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.

Questions for the Tax Lady: August 2nd, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: I recently got divorced from my spouse and am required to make alimony payments. Can I deduct these funds on my federal tax return?

Yes, as long as you meet the IRS’ requirements you should be able to deduct alimony payments paid to a former spouse. To learn more about the alimony payment deduction, check out this article from the Roni Deutch Tax Center – Tax Help Blog.

Question #2: I had to pay late penalties to the IRS, can I deduct these expenses?

No. According to IRS.gov, interest and penalties paid to the IRS on federal taxes are not deductible.

Retirement May Mean a Lifestyle Downgrade

With the baby boomers reaching retirement age, many of them are looking forward to settling into a nice, comfortable retirement. However, a new report from the Employee Benefit Research Institute suggests that more than half of these baby boomers are at risk of having insufficient funds to pay for the full extent of their retirement expenses.

Nearly half of older boomers -- those now aged 56 to 62 -- and some 44% of younger boomers -- aged 46 to 55 now -- are at risk of not having sufficient income to pay for basic retirement expenses and uninsured medical expenses, according to the study.

The study, which assumed that boomers would retire at age 65, also found that lower-income retirees are most likely to run out of money after 10 and certainly 20 years of retirement, while higher-income retirees are least likely to run out of money.

41% of those with the lowest income are likely to run short of money after 10 years of retirement, and 57% after 20 years. Meanwhile, just 5% of those in the highest income quartile will run out of money after 10 years, and 13% after 20 years.

So, what to make of this study?

Run out of lifestyle, not money

In reality, most Americans don't run out of money, they run out of lifestyle. As they age and spend down their assets, they typically reduce their living standard.

Continue reading at Market Watch.com…

Many Parents Inaccurately Claim College Tax Credit

From USAToday:

More than 314,000 taxpayers made inaccurate claims for a popular tax credit that helps pay college expenses, getting $532 million they weren't entitled to receive, a government report said Thursday.

The Hope Credit provides up to $1,650 a year to help pay expenses for the first two years of college. The taxpayers claimed the credit for the same student three consecutive years, instead of the two years available, said a report by the Treasury inspector general for tax administration. Auditors reviewed two three-year periods, ending in 2006 and 2007. About 58,000 claimed the credit a fourth consecutive year in 2007. The inspector general's report do not list names of taxpayers.

The report said the Internal Revenue Service needs better tools to detect and fix inaccurate claims, and the IRS agreed. The problem should ease since Congress has expanded the credit to four years of college, for those claiming the credit in 2009 and 2010.

"The Hope Credit is intended to help taxpayers pay for the ever increasing cost of higher education," said J. Russell George, the Treasury inspector general for tax administration. "It is imperative that the IRS works with the Treasury Department and Congress to obtain the tools it needs to effectively administer this important credit."

The report recommended that Congress authorize the IRS to fix tax returns that incorrectly claim the credit, much in the same way the agency fixes routine math errors. It also recommended new reporting requirements to help the IRS match expenses claimed by students with those reported by schools.

2007 IRS Mileage Rates

Good news for those who track their mileage expenses. The IRS recently announced that they are raising the tax mileage rate from 44.5 cents per mile to 48.5 cents starting January 1, 2007. This is up 4 cents from the 2006 mileage rate. For more information on calculating your mileage rate deduction visit 2007s.org.