Posts Tagged ‘adjusted gross income’

Don’t even try to take these deductions

Posted on: April 9th, 2013 by

CPA - Taxes Due - Rockville, MDEvery tax-filing season, the great quest by filers is to find the most tax deductions.  But there are some deductions you should steer clear of.  If you claim these wrong write-offs, you’ll deduct expenses that don’t meet Internal Revenue Service guidelines.  Simply, that means you’ll end up spending time with a tax auditor and paying more in taxes, penalties and interest.

With the assistance of Bankrate, here is a list of no-nos (but to be fair, there are some related tax breaks included that will pass the through the IRS).

Don’t deduct homeowners insurance, but …

The hazard policy you bought to cover damage from fires, tornadoes, hurricanes, winter storms and other disasters, as well as for more-routine mishaps, offers peace of mind.  What it doesn’t provide is a tax deduction for the insurance premiums.

But if you meet some tax law guidelines, you can deduct private mortgage insurance, or PMI on your 2012 tax return.  PMI is the insurance your lender requires you to buy if you don’t put down a big enough down payment.  PMI premiums are deductible as an itemized expense (it goes on Schedule A with your mortgage interest claim) as long as the mortgage insurance policy was issued in 2007 or later.  This tax deduction is in effect through 2013.

You also must meet income requirements.  If your adjusted gross income is $100,000 or less (or $50,000 and you’re married and filing separately), your full PMI premium amount is deductible.  If you make between $100,001 and $109,000, the amount of PMI that you can deduct is reduced.  And if your income is more than $109,000 ($54,500 married filing separately), you can’t deduct PMI at all.

You can figure your allowable PMI deduction using the work sheet in the Schedule A instructions.

Don’t deduct a telephone land line, but …

You can’t deduct the cost of your main home telephone land line, even if you primarily use that phone for your business.  The IRS says that the first hard-wired phone line in your home is considered a nondeductible personal expense.

But you can deduct as a business expense the cost of business-related long distance charges on that phone.  If you are an employee, they would be claimed as an un-reimbursed business expense on Schedule A.  If you are self-employed, you would count the phone calls as an expense on your Schedule C or C-EZ.  And if you install a second telephone land line specifically for your business, its full cost is deductible.

Don’t deduct commuting costs, but …

The cost of getting to and from your workplace is never deductible.  Taking public transportation or driving to work is a personal expense, regardless of how far your home is from your office.  And no, you can’t deduct commuting expenses even if you work during the commute.

But you might be able to deduct some commuting costs if you work at two places in one day, whether or not for the same employer. In this case, you can deduct the expense of getting from one workplace to the other.

You also can deduct some expenses related to other work-related travel, such as visits to clients (current and potential) and out-of-office business meetings.  If you’re self-employed, these expenses would go on your Schedule C or C-EZ.

If you’re an employee, travel costs must be claimed as un-reimbursed business expenses.  As such, your business and other miscellaneous itemized expenses must exceed 2 percent of your adjusted gross income.

Whatever your business travel situation, be sure to keep good records.

Another idea is to ask your employer to establish a commuter savings account program.  This employee transportation fringe benefit lets workers use pretax dollars to purchase mass-transit passes and pay for parking near work.

Don’t deduct your pet, but …

Yes, your dog or cat is a family member.  And yes, some insurance companies now include coverage for Fido or Fluffy in auto policies.  But your affection for your pet or an insurer’s willingness to pay for some of your domesticated animal’s care doesn’t carry any weight with the IRS. so don’t dare try claiming your pet as a dependent.  Yes, as ridiculous as it sounds, there are people out there that have tried it.  And yes, it is disallowed by the IRS when the furry facts are revealed.

You can, however, deduct as itemized medical expenses the costs of buying, training and maintaining a guide dog or other service animal to assist a visually impaired or hearing-impaired person, or a person with other physical disabilities.

Don’t deduct Social Security taxes, but …

You lose a lot of income each payday to Federal Insurance Contributions Act, or FICA, taxes, the money withheld from your checks to pay for your future Social Security benefits.  The debate as to whether Social Security will be around when you retire is still raging.  But one thing is sure: Don’t even think about trying to deduct these taxes.

But if you overpaid this tax, you can get a credit for your Social Security over-withholding.  There is a limit on how much FICA taxes can be contributed each year.   The tax is withheld on up to the Social Security earnings base, which is adjusted annually for inflation, and which for 2012 is $110,100 and for 2013 is $113,700.

If you had multiple jobs and your combined earnings exceeded the wage base, you probably had too much FICA withheld.  You can claim the excess Social Security tax as a credit when you file your tax return.

Don’t deduct plastic surgery, but …

If you simply are following your inner Joan Rivers, the IRS definitely won’t let you deduct the costs of your nips and tucks.  The IRS specifically says you generally cannot include in deductible medical expenses the amount you pay for procedures such as face lifts, hair transplants, hair removal (electrolysis) and liposuction.

But if a surgery is medically prescribed, for instance, a nose job to treat respiratory issues, and you just happen to like the look of your new sniffer, then that’s OK.  The doctor’s decision makes it a medical deduction.

The IRS says: “You can include in medical expenses the amount you pay for cosmetic surgery if it is necessary to improve a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma or a disfiguring disease.”

Remember, all your medical expenses, including any allowable plastic surgeries, must come to more than 7.5 percent of your adjusted gross income on your 2012 Schedule A before you can claim them.  For the 2013 tax year, the medical deduction threshold is 10 percent of your AGI.

Don’t deduct dry cleaning, but …

Looking sharp at work rests totally on your shoulders.  A recent U.S. Tax Court ruling reaffirmed this tax law when the judge disallowed a television anchorwoman’s deductions for tens of thousands of dollars in clothing she bought to wear on air.

But you can deduct the cost of dry cleaning or laundry of business uniforms.  Under the tax code, that means attire you can’t wear anywhere else, although with the ways some folks dress today, that designation could be hard to nail down.

When an outfit is “not suitable for everyday use,” the IRS says the costs of upkeep for the apparel can be claimed as an un-reimbursed business expense on Schedule A.  Also deductible are the cleaning charges for nonprofit uniforms, for example, an outfit required of hospital volunteers or Boy Scout or Girl Scout troop leaders.  Here the costs of the uniform and its maintenance would count as charitable deductions, also claimed on Schedule A.

Don’t deduct time for volunteer services, but …

Your time is valuable, but that doesn’t matter to the IRS when it comes to volunteering at a charity.  You can’t claim the value of your wages for the hours spent helping out at your favorite nonprofit.  Neither can you count as a deduction the value of a project you created, such as a poster that you, a graphic artist, designed for the charity.

But you can deduct other costs associated with your charity work.  This includes your mileage in connection with the group’s work, which can be claimed on Schedule A at the rate of 14 cents per mile.  You also can claim as a charitable deduction un-reimbursed out-of-pocket expenses.

As with all things tax, keep good records.  Track your charitable travel and hang on to the receipts for the poster board and special markers you bought just for the nonprofit’s poster project.

Don’t deduct OTC medication, but …

Headache and cold treatments from your neighborhood pharmacy shelves have never been tax deductible.  There was some confusion here because for a while, the IRS allowed owners of medical flexible spending accounts, or FSAs, to use money in those pretax accounts to pay for over-the-counter drugs.

That option ended when 2011 began.  Now you must get a doctor’s prescription for OTC medications before the purchase can be reimbursed with FSA funds.  But you still can deduct diagnostic tests, such as store-bought tests for pregnancy and diabetic blood sugar levels.

And the IRS says moms get a tax deduction on breast-feeding supplies, including pumps and bottles, because, like obstetric care, “they are for the purpose of affecting a structure or function of the body of the lactating woman.”

Don’t deduct kids’ overnight camp costs, but …

When school lets out for the summer, working parents face a child care dilemma: what to do with the youngsters while Mom and Dad are at the office.

Some families send the kids off to summer camp.  That’s a great experience for the kiddos and eases, at least temporarily, parental child care concerns.  But sleep-away camps, in the summer or any other time of the year, are not tax deductible.

However, if you decide instead to keep the kids at home and simply send them to day camp during the hours you’re working, that expense could qualify as a claim for the child and dependent care credit.

If your care costs are for one child, you can count up to $3,000 of care expenses each year toward the credit.  The expense amount is doubled for the cost of caring for two or more dependents.

Your actual tax credit can be up to 35 percent of your qualifying expenses, depending upon your income.  And while that might not seem like a large percentage, remember that since it’s a credit, you get to use it to offset your tax bill dollar for dollar.

If you have further inquiries, contact Eric Bach at Eric L. Bach, CPA for a free consultation and all your tax questions.  We work to make your taxes work toward your best interest.

2010 Tax Changes You Need to Know

Posted on: December 15th, 2010 by

Tax Changes 2010Despite the availability and relative ease of using a professional tax preparer, an estimated 40% of Americans do their own taxes.  The typical do-it-yourself filer needs about 24 hours to complete the task, according to the IRS.

At home software is always a helpful tool to use, but no brand is GUARANTEED to be infallible.  Thus, it’s important for do-it-yourself filers to keep up as best they can with relevant changes to the tax code as a safeguard against errors in their tax prep software.  Here are the 4 most important changes you should know if you are the “do-it-yourselfer”:

1. Smaller Deductions for Business and Medical Mileage

You can’t write off the cost of a daily commute by car, but you can deduct other work-related mileage you’re not reimbursed for (which you have long since been able to do).   This year, for example, you’d get 50 cents a mile for driving from, say, DC to New York City and back for a trade show.  That’s five cents less per mile than you’d have gotten for the same trip in 2009.  The deduction for operating your car for medical reasons is 7.5 cents less than last year as well (16.5 cents per mile in 2010).   However, driving for charitable purposes is still deductible at 14 cents per mile, just like last year.

2. Better Limits on Deductions for Property Damage or Loss Due to Theft

For damaged or stolen property to be deductible, the loss amount must now only exceed $100, compared with $500 in 2009.  The “10% of AGI” rule still generally applies though.  (Remember, AGI <Adjusted Gross Income> is the sum of all your income – such as wages, interest and alimony received – minus certain adjustments, such as IRA contributions, student loan interest you’ve paid and moving expenses.)

3. Deduction for Taxes and Fees on New Motor Vehicle Purchases

Did you buy a new car, light truck, motor home or motorcycle between February 17 and December 31 of 2009?  If so, in 2010 you can deduct state, local, and excise taxes related to the purchase.  If your state has no sales tax, you can instead deduct other taxes or fees the purchase generated.  An interesting feature of this deduction is you can use it to increase your standard deduction or take it as a regular itemized deduction, whichever works out best for you.  (See your tax professional for more clarification).

There are a couple limitations to know about.  First, the deduction is only good on up to $49,500 of the purchase price.  Second, it’s phased out at certain levels of modified adjusted gross income (MAGI) – between $250,000 and $260,000 for joint filers and from $125,000 to $135,000 for other taxpayers.  (MAGI is your AGI plus certain deductions such as those for student loans, IRA contributions and higher education costs.)

4. Bigger Deductions for Long-Term Care (LTC) Insurance Premiums

IRS rules allow long term care insurance policy owners to deduct more of their premiums in 2010 than in 2009.  For example, those ages 51 to 60 can claim up to $1,230 in LTC insurance premiums this year, compared with $1,190 last year.  Similar increases have been approved for other age groups as well: 40 and under, 41-50, 61-70 and 71 or over.  At $330, the deduction is smallest for the 40-and-under age group.  It rises progressively to a maximum of $4,110 for those ages 71 or over.

To see what other potentially beneficial changes have been made, check out a list called “Tax Changes for Individuals” at the IRS website.