Posted on January 21, 2014May 31, 2016 by Jan Roberg

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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Posted on August 23, 2013May 31, 2016 by Jan Roberg

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/

Posted on February 15, 2013May 31, 2016 by Jan Roberg

Employee Business Expenses: How to Claim Them (Part 2)

Photo by NewsRover on Flickr.com

Note: before you read this post, you should really see “Deducting Employee Business Expenses on Your Tax Return (Part 1)” first to see if you should even consider claiming them.

Okay, so you’ve decided that it makes sense for you to be reporting your job expenses on your tax return. Generally, people who report employee business expenses are in sales; folks who do a lot of driving and a lot of business entertaining. Those are the expenses I’m going to look at today.

Business miles: I have a lot of blog posts about mileage, usually I’m writing about self-employed people, but the rules for claiming mileage are the same for employees. If you are commuting to the office—that’s not a deductible expense. If you’re driving around town meeting clients—that is deductible.

For example: let’s say your average round trip commute is 20 miles every day. The average person commutes to work 250 days out of the year so if your commute is 20 miles a day, you can expect your commuting miles to be 5000 miles a year. That’s 5000 miles you can’t claim as a business expense.

But, let’s say you kept really good records of your business miles. You traveled 17,000 miles on business (including your commute) during the year. That means you drove 12,000 deductible miles and that’s pretty significant. (17,000 – 5,000 is 12,000 miles)

To claim your mileage, you’ll need to know what type of car you drive, and the year, make, and model. Also, when did you start using it for work? The paperwork is going to ask you how many business miles you drove, how many commuting miles, and how many other miles (they mean personal—picking up the kids at school, buying groceries, and stuff like that.)

Do not lie about the mileage! It is the most audited piece of any tax return. Keep a log, use MapQuest, and learn to read your odometer. Don’t make stuff up. Most people over estimate their business mileage.

Use our FREE mileage log on our downloads tab: http://robergtaxsolutions.com/free-downloads/. This is FREE to disburse amongst your family or friends.

Business entertaining: The business lunch. Just because you happen to have a receipt for eating a meal in a restaurant doesn’t make it a legitimate business expense. If you learn nothing else from this post, learn to write on your receipt. Who did you eat with and what was the meeting about? It doesn’t have to be fancy: Fred—networking, Marge—advertising, Peggy—sales call. Enough to jog your memory if you get asked.

Dinner with your spouse is not a deductible business expense even if you’re talking business. Don’t be naive. The receipt for the fancy restaurant with the $200 dinner dated February 14^th sure as heck better be well substantiated for business if you want to float that one by the IRS. Same goes for the McDonald’s Play Place, how many people really are conducting business there? (Okay, full disclosure, I’ve got a business client who does hold business meetings at McDonald’s—it works with balancing family duties, but the meetings are well documented.)

Remember, most business meals are in the 50% category; meaning that if you had $1,000 worth of business meals it only counts as a $500 deduction on your tax return.

Employee business expenses are a popular target for IRS audits. It doesn’t mean you shouldn’t claim them though, it just means that you need to be extra careful. Make sure you document everything. Write on your receipts, keep a log book, hold onto your proof and you’ll be just fine with your deductions.

Posted on February 12, 2013May 31, 2016 by Jan Roberg

Deducting Employee Business Expenses on Your Tax Return (Part 1)

Photo by brizzle born and bred on Flickr.com

People ask me every day, “I heard I can claim driving for my job on my taxes, can I?” Or, “I spend a lot of money on lunches with clients, how do I deduct that?” Or the most common one, “I just bought a new computer for home but I use it mostly for work, how do I write that off?”

These things all fall under the category of “employee business expenses”. You’ll see a section for that on your Schedule A of your tax return, but if you’re serious about claiming them, you’ll be using form 2106—the number from that form gets rolled onto your schedule A.

Before you even try to start deducting employee business expenses—here’s some things you need to know.

The Basics

1. If your employer reimburses you for something—you can’t deduct it… Example: you fly to Chicago for a business trip and charge it all on your American Express Card. You pay American Express but then you submit an expense report to your employer who writes you a check reimbursing you for your trip expenses. That’s called a reimbursable plan and you cannot claim the trip as a deduction.

2. If your employer pays for the expense up front—you can’t deduct it. Recently I had a young man in my office wanting to claim 69,000 miles on his taxes. Yes, that’s a lot of miles but it was perfectly in line with his occupation and he had the documentation to prove it. But the income didn’t match up—there wasn’t enough income in his W2 to pay for the gas to drive the vehicle that far. It turns out that the vehicle was owned by his employer and his employer paid for all the gas and maintenance. There’s no deduction to the employee in this case.

3. If your employer pays you a stipend for something, you may still be able to claim the expense, but you have to deduct the stipend from your claim. For example, I have a client who requires a cell phone and needs to drive for his job. His employer gives him $100 a month towards the cost of the cell phone and gas. The employee doesn’t submit any special paperwork to his boss; he just gets the $100 a month no matter what. That’s called a “non-reimbursable plan. “ We prepare his 2106 form claiming all of his business related expenses, and then we back out the $1200 extra that his employer pays him for his phone and gas expense. It’s important to show on your tax return the stipend and that you’ve backed it out of your calculations. This is probably the number one point of contention when these returns get audited.

4. In order to claim an employee business expense deduction, your business expenses must be more than 2% of your adjusted gross income for it to even register on your tax return. For example, let’s say you made $50,000 last year and you took a special training class for work which cost $950. Well, 2% of $50,000 is $1,000 so you wouldn’t have even spent enough for it to begin to count. But let’s say you spent $1,350 on that training class. Well now you’ve got enough to make a claim—you could claim $350 on your schedule A. But here’s the next issue—if you don’t have enough other items on your Schedule A to make itemizing your deductions worth it, then you still don’t have a deduction.

5. it’s harder to claim employee business expenses if you’re married. If you are married, when figuring the 2% threshold figure, you use both incomes together. For example, let’s say you have a job where you make $30,000 a year and you have $1,000 in employee business expenses. You’re clearly over the threshold (30,000 x 2% is $600) so you have a $400 deduction. But if you’re married and your spouse also makes $30,000 a year, then the threshold just moved to $1,200 and you’ve completely lost that deduction. (30K plus 30K = 60K. 60K times 2% = $1,200.)

You hear a lot in the news about claiming employee business expenses, and for some people, it’s a great deduction. But as you can see from the list above, it’s a rather limited deduction for many people.

Posted on February 5, 2013May 31, 2016 by Jan Roberg

Using the Sales Tax Deduction Calculator for a Better Refund

Photo by Dave Dugdale on Flickr.com

To see more photography by Dave Dugdale, see http://www.learningdslrvideo.com/

I was working on a tax return the other day and I called the client to tell him about his refund. “How did you do it?” He asked, “When I did it myself on Turbo Tax I owed $600!”

Well, to be honest, my first go round on his tax return I showed him owing $600 too. What I do is go back and look for little tweaks that I may have missed the first time around. The sales tax deduction is one place to check and you can do this yourself.

Most people who live in states with an income tax don’t use the sales tax deduction. For most people, the income tax deduction is the higher deduction. But if the sales tax deduction is something you use, you want to know about this. You need to check for a local sales tax.

Let me explain. Here in Missouri, the state sales tax is 4.225%. If you’re working in Turbo Tax or just about any other software, it will figure your sales tax deduction based upon the state rate. What I used to do in the past was go to the department of revenue website and look up the local sales tax rates for each locality and add that to my equation. Chesterfield, the next suburb over has a 3.7% local sales tax. You see how that can almost double your sales tax deduction?

But it’s even easier to figure your local rate these days with the IRS sales tax deduction calculator. Here’s a link: http://apps.irs.gov/app/stdc/

It’s so easy to use. You start with the tax year. They want your income range, the number of exemptions you’re claiming and if you bought any special items like a car. Then you’ll have to input your zip code. My zip code has a couple of different sales tax rates so I’ve got to check that I’m in Maryland Heights, MO so they get the right tax rate. Then it asks if I’ve moved—because if you move they’ll calculate the sales tax deduction for the two areas.

Then you’ll get a chance to check your answers and edit it if you made any typos or anything. Click continue and it tells you what your sales tax deduction is including your local sales tax rate. You can print that page out and it will be your back up for the entry that you put in your tax return.

Let me give you an example: I used an income between $100,000 and $120,000 and I used my city, Maryland Heights, Missouri. If I just use the regular software program—it would give me a sales tax deduction of $776. By using the IRS calculator, the sales tax deduction is $1,412. That’s a difference of $636. For someone in the 25% tax bracket, it would save them $159 in taxes.

This little tax trick is not going to give you enormous savings, but it’s not a bad return for 5 minutes of your time.