Tax Deduction of the Week: Unreimbursed Employee Expenses

Last week the RDTC Tax Help Blog published the newest entry in their “deduction of the week” series. If you have to make unreimbursed purchases for your job, you may qualify to deduct those expenses on your next tax return! I’ve included a section of the article below, but you can read the full text here.

IRS Regulations

According to IRS Publication 29 you can deduct only unreimbursed employee expenses that are 1) paid or incurred during your tax year,

2) for carrying on your trade or business of being an employee, and

3) ordinary and necessary.

Allowable Expenses

Listed below are several examples of expenses the IRS will allow you to deduct. For a full list, be sure to read IRS Publication 29.

• Dues to a chamber of commerce if membership helps you do your job or carry on your business
• Job search expenses in your present occupation
• Licenses and regulatory fees
• Malpractice insurance premiums
• Medical examinations required by an employer
• Passport for a business trip
• Subscriptions to professional journals and trade magazines related to your work
• Tools and supplies used in your work
• Travel, transportation, meals, entertainment, gifts, and local lodging related to your work
• Union dues and expenses
• Work clothes and uniforms if required and not suitable for everyday use
• Work-related education, such as training courses

Miscellaneous Deduction

Unreimbursed employee expenses are considered part of the miscellaneous deduction on your tax return. You can include them on Schedule A, line 21 of your IRS Form 1040.

Health Savings Account Deduction

Earlier in the week the RDTC Tax Help Blog posted the newest entry in its deduction of the week series. The new article explains the deduction available for health saving accounts (HSAs). Contributions to these plans are usually tax-deductible, and withdrawals are not taxable if the money is used for a qualifying medical expense.

Above the Line

The HSA deduction is an above the line deduction, meaning that you can itemize even if you claim the standard deduction.

Deduction Limits

The deduction you can claim for your HSA contributions are limited to a maximum dollar amount. In 2010, the limit is $3,050 for individual coverage, $6,150 for family coverage, and $1,000 for catch-up contributions.

IRS Qualifications

According to IRS Publication 969, to be eligible for the HSA deduction you must meet the following requirements:

• You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month.
• You have no other health coverage except what is permitted under Other health coverage.
• You are not enrolled in Medicare.
• You cannot be claimed as a dependent on someone else's 2009 tax return.
• Claiming the Deduction

You will need to report your deductible HSA contributions on IRS Form 8889 and your Form 1040 when you prepare your return. You do not need to complete a Schedule A, just subtract them on the front page of your Form 1040 when you calculate your adjusted gross income.

Tax Deduction of the Week: Job Hunting Expenses

The Roni Deutch Tax Center – Tax Help Blog published another great tax deduction of the week entry earlier this week. The new article explains deductions available for certain job hunting expenses. You can find a section of the post below, or check out the full text at RDTC.com.

Looking for a new job? In addition to the deduction available to taxpayers who have to move for a new job, you can also deduct qualifying expenses related to your search for employment.

2% Rule

If you are looking for a position in the same line of work that you are currently in, then many of your expenses can be deducted. You do not need to be out of work to have an expense qualify, but your deduction is limited by the 2% rule. Therefore, you can only deduct expenses that exceed 2% of your income.

IRS Restrictions

According to IRS Publication 529, you cannot deduct your job hunting expenses if:

• You are looking for a job in a new occupation,
• There was a substantial break between the ending of your last job and your looking for a new one, or
• You are looking for a job for the first time.

The American Opportunity Credit

Earlier today the Roni Deutch Tax Center – Tax Help Blog posted a new entry explaining the American Opportunity Tax Credit. As the article explains, the new credit is actually just an expansion of the Hope Scholarship tax credit, with a higher maximum and a longer life span.

Credit vs. Deduction

Unlike a tax deduction, which lowers your taxable income, a credit lowers your tax bill (or increases your refund) dollar for dollar. The exact value of a deduction depends on your tax bracket, while credits are a set amount no matter what income bracket you are in.

Value of the Credit

The new credit has a maximum of $2,500 and can also be claimed for up to 4 years.

Eligibility Requirements

According to the IRS only qualifying full-time college students are eligible for the credit. Although it is available for 4 years, the actual amount you are eligible to receive will vary on your income level. Additionally, unlike past credits the American Opportunity Credit is 40% refundable, so even families who do not pay income taxes will be able to take advantage of the tax credit.

Tax Deduction of the Week: Casualty Losses

The Roni Deutch Tax Center – Tax Help Blog posted another great tax deduction of the week, this time taking on casualty and theft losses as well as how to calculate the deduction you may qualify for if you suffer a significant loss. I have included a section of the article below or head on over to the Tax Help Blog for more great tax advice.

Casualty Losses

If you suffer the loss of property (including damage and/or destruction) because of a sudden event, then you may qualify for a casualty loss deduction. These events need to be unexpected, such as an earthquake, fire, flood, shipwreck, storm, tornado, vandalism, etc. However, there are a few situations that are not tax-deductible including accidental breaking, pet-related accidents, accidents resulting from willful neglect, or progressive deterioration.

Theft Losses

Losses of property due to theft may also be tax deductible. As the IRS explains, “a theft is the taking and removing of money or property with the intent to deprive the owner of it. The taking of property must be illegal under the law of the state where it occurred and it must have been done with criminal intent.” Therefore if you are the victim of a burglary, embezzlement, extortion, ransom, robbery, etc. then you may be able to claim a theft loss deduction.

Calculating the Deduction

According to IRS regulations your casualty losses are deductible to the extent that they exceed $100 per event, and the extent that they exceed 10% of your adjusted gross income (AGI). Therefore, if you suffer an $8,000 loss due to a flood, and your AGI is $40,000 then your total deduction will be $3,900 ($8,000 - $100 – {$40,000 x 10%}).

Tax Deduction of the Week: Business Travel & Meals

Earlier in the week the Roni Deutch Tax Center – Tax Help Blog posted a new entry in their deduction of the week series. The new article explains the travel and meal deductions available for business owners and self-employed taxpayers. You can find an excerpt of the entry below, or click here to sign up to the Tax Help Blog RSS feed.

Travel Expenses = Fully Deductible

All travel expenses that you incur as a small-business owner are tax deductible. This includes the cost of travel (plane fare, train tickets, etc.) as well as hotel charges, rental cars, taxi fares, tipping the bellboy, and even dry cleaning fees while traveling.

Food & Meals

As with typical meal and entertainment deductions, you can only write off 50% of your meal expenses. However, when you are traveling for business you do not need to be entertaining a client in order to claim the deduction. You can deduct the 50% of all food purchased, including room service, fast food, and even meals from expensive restaurants.

IRS Regulations

According to the IRS, “you cannot deduct expenses that are lavish or extravagant or that are for personal purposes.” Additionally in order to qualify as a travel deduction you must be “away from the general area of your home for a period substantially longer than an ordinary day's work.”

Claiming the Deduction

You can claim business travel and meal expenses on IRS Form 1040, Schedule A.

Tax Deduction of the Week: Rental Properties

Yesterday, the Roni Deutch Tax Center – Tax Help Blog posted a new entry in their deduction of the week series. This new article discusses rental properties and the tax deductions available to landlords. You can find the text of the blog entry below, or visit the Roni Deutch Tax Center – Tax Help Blog and subscribe to the RSS feed to stay updated on all future deduction of the week entries.

Interest

As a landlord you will pay a decent amount of money in interest. Fortunately, many of these expenses can be deducted on your tax return including mortgage interest, loans to improve the property, and credit card interest on goods or services used in your property management.

Travel Expenses

If you have to travel to maintain your rental, collect rent, or show off the property, then you can deduct these expenses. You have the option to either deduct the actual expenses – which can be especially useful if you must travel by plane and stay in a hotel – or take the IRS’ standard mileage rate for any miles driven.

Home Office

If you have a home office that you use to run your property management business then you may be eligible to claim the home office deduction. However, in order to qualify as a home office in the eyes of the IRS the room must meet certain specifications. To learn more about the home office deduction check out this deduction of the week entry from earlier this year.

Employees, Independent Contractors, and Professionals

Any wages paid to an employee or independent contractor (such as a property manager or on call repair person) can be deducted as a business expense. Additionally, fees paid to a professional (such as an attorney, accountant, real estate investment advisor) can also be deducted as operating expenses.

Tax Deduction of the Week: Bad Debts

Yesterday, the Roni Deutch Tax Center – Tax Help Blog posted a new entry in their deduction of the week series. This new article explains bad debts and the deduction they create for business owners. You can find the text of the blog entry below, or visit the Roni Deutch Tax Center – Tax Help Blog and subscribe to the RSS feed and stay updated on all future deduction of the week entries.

If you are a business owner then you should know that certain bad debts are eligible for a deduction on your tax return. So, if you are unable to collect on a client/customer debt this year, do not forget your consolation prize come next tax season. The ability to claim bad debt deductions depend on what your business sells.

Product Sales

In order for your business to claim a bad debt deduction, you need to sell products. If someone purchases goods from your store but never pays for them, you can usually deduct the total cost of the unpaid products.

Service Based Businesses

Unfortunately, if your business provides services you will not be allowed to take a bad debt deduction for the time devoted to attempting to collect from a nonpaying client.

IRS Requirements

According to IRS Topic 453, to show that a debt is worthless – and eligible for the deduction – you must have taken reasonable steps to collect the debt. You also must take the deduction in the year that the debt became worthless; meaning the same year you realized you would not be paid for the goods.

For more information on business bad debts, be sure to read IRS Publication 535: Business Expenses.

The Standard Deduction

Last week the RDTC Tax Help Blog posted a new entry in its Deduction of the Week series. The new article explains the standard deduction, and how to determine if you should itemize or not. I have included a section of the Deduction of the Week entry below, but you can find the full text at the RDTC Tax Help Blog.

To Itemize or Not?

If you itemize deductions on your tax return, you will be eligible to claim dozens of tax deductions, such as the mortgage interest deduction or vehicle registration fee deduction. However, if you do not qualify for many deductions, you can claim the standard deduction, which will reduce your adjusted gross income by a flat amount.

To decide if you should itemize or not, you should first determine all the deductions you qualify for and the total amounts of those deductions. If that number is higher than the standard deduction you would qualify for then you should itemize. If the number is lower, then you should claim the standard deduction.

Standard Deduction Amounts

Listed below are the standard deduction amounts for 2010:

• Single $5,700
• Married Filing Jointly $11,400
• Married Filing Separately $5,700
• Head of Household $8,400

Tax Deduction of the Week: Job Relocation Expenses

Earlier in the week, I posted a new entry on the RDTC Tax Help Blog deduction of the week series. The new article explains the job relocation expense deduction and you can find a section of the text below. Checkout the RDTC Tax Help Blog to see the full entry, as well as former deduction of the week articles.

Examples of Moving Expenses that can be Deducted:

• Packing and transportation costs for moving household goods
• The cost of shipping goods from a place other than your former home (such as a storage unit)
• Any storage bills or fees for disconnecting or reconnecting utilities
• All move-related travel expenses (such as mileage, tolls, lodging, parking fees, etc.)
• Expenses of shipping and relocating your car and/or pets to your new home.
  

Expenses that can NOT be Deducted:

• License plates and registration for your car
• Any part of the purchase of a new home or expenses of leasing a new apartment
• Real estate taxes or lost security deposits

Relocation Rules

According to the IRS, “you can generally consider moving expenses incurred within one year from the date you first reported to work at the new location as closely related in time to the start of work. It isn't necessary that you arrange to work before moving to a new location, as long as you actually do go to work.”

Time Test

To qualify for the deduction you must work full time for at least 39 weeks during the first year after starting the new job. You do not necessarily have to work for the same employer, and you do not need to work for 39 weeks consecutively. However, you will need to work full time within the same commuting area for 39 full weeks.

Continued at RDTC.com…