Itemized Deductions 2016

Claiming itemized deductions in 2016

The 2016 GOP Tax Plan calls for eliminating many current tax deductions like state and local income taxes.

 

Is 2016 your last chance to itemize your deductions?  It’s possible.  With a Republican President, Senate, and Congress, it’s highly likely that many things that we currently itemize will be on the chopping block next year.

 

That’s not all bad, the trade-off will be a larger standard deduction and for many people, lower tax brackets.  This is not law yet.  Right now, it’s all speculation based upon the 2016 House Republican Tax Reform Plan.

 

Normally, I don’t like to do tax planning based upon speculation.  But here’s my opinion–you know that you may claim itemized deductions for 2016.  You don’t know if you can claim them for 2017.   It seems to me, that it makes sense to stack as many of your deductible expenses on your 2016 return as you can so you won’t lose them if the law changes.

 

So what’s at stake here?  Currently, the GOP plan would eliminate the deductions for medical expenses, state and local income taxes, real estate taxes, and employee business expenses.  (The current plan keeps the charitable donation and the mortgage interest deduction.)

 

So what does that mean?  How would you “stack” your deduction?  Let’s use state and local income taxes for an example.  If you make estimated tax payments, your fourth quarter payment isn’t due until January 15th.  That payment gets applied to your 2016 state tax return as tax paid, but if you pay the estimated payment on January 15th, you can’t claim it as a deduction on your federal return until you file your 2017 tax return.   By making your estimated tax payment by December 31st, you move that deduction up to your 2016 federal 1040 return.

 

I live in St Louis and many of my clients have to pay City of St Louis income taxes.  Almost everybody pays those taxes in April, when they file their tax return and then we claim the deduction on the next year’s taxes.  But, you can actually make an estimated payment for the City of St Louis tax.  By paying the tax in advance, you can also move that deduction to 2016 instead of losing it next year.  Here’s a link to the City of St Louis Estimated Payment Voucher    There are other cities and localities with taxes that this would apply to as well.

 

So does it really make a difference?  Well yes it does!  Let’s say your estimated tax payment is $500 and you’re in the 25% tax bracket.  That would be a tax savings of $125.  Now before, it would have been save $125 now, or $125 later – but if the GOP plan gets passed, there is no $125 later.

 

Medical expenses are another potential item on the chopping block.  If you have enough medical expenses to itemize on your return, it might make sense to pay for any additional procedures, or buy your glasses, or refill prescriptions before the year ends.  Also, if you’re a senior citizen —  even if the tax laws don’t change, you should be aware that the threshold for claiming medical expenses will go up from 7.5% of your adjusted gross income to 10% of your AGI.    So whether the tax law changes or not — if you’re over 65 your medical expense deduction will be reduced in 2017.

 

If you claim employee business expenses (that includes job hunting costs) and you’re trying to decide if you should make a purchase now or later, it might be a good time to buy now so you can put it on your 2016 taxes.

 

And just don’t forget to pay your real estate and personal property taxes before the end of the year if you want to claim them on this year’s taxes.  Remember, you can only claim the deduction in the year you actually paid the tax!

 

I’ve got one important caveat here:  if you have to pay the Alternative Minimum Tax (AMT) – moving up tax payments might not help you at all because with AMT you don’t get the use the state income tax deduction or the deduction for employee business expenses.

 

So like I said, the GOP tax plan is only a proposal, it’s not law yet.  But given the political climate, it’s highly likely that it will pass and I’d hate to see people lose out.  But even if it doesn’t pass, you’re just getting the tax benefit now rather than later.

 

 

Medical Expense Deduction is Changed for 2013

Starting with your 2013 tax return, the floor for claiming medical expenses has gone up to 10% from 7.5%. -Photo by epSos.de at Flickr.com

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Do you claim medical expenses on your tax return?  If you do, then you need to know that the rules changed for 2013.

 

It used to be that you medical expenses had to be higher than 7.5% of your adjusted gross income in order for you to be able to claim them.  So if you made $50,000 a year, your medical expenses would have to be higher than $3,750 before you could claim anything for that.  Starting with your 2013 tax return, the floor for claiming medical expenses has gone up to 10%, so now your medical expenses would have to be higher than $5,000 in order to claim anything.

 

So let’s say you had major surgery this past year.  After all the insurance reimbursements, you were still out of pocket $7,000.  Using the above example, you’d only be able to claim $2,000 of medical expenses on your tax return.

 

Even if your medical expenses were over 10% of your income, you still need enough other deductible expenses to make your medical expense deduction worthwhile.  Let’s say you’re single and your standard deduction for 2013 is $6,100.    Suppose you had $3,000 withheld for your state income tax, you gave $1,000 to charity, and you had the $2,000 of medical expenses that you could claim.  That only totals $6,000—you’re still better off claiming the standard deduction of $6,100.  Keep that in mind as you gather up your medical receipts; it’s not just having enough medical expenses to deduct, it’s having enough expenses overall to make it worth your while.  This is commonly referred to as itemizing deductions.

 

If you, or your spouse, are age 65 or over, there’s a temporary exception to the 10% rule.  You can continue to use the medical expenses that exceed 7.5% of your adjusted gross income.  You can keep doing that all the way through 2016, after that, you’ll also have to use the 10% threshold.

 

Please check out my post about maximizing your medical expense deduction:  http://robergtaxsolutions.com/2013/02/maximizing-your-medical-expense-deduction/

 

Even if you can’t claim your medical expenses with your itemized deductions on schedule A, some people are entitled to claim their medical expenses elsewhere.  You don’t want to miss out on any deduction that available to you.

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Small Business Expenses: Advertising vs. Charity (Purple Pig Purchases)

Purple-Pig

 

 

 

At first blush, you might think that advertising and charity don’t go together at all.  But when you own a small business, your advertising and charity might just go hand in hand.  Let me explain.

 

When you own a small business, you’ll get lots of calls from organizations wanting your business to make donations to charities.  When you’re a sole proprietor, partnership, or S Corporation, your charitable donations don’t reduce your business income, they only count as a charity donation on your Schedule A personal tax return.

 

So—let’s say you want to donate $100 to Cystic Fibrosis from your business.  That’s all fine and good, but that donation doesn’t reduce your business income by $100.  It doesn’t reduce your business income by anything at all.  You still get to deduct it on your Schedule A—but if you don’t itemize your deductions, that $100 donation doesn’t help your tax return at all.

 

This is where advertising comes in.  Instead of just donating $100 to a charity, you can buy an ad in a charity event program, that way you’re giving money to the charity, and getting a 100% business write-off for the advertising.  The charity still gets your money, and you get a better write-off.

 

Why do you want to your business donation to be  advertising?  The taxes!  If you have a sole proprietorship and you’re in the 25% tax bracket, your business income is actually taxed at 40.3%.  (25% regular tax rate plus 15.3% self employment tax.)  If you itemize your deductions, your $100 donation would really only cost you $75 (but only if you can itemize your donations.)  But if you can count it as a business expense, then your $100 donation would really only cost you $59.70. ($100 minus $40.30) See why this is a good thing?

 

Of course, there are some things that are just going to be charitable donations no matter how you try to align them.  Your tithe or temple dues simply won’t count as advertising.   But when you’re looking at charities that you like to support, be sure to check out the advertising opportunities.

 

So what’s with the purple pig?  A not for profit I support held an event for kids.  Instead of just donating money, I got to set up a booth and hand out my fliers to the parents.  The pig was part of a pig race game for the kids.  The pig is a 100% deductible business expense—and he’s really cute.   Cute and deductible—that works for me.

Your Job Search and Your Taxes

Photo by kate at Flickr.com

 

People often ask me about deducting job search expenses on their tax returns.  Every year I hear stories on the news, “Don’t forget, your job search expenses are tax deductible!”  While this is true that job search expenses can be deductible—many times, they really aren’t.

 

For one thing, if you’re job hunting, you can only deduct your job search expenses if you’re looking for a job in your current occupation.   I do taxes; I’m in the accounting field.  If I decide to chuck it all and become a belly dancer—I couldn’t deduct those job search costs since belly dancing is not related to accounting.  (Tap dancing—maybe: http://www.youtube.com/watch?v=fNKRm6H-qOU)

 

But say you truly are looking for a new job in your field, what can you deduct?  Here’s a pretty good list:

     

  • Employment and job placement agency fees
  • Cost of preparing and mailing copies of your resume
  • Travel expenses to look for a new job, but only if the trip is primarily to look for a job.  (If you’re a professional snow remover and you’re job hunting in Honolulu it’s really not going to fly with the IRS.)
  • You can deduct your job search expenses even if you do not find a new job

 

After you figure out what your qualified job search expenses are, it goes as a miscellaneous itemized deduction on your Schedule A.  That means that your job hunt expenses will have to be more than 2% of your adjusted gross income before they even start to count.  And remember that even then, you’ll need enough other items on your Schedule A form to make it worth your while—also known as itemizing deductions.

 

Here’s an example:  Christie is an office manager for a small law firm and makes $50,000 a year.  She paid $500 to a professional resume service, and $2,000 to a placement agency to help her find a new job.   Although most of the out of state companies that interviewed her paid for her travel, she did have $100 of out of pocket travel expenses.  In this case, Christies total job search expenses were $2,600.

 

Now 2% of Christies adjusted gross income is $1,000 ($50,000 times .02 = $1,000.)  So in this case, Christie would have a miscellaneous deduction of $1,600.  ($2,600 expenses – $1,000 threshold = $1,600.)   So if Christie had other deductions to go along with it, great, then she could benefit from claiming her job search expenses.  If she didn’t have any other deductions, then she’d still be better of claiming her standard deduction.

 

You cannot deduct your job search expenses if you are looking for a job for the first time.  This rule keeps most recent grads from claiming job search expenses.

 

Don’t let not being able to claim a deduction keep you from spending money that you need to spend to look for a job.   If your resume needs help, hire a resume writer.  If a placement agency can help you, use one.   Be sure to put your best foot forward.

 

For some good free advice about job hunting, check out this website from BestCollegesOnline.com.   Although the article is written specifically for online students, there’s so much good and basic job hunt information in there it’s worth checking out.    Face it, when you don’t have a job, free is a pretty good price.  Here’s a link:  http://www.bestcollegesonline.com/career-skills-learn-school/

Charitable Giving 2012

Here is the link to our free donation tracker!
http://robergtaxsolutions.com/2013/01/roberg-tax-solutions-free-donation-tracker/

Goodwill

Photo by Sarcasmette on Flickr.com

Good afternoon everyone.  Being my first official blog post, I would like to start off by formally introducing myself—my name is Michael Siebert and I am a recent graduate of the University of Missouri – St. Louis.  I have a bachelor’s degree in Business Administration with an emphasis in personal finance.  My affinity for taxes began when I was a volunteer for the Volunteer Income Tax Assistance Program also known as VITA back in 2010.  One day in November 2011, in search for a tax preparation job, I typed in “St. Louis Tax Preparation” in the Yahoo search bar.  I saw Roberg Tax Solutions as the first link and decided to click and explore.  I clicked the “Contact Us” tab at the top and thought, “Well, I guess I’ll give this a try, but no one answers these things anyway so probably nothing will happen.”  In less than a day, I received a heartfelt reply email from Janice Roberg.  I then thought out loud, “This person really cares about people and their well being.  If she responded quickly to me, she must respond punctually to everyone else.”  And believe me, she does.

 

We set up a day for lunch, conversed, and from that moment on, I was determined to work for her.  So in the beginning of 2012, I worked for Roberg Tax Solutions part time while working another full time job—to get my feet wet in the compensated tax prep world.  It is now 2013, I am a full time employee, and I could not be happier.  Jan’s dedication to her business, her ability to empathize with clients, and determination to grow are just few of the many facets that make work enjoyable.  I am truly happy to come into work every day.

 

Alright, enough sucking up.  Let’s get to our topic of charitable giving.  Above is a link to a donation tracker that I made which is free for you to use, disburse amongst your friends and family, or even frame and display in your office if you’re into that sort of thing.  Kidding aside, I am pretty good with Excel but definitely not a guru.  If you see any problems or improvements feel free to leave a comment.  It includes a fair market guide for used items which can save you some research time.  It also includes important little tidbits of information, useful links, and the record keeping requirements for charitable contributions.

 

Charitable contributions go on your Schedule A if you itemize deductions in place of your standard deduction.  The 2012 standard deductions are:

  • Singles: $5,950
  • Married Filing Jointly or Qualifying Widow(er): $11,900
  • HOH: $8,700

 

The 2012 additional standard deductions for people age 65 or older, legally blind, per person, per event are:

  • MFJ, QW, MFS: $1,150
  • Single or HOH: $1,450

 

Are Your Contributions Eligible to Receive Tax-Deductibility?

Use the IRS online search tool, Exempt Organization Select Check: www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check.  Or call the IRS at 1-877-829-5500.

 

Cash Contributions

Contributions made by cash or check go on line 16 of your schedule A.  Boring.  Out-of pocket expenses incurred in performing volunteer work for a charitable organization (including the charitable mileage deduction) are also considered contributions.  If you are reimbursed by the organization, you cannot deduct them on your schedule A.  No double dipping—unless you’re with your friends and the dip is good.  The charitable standard mileage rate is 14 cents.

 

Contributions that Benefit you—Mr. or Mrs. Taxpayer

If you receive a benefit for a charitable contribution, your deduction is reduced by the value of the benefit received.  As much as I would love to provide examples of this, I have to keep you awake a little while longer to finish reading.

 

Contributions of Property and One of My Favorite Tax Forms, Form 8283

Yes, I like tax forms.  Jan thinks I am an extreme nerd because of this and she’s probably right.

Contributions of property are reported on line 17, Schedule A.  (Mike, nobody cares about where it goes because the software will take care of it!)  The deduction is generally equal to the fair market value of the contributed property.

 

An important and common planning tip:  If the fair market value of stock is less than what you paid for it, you could sell the stock, recognize the capital loss, and then donate the cash to the charity rather than give the stock directly to the charity.  This reduces your tax liability more so than if you were to donate the stock directly.

 

Form 8283 Noncash Charitable Contributions is required when the total value of your noncash contributions exceeds $500. The four methods of evaluating fair market value are the appraisal, thrift shop value, catalog, or comparable sales method.  Most people use the thrift store value for common household goods.  You have to have the Donee tax identification number, the donee street address, the property description, the physical condition, the date acquired, date contributed, your cost, and the item’s fair market value.  They should give you a receipt verifying your donated property that acts as proof for your donation.  Isn’t this stuff fun?

 

Charitable Contributions Deduction Limitation

The total deduction for all charitable contributions is limited to 50% of the taxpayer’s AGI.  Charitable contributions in excess are carried forward for up to 5 years.  There are also 30% and 20% AGI limitation rules that I will not delve into here.

 

Donating Your Car

You must obtain written acknowledgement from the donee organization, which includes details on the use or disposition of the vehicle by the donee organization.  A copy of the written acknowledgement must be attached to the tax return.  Check out http://www.irs.gov/pub/irs-pdf/p4303.pdf for more information.

 

To those of you who made it this far, thank you for reading.  I look forward to writing more blog posts in the future as my skills and knowledge increase.  But remember, the intrinsic value of the donation will always exceed the dollar amount of tax saved. You should feel good about helping needy families!

 

Here is the link to the donation tracker again.
http://robergtaxsolutions.com/2013/01/roberg-tax-solutions-free-donation-tracker/

Gambling and Taxes

New York New York in Las Vegas

Photo by Werner Kunz at Flickr.com

This post is about your gambling and how it affects your income tax return.

 

Here in Missouri, we’ve got casinos so I get to see a fair number of W-2Gs; that’s the form you get when you win at a gambling event.   Not everybody receives a W-2G for their winnings; you need to win over a certain amount before one is issued.  The limits go like this:

 

  • $1,200 or more for winnings from bingo or slot machines
  • $1,500 or more from keno (proceeds minus the amount of the wager)
  • Over $5,000 in winnings from a poker tournament
  • $600 or more in winnings (except for what I’ve already mentioned) and the payout is at least 300 times the amount of the wager; or
  • Any other gambling winnings subject to federal income tax withholding

 

When you get your W-2G, you report your gambling winnings on the other income line of your 1040 tax return.   (Line 21)

 

If you have gambling losses, you may claim a deduction for your losses up to the amount of your winnings on your Schedule A itemized deductions page.  (Line 28)

 

That’s all pretty easy, but there’s some picky stuff you’re going to want to know.  First, you need to keep records of your losses if you want to deduct them.  Now many casinos track that for you, but for the IRS you really should keep a log.   If your gambling is more in the form of horse racing or lottery tickets, keeping cancelled tickets supports your loss claim.

 

Also, although you can deduct your losses up to the amount of your winnings on your Schedule A—if you don’t already itemize, this might not help you much or even not at all.  For example:  let’s say you’re single and win $5,000 at a slot machine.  You don’t already itemize.  Your standard deduction is $5,800—in this case, you might not get any value from itemizing your gambling deduction.  This deduction is much more valuable for people who already have other things to write off like mortgage interest.

 

Another issue for gamblers, even if you can deduct all of your gambling winnings on the Schedule A, is that the gambling income will increase your “Adjusted Gross Income” (AGI).  Now before I lose you with tax jargon, let me explain why that’s important.  The AGI number is figured before you subtract the Schedule A deductions.  The AGI number is used to figure a lot of other tax deductions and credits.

 

If you normally have a low AGI and you qualify for things like the Earned Income Tax Credit or the Child Tax Credit, and you win big at gambling, even though you can deduct all of those winnings, the gambling makes your AGI number bigger.  A big AGI can make your tax credits smaller or even eliminate them completely.  I’ve seen families lose their entire EIC refund because they have gambling winnings that they had to report.

 

On the flip side, let’s say you’re a high income earner and you’ve got a big gambling win.  When your AGI goes up and it can trigger the Alternative Minimum Tax.  Once again, even though you’ve written off your gambling winnings completely, you can still get socked with more tax.  I’ve had that happen to clients as well.

 

Now you might be thinking—well gee, I just won’t report my gambling winnings at all.  Sorry, but that’s not an option.  W-2Gs are reported to the IRS.  If you don’t report your gambling winnings, you will get a letter.

 

I didn’t mean to sound like a complete party pooper.  Let’s face it, if you win big that’s pretty cool!  But if you do win big, it makes sense to do a little tax planning.  You want to enjoy the fact that you won and not have to suffer for it months later.

 

Editor:  And remember, what happens in Vegas, stays in Vegas!

Last Minute Tax Tip: Deductions for High Income Earners

The idea of tax deductions for high income earners must sound preposterous, especially if you’re a high income earner.  You know how it goes, you try donating money to charity or taking advantage of any of the other tax deductions only to find that your deduction is “limited due to your income.”  So what’s the point?

Well this year, there is a point.  Itemized deductions and exemptions aren’t phased out for high income taxpayers for 2010.  Last year, if you earned over $166,800 you started to lose out on your deductions.  The higher your income, the less valuable your deductions were.   Only for 2010 are you allowed all of your itemized deductions.  You also get 100% of your exemptions also.

But what about the Alternative Minimum Tax or AMT?  Won’t that get us anyway?  Well, yeah.  AMT is a problem for high income earners.  But, and this is important, charitable deductions aren’t eliminated in the AMT calculation.  AMT dings you for your state tax payments, miscellaneous deductions (like employee business expenses), and some types of mortgage payments.  Your charitable contributions still count as a deduction in the AMT calculation.  Even if you’re stuck paying AMT, you’re still better off having that charity deduction on your tax return.

Bottom line:  If you are a high income earner, there has never been a better time for you to make a charitable contribution.