Saturday, April 12, 2014
If you claim these wrong write-offs, you'll deduct expenses that don't meet Internal Revenue Service guidelines.
And that means you'll end up spending time with a tax auditor and paying more in taxes, penalties and interest.
Accu-Tax doesn't want that to happen to you, so we've put together this list of expenses you might be tempted to claim. Don't you dare!
But don't get too upset. We've also provided some related tax breaks that do pass IRS muster and will lower your tax bill.
Don't deduct home 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 2013 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. The 2013 tax year is the final one for this deduction unless Congress extends it.
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 landline, but ...
You can't deduct the cost of your main home telephone landline, 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 unreimbursed 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 landline 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 unreimbursed 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.
You also could encourage 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, it has been done. 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 overwithholding. 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 2013 is $113,700 and for 2014 is $117,000.
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, if you are younger than age 65, all your medical expenses, including any allowable plastic surgeries, now must come to more than 10 percent of your adjusted gross income on your 2013 Schedule A before you can claim them. Older taxpayers can continue to use the 7.5 percent threshold through 2016.
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 unreimbursed 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 volunteer time, 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 unreimbursed 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 overnight camp, 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.
Tuesday, April 8, 2014
If you made IRA contributions or you’re thinking of making them, you may have questions about IRAs and your taxes. Here are some important tips from the IRS about saving for retirement using an IRA.
1. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA. There is no age limit to contribute to a Roth IRA.
2. You must have taxable compensation to contribute to an IRA. This includes income from wages and salaries and net self-employment income. It also includes tips, commissions, bonuses and alimony. If you’re married and file a joint return, generally only one spouse needs to have compensation.
3. You can contribute to an IRA at any time during the year. To count for 2013, you must make all contributions by the due date of your tax return. This does not include extensions. That means you usually must contribute by April 15, 2014. If you contribute between Jan. 1 and April 15, make sure your plan sponsor applies it to the right year.
4. In general, the most you can contribute to your IRA for 2013 is the smaller of either your taxable compensation for the year or $5,500. If you were age 50 or older at the end of 2013, the maximum you can contribute increases to $6,500.
5. You normally won’t pay income tax on funds in your traditional IRA until you start taking distributions from it. Qualified distributions from a Roth IRA are tax-free.
6. You may be able to deduct some or all of your contributions to your traditional IRA. Use the worksheets in the Form 1040A or Form 1040 instructions to figure the amount that you can deduct. You may claim the deduction on either form. Unlike a traditional IRA, you can’t deduct contributions to a Roth IRA.
7. If you contribute to an IRA you may also qualify for the Saver’s Credit. The credit can reduce your taxes up to $2,000 if you file a joint return. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit. You can file Form 1040A or 1040 to claim the Saver’s Credit.
8. See Publication 590, Individual Retirement Arrangements, for more about IRAs.
Monday, April 7, 2014
We all make mistakes. But if you make a mistake on your tax return, the IRS may need to contact you to correct it. That will delay your refund.
You can avoid most tax return errors by using IRS e-file. People who do their taxes on paper are about 20 times more likely to make an error than e-filers. IRS e-file is the most accurate way to file your tax return.
Here are eight common tax-filing errors to avoid:
1. Wrong or missing Social Security numbers. Be sure you enter all SSNs on your tax return exactly as they are on the Social Security cards.
2. Wrong names. Be sure you spell the names of everyone on your tax return exactly as they are on their Social Security cards.
3. Filing status errors. Some people use the wrong filing status, such as Head of Household instead of Single. The Interactive Tax Assistant on IRS.gov can help you choose the right one. Tax software helps e-filers choose.
4. Math mistakes. Double-check your math. For example, be careful when you add or subtract or figure items on a form or worksheet. Tax preparation software does all the math for e-filers.
5. Errors in figuring credits or deductions. Many filers make mistakes figuring their Earned Income Tax Credit, Child and Dependent Care Credit, and the standard deduction. If you’re not e-filing, follow the instructions carefully when figuring credits and deductions. For example, if you’re age 65 or older or blind, be sure you claim the correct, higher standard deduction.
6. Wrong bank account numbers. You should choose to get your refund by direct deposit. But it’s important that you use the right bank and account numbers on your return. The fastest and safest way to get a tax refund is to combine e-file with direct deposit.
7. Forms not signed or dated. An unsigned tax return is like an unsigned check – it’s not valid. Remember that both spouses must sign a joint return.
8. Electronic filing PIN errors. When you e-file, you sign your return electronically with a Personal Identification Number. If you know last year’s e-file PIN, you can use that. If not, you’ll need to enter the Adjusted Gross Income from your originally-filed 2012 federal tax return. Don’t use the AGI amount from an amended 2012 return or a 2012 return that the IRS corrected.
If you don’t have taxes withheld from your pay, or you don’t have enough tax withheld, then you may need to make estimated tax payments. If you’re self-employed you normally have to pay your taxes this way.
Here are six tips you should know about estimated taxes:
1. You should pay estimated taxes in 2014 if you expect to owe $1,000 or more when you file your federal tax return. Special rules apply to farmers and fishermen.
2. Estimate the amount of income you expect to receive for the year to determine the amount of taxes you may owe. Make sure that you take into account any tax deductions and credits that you will be eligible to claim. Life changes during the year, such as a change in marital status or the birth of a child, can affect your taxes.
3. You normally make estimated tax payments four times a year. The dates that apply to most people are April 15, June 16 and Sept. 15 in 2014, and Jan. 15, 2015.
4. You may pay online or by phone. You may also pay by check or money order, or by credit or debit card. If you mail your payments to the IRS, use the payment vouchers that come with Form 1040-ES, Estimated Tax for Individuals.
5. Check out the electronic payment options on IRS.gov. The Electronic Filing Tax Payment System is a free and easy way to make your payments electronically.
6. Use Form 1040-ES and its instructions to figure your estimated taxes.