

If you purchased health care coverage through the Marketplace, you may have received an advanced tax credit to supplement the cost of your monthly premiums. If you chose to use the tax credit when you purchased your plan, you will have to reconcile the mount you received with the amount you were eligible for on your tax return.

The tax credit is based on your estimated household income, which you supply when you purchase coverage through the marketplace. At tax time, if your actual income is more than you estimated, you may have received a larger tax credit than you are eligible for. If this happens, you may have to pay back the excess credit. You can do so by deducting the amount from any refund you are owed on your taxes, if applicable.

You will receive a document that indicates the amount you received for the credit and other pertinent information in order to file your tax return.

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A special provision of the Affordable Care Act, which requires each taxpayer to have qualifying health care, comes into effect when you file your tax return.

Unless you meet a certain exemption, you are expected to have a health care plan which meets the minimum requirements of the Affordable Care Act. The Individual Shared Responsibility Provision states than any taxpayer who can afford health care and isn’t exempt from purchasing it must make a payment at tax time. This payment is calculated using Form 8965.

Many taxpayers will simply check a box on their return that indicates that they had acceptable health care coverage for the tax year. You are responsible for ensuring both you and your dependents are covered, unless you qualify for an exemption. While some exemptions have to be claimed through the Marketplace, many are claimed directly on your tax return.

Choosing to file your tax return electronically can save you time and ensure you have prepared your return correctly, regardless of your health care coverage status. Electronic filing uses special software that will help you accurately claim an exemption, indicate your coverage, or even make a quick individual shared responsibility payment effortlessly. This year, chose to e-file and learn more about how the Affordable Care Act affects your taxes.

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Do you receive unemployment benefits? Depending on which program the benefits are distributed from, you may be responsible for paying taxes on the income. Taxable compensation amounts include money received from any of the following programs:

  • State unemployment insurance
  • Federal Unemployment Trust Fund
  • Railroad unemployment compensation
  • Disability compensation
  • Allowances paid in accordance with the Trade Act of 1974
  • Disaster Relief and Emergency Assistance Act of 1974

If you received benefits from the above programs, you may be required to pay taxes on the income. Some types of income are not considered to be unemployment compensation, such as worker’s compensation payments, or distributions from a private unemployment fund. Private unemployment benefits are taxed as if you received a larger sum than you contributed, and is reported on line 21 on your Form 1040. Supplemental unemployment benefits from a fund that your employer supports are also not considered unemployment compensation, and are subject to income tax, Social Security and Medicare taxes, as per regular income. You will find these amounts reported on your W-2 from your employer.

You should include unemployment compensation amounts in your gross income at tax time. You can either chose to have taxes withheld from your benefits, or you may be required to makes estimated tax payments. If you receive unemployment benefits from the government you should receive a Form 1099-G, Certain Government Payments, which documents the total amount of compensation you received. You should seek advice from a qualified tax assistant in order to correctly report your benefits on your tax form.

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