Archive for Tax Deductions

Increase Your Withholding To Avoid Underpayment Penalties

Uncle Sam considers our tax system a “pay-as-you-go” system and expects taxpayers to prepay taxes on income as they receive it throughout the year. Taxes are prepaid through withholding and by estimated tax payments.

Since withholding is not an exact science and estimated tax payments are—just as the title suggests—estimates, the IRS, and most states, provide safe harbor payments that a taxpayer can make through a combination of withholding and estimated payments that will ensure no underpayment penalties are assessed.

There are two federal safe harbor amounts that apply when the payments are made evenly throughout the year. Read More

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Should You Itemize Your Deductions For Taxes?

Looking ahead to the filing season for this year’s tax returns, a frequent question is whether you should keep track of tax-deductible expenditures or simply settle for the standard deduction amount.

Whether you can itemize deductions on your tax return depends on how much you spent on certain expenses during the year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions (usually job or investment related) can reduce your taxes. If the total amount spent on those categories is more than the standard deduction, you can usually benefit by itemizing.

The standard deduction amounts are based on your filing status, your age and whether or Read More

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Are Charity Auction Purchases Deductible Contributions?

It is common practice for charities to hold auction events where attendees will bid upon and purchase items. The question often arises whether the money spent on the items purchased constitutes a charitable donation.

The answer to that question is some, but not all, of what’s paid for the item may be deductible. So if you purchase items at a charity auction, you may claim a charitable contribution deduction for the excess of the purchase price paid for the item over its fair market value. You must be able to show, however, that you knew that the value of the item was less than the amount you paid for it. For example, a charity may publish a catalog, given to each person who attends an auction, providing a good faith estimate of items that will be available for bidding. Assuming you have no reason to doubt the accuracy of the Read More

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Deducting Other Miscellaneous Employee Business Expenses

You may also be able to deduct the following miscellaneous expenses, if they were incurred in the normal course of carrying out your responsibilities as an employee:

• Business bad debt of an employee.
• Business liability insurance premiums.
• Damages paid to a former employer for breach of an employment contract.
• Depreciation on a computer your employer requires you to use in your work.
• Dues to a chamber of commerce if membership helps you do your job.
• Dues to professional societies.
• Job search expenses in your present occupation.
• Laboratory breakage fees. Read More

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Deducting Job-Related Education Expenses

You may be able to deduct any job-related education expenses you paid during the year, as an itemized deduction on Schedule A. These expenses are also subject to the 2% of AGI limitation.

To be deductible, the education expenses must be job-related, and they must be for education that is:

• Required by your employer or by law, to keep your present salary, status, or job.
• Required to maintain or improve the skills needed in your present work.

Although the above requirements may be met, no deduction will be allowed on Schedule A, if the expense was incurred to: Read More

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Deducting Business Gifts And Local Transportation Expenses That You Incur On Your Job

Business Gifts

If the nature of your job requires you to give gifts to customers, the cost of gifts given directly or indirectly to a customer is deductible up to a maximum limit. The following rules apply to gifts:

• You cannot claim a gift deduction of more than $25 per person. (Incidental costs, such as engraving on jewelry, or packaging and mailing, are not included in determining the cost of the gift).
• A gift to a customer’s family member is considered an indirect gift to that customer.
• If both spouses give gifts, they are treated as one taxpayer with one $25 limit per Read More

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Deducting Car Expenses That You Incur On Your Job

If you use your own car, van, pickup, or panel truck, for the purposes of performing your duties on your job, you can claim a deduction for the use of your vehicle. You can claim EITHER the standard mileage rate OR the actual expenses for operating your vehicle on the job. Obviously, you should use whichever method will result in a larger deduction.

The standard mileage rate is a rate allowed per mile for every business mile traveled. For tax year 2014 you can claim mileage at a standard rate of 56 cents per mile for each business mile traveled. You cannot claim the standard rate if:

• You used the car for hire (for example, as a taxi).
• You operate five or more cars at the same time. Read More

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Deducting Meal and Entertainment Expenses That You Incur On Your Job

If your job requires you to entertain customers, you can deduct any unreimbursed meal and entertainment expenses incurred. To be deductible, however, these must be ordinary and necessary meals and entertainment expenses, and can be deducted only if they are directly related and associated with your business.

The directly related test is met if:

• The meal or entertainment takes place in a clear business setting.
• The main purpose of the meal and entertainment is for the conduct of business.
• You did in fact engage in business.
• You had more than a general expectation of getting income or some other business Read More

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Deducting Travel Expenses That You Incur As An Employee

You can deduct unreimbursed travel expenses that you incur as an employee, if you temporarily travel away from your tax home for your job. These expenses include transportation, car expenses, lodging and meals. (Meals are only allowed if you are traveling overnight.)

You can deduct unreimbursed travel expenses that are ordinary and necessary expenses of going from one workplace to another. Commuting costs (travel between home and work), however, are not deductible. If you have an office in your home that you use as your principal place of business for your employer, you may deduct the cost of traveling between your home office and any other places of work associated with your employment. Read More

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Casualty And Theft Losses – Figuring The Amount of The Loss That Can Be Deducted

Generally, you may claim an itemized deduction for any casualty and theft losses you suffered, but you must first determine the amount of the loss, and then figure the amount of the deduction.

Determining the amount of the loss

To determine the amount of loss you need to do two calculations:

• You first must calculate the adjusted basis of your property. The adjusted basis is usually the original cost of the property plus the cost of improvements, minus depreciation, and any previous casualty losses claimed.
• You must then calculate the decrease in fair market value of the property caused by the Read More

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Deducting Casualty And Theft Losses

Generally, you may claim an itemized deduction for any casualty and theft losses you suffered, relating to your home, household items, and vehicles. If your property was covered by insurance, you can deduct casualty and theft losses only if you filed a timely claim for reimbursement. Also, you must reduce the loss suffered, by the amount of any reimbursement you receive or expect to receive.

To be able to claim the deduction for the loss or damage to your property:

• You must first determine whether the loss has resulted from a casualty or theft under the IRS rules.
• You must complete Form 4684, Casualty and Thefts, to figure the amount of the loss, Read More

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Rules For Deducting Cash And Non-Cash Charitable Contributions

To be deductible, the contributions must actually be paid in cash or other property before the close of your tax year, whether you use the cash or accrual method. It is very important that you keep proper records of all your cash and non-cash contributions.

Rules for Deducting Cash Contributions

You cannot deduct a cash contribution, regardless of the amount, unless you keep a record of the contribution. The following rules apply:

• For individual contributions under $250, your proof can be your canceled check or your receipt, or a bank statement containing the name of the charity, the date, and the amount.
• For individual contributions of $250 or more, you must obtain a written acknowledgement Read More

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