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 September 18, 2012May 31, 2016 by Jan Roberg

Gambling and Taxes

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!

Posted on March 23, 2012May 31, 2016 by Jan Roberg

Married Couples: Read Your Tax Return to Recognize Trouble

Photo by Ed Yourdon on flickr.com

About once a year, after preparing a tax return I’m asked, “Does my husband/wife have to see this?” Well, the answer is, “Yes, and he/she has to sign it too.”

A lot of people never really look at their tax returns, but it’s important that you do, even if you’re not the bread winner. Your tax return has a lot of information about you and your financial situation. If your spouse is in trouble, and you sign the return, then you’re in trouble too.

Here’s the number one thing to look at so you don’t get caught unaware: Adjusted gross income. That’s going to be the number at the top of page 2 of your 1040 tax return (line 38). (It’s also at the bottom on page 1, line 37.) That’s all the money you make, including wages, business income, interest, gains from stock – everything. This is the number that should match your lifestyle. It’s the single most important number on your tax return (and you thought it was the refund didn’t you?) If you live in a million dollar mansion and drive a Porsche, and the adjusted gross income is only $20,000, you’ve got yourself a serious problem. Flip side, if you’re living in a shack and subsisting off of peanut butter sandwiches but the adjusted gross income number is $300,000, you need to ask yourself where all the money is going. It’s quite possible that your income numbers and lifestyle don’t match up and there could be a very legitimate reason for that, but you need to know what that is.

Of course, I recommend that you look at everything, and ask questions about anything you don’t understand. Here are three issues for you to check where you don’t need to know any math:

Look at the address on the return. If it’s not yours, you need to be asking questions.
Look at the names of the dependents. Do all the kids live with you? If not, does your spouse have a legal right to claim any children that are listed? Earned Income Credit Tax fraud is a big deal, and if you sign the return, it’s your problem too.
Also, look at the back of the return. Is the refund being direct deposited into your joint checking account? If not, where’s the money going and why?

One more thing that might give you pause to think would be on line 21: Other Income. This could be just about anything, but it’s where the gambling income goes. Most gamblers have a number on their Schedule A for the same amount to claim gambling losses, it would go on line 28. You can’t claim a bigger deduction than the amount of gambling money you win. If your lifestyle isn’t matching your adjusted gross income and you’ve got gambling on your tax return – your spouse’s losses could be much larger than what’s reported on your taxes.

In today’s economy, it’s important to be aware of your family’s full financial picture. For some couples, talking about money is difficult. You can use your tax return as a convenient way to open up the discussion. If there are money problems, you should come up with solutions as a team. That’s what marriage is supposed to be about anyway.