What Are Miscellaneous Itemized Deductions and Are They Worth Tracking?

March 01, 2017

Editor’s note: Please note that all miscellaneous deductions were eliminated with the passing of the Tax Cuts and Jobs Act of 2018, but would still apply for tax year 2017 and prior.

Whenever I’m asked for “little known” tax tips, I can’t help but be a little annoyed. Part of the reason they are little known is because they apply to so few people, at least when it comes to deductions that fall under the “miscellaneous itemized deductions” umbrella. Things like tax preparation fees, unreimbursed business expenses and the home office deduction for employed workers – these are all deductions that I personally have in my life and yet I see no tax benefit because the only way they are actually deductible is if they exceed 2% of my adjusted gross income. In other words, a married couple who makes a combined $100,000 would only be able to deduct miscellaneous items that exceed $2,000, which is 2% of their income. That’s a lot of unreimbursed expenses.

However, I still track mine just in case. I probably won’t have a deduction in a normal year, but should something big come up or we have a year of unexpectedly low income, I want to be able to take whatever deductions are available. Here are the common deductions that may be worth tracking, even if you don’t get to write them off, as well as some expenses that people think are deductible but aren’t:

Common deductions worth tracking

Unreimbursed business expenses. Anything you pay out of your own pocket that applies directly to your job but you can’t put on your work expense report falls in this category. For example, when I travel for work, we have daily meal allowances. They’re reasonable, but sometimes I like to treat myself to a nicer dinner than the guidelines allow. I keep track of the amount I spend over the per diem limit as an unreimbursed expense.

Another example is a professional organization I belong to here in Chicago. My membership doesn’t fit my company’s expense guidelines, but it’s still work-related. I wouldn’t be a member of this group if I didn’t have my job. Other examples would be if your employer doesn’t reimburse at the full IRS-allowable mileage rate or if you subscribe to any magazines for your field. The full IRS list is here.

Tax preparation fees. Even if you do your own taxes, chances are you have to pay for the software or at least filing fees. Make a note of this expense in your tax files just in case you have other miscellaneous deductions that you can add on for a deduction.

Appraisal fees. If you made a gift to a charity that required an appraisal or if you had a casualty loss that required you to get an appraisal for insurance purposes, those are deductible in this category.

Any of these expenses. Many of the expenses that qualify may be one-time things that you didn’t know you could deduct, like repayments of Social Security benefits. It’s worth reviewing the list each year to see if you paid any of these things, in case they push you over the limit.

What’s not considered a miscellaneous deduction

Funeral expenses. If you prepaid your funeral expenses or purchased your burial lot ahead of time, those are not tax deductions, contrary to popular belief. However, once you’re gone, if you have a taxable estate, those expenses may be applicable there (something worth noting for executors of estates.)

Commissions paid to a broker. Fees for investment advice are deductible, leading many to believe that they can also deduct commissions. Instead, commissions become part of the cost basis of the investment purchased, so you’ll realize the tax benefit when the commission reduces the amount of your capital gain when the investment is sold.

Lost or misplaced cash or property. Losing something is not the same as someone stealing it or having it ruined due to a fire, flood or other event, which would make it a casualty loss (reported on Form 4684.) But just leaving your phone somewhere and not having it returned to you or dropping your wallet on the street is not deductible. There are no tax benefits for being careless…

Any of these expenses. Claiming a deduction for any of these items on your tax return could result in a tax levy from the IRS or sometimes even a full audit. While it seems like you should be able to write some of these things off, the bad news is that you can’t. C’est la vie.

I keep a file for receipts that would apply should I end up in a tax year where the total of these expenses might exceed 2% of my AGI. As I prepare to file taxes at the end of the year, I just do a quick review of the expenses that qualify to make sure I’m not forgetting anything, then recycle those receipts if they don’t add up to enough. So what do you think? Are these expenses worth tracking to you?

 

Kelley Long is a Resident Financial Planner with Financial Finesse, the leading provider of unbiased workplace financial wellness programs in the US. For more posts by Kelley or to sign up to have her weekly post delivered to your inbox each Wednesday, please visit the main blog page and sign up today.

 

 

Can You Deduct Your Student Loan Interest?

February 22, 2017

Don’t you just hate making student loan payments? Besides the fact that your student loans (hopefully) enabled you to earn a degree that allows you to command a higher income than you would without it, at least there is a small tax benefit to those loans for those who qualify. Here’s the skinny on what you need to know to maximize your deduction:

There are income limits. If you’re single and your AGI exceeds $80,000 or you’re married and your combined AGI is over $160,000, you can’t take any deduction at all. There are also phase-outs, which means you can still take some of the deduction but not all of it. Those limits start at $65k for single and $130k for married people. If you use tax software or a tax professional to prepare your taxes, the amount will be figured for you.

You can only deduct the first $2,500 paid in interest each year. Probably the biggest mistake I’ve seen here is when people think they can deduct payments. It’s actually only the interest you can deduct, so even if you’ve made well in excess of $2,500 in actual payments, you may not have a $2,500 deduction.

Your loan provider will tell you how much interest you paid. You don’t have to do the math to figure out what portion of your payments were for interest and which went toward the principal. Just look for Form 1098-E from each of your lenders. If you’re signed up for electronic delivery of statements, then you’ll probably have to log in to find your form. Look for a link to “Tax Documents” if your lender doesn’t make it obvious on their home page.

You can deduct interest from multiple loans, but they have to be qualified. If you have multiple loan accounts or lenders, you can add up all those Form 1098-E amounts for your total deduction. But the loan has to be considered a qualified student loan. If you refinanced by taking out a home equity  or 401(k) loan or even just borrowed from a family member to lower your rate, you can’t deduct that interest.

If you claim student loan interest on your tax form and the IRS doesn’t receive a corresponding 1098-E from a lender, you can count on getting a letter asking you to prove the interest was paid on a qualified student loan. If you’re not sure if your loan is considered qualified or not, ask them for your Form 1098-E. If they are unable to provide one, it’s not qualified.

I know that paying student loans is no fun. Hopefully, this small tax benefit will offer a little silver lining though. (In addition, reflect on what your finances would be like if you hadn’t earned that degree.)

 

Kelley Long is a resident financial planner with Financial Finesse, the leading provider of unbiased workplace financial wellness programs in the US. For more posts by Kelley or to sign up to have her weekly post delivered to your inbox each Wednesday, please visit the main blog page and sign up today.

 

Are Your Job Relocation Expenses Tax Deductible?

January 27, 2017

Editor’s note: The moving expense deduction was eliminated with the passing of the Tax Cuts and Jobs Act of 2018, but would still apply for tax year 2017 and prior.

Many of our client companies have a national presence and it isn’t unusual for employees to have to relocate halfway across the country for a new role. Since moving is expensive (even my local move last year when I bought a little townhouse a few miles away), accounting for those expenses becomes not just a “to do” item that is time consuming and frustrating – but possibly also rewarding! You can potentially get reimbursed for moving expenses, get paid a relocation expense and/or get to deduct some of your moving expenses on your tax return.  There are a lot of “moving parts” in this situation.

With all of these potential situations in play, what do you need to know? The first thing you should know is if your move is local, like mine was, and isn’t required for work (mine wasn’t) then there is no benefit to you financially. That’s just the cost of making a transition.

Does your move have deduction potential?

If your move is for business purposes, and this would include a new job, your current job or even your first job (note to recent or upcoming grads…..this means YOU!) – your move has to pass two “tests” in order to be tax deductible:

Test #1 = the distance test. The job must be 50 miles further away than your current home. If you live 15 miles away from work now, the new role would have to be 65 miles away (and on a reasonable route, not a zigzag route through the scenic back roads).

Test #2 = the time test. Once you’ve moved, you have to spend at least 39 weeks working in the first 12 months. If you’re self employed, that bumps up to 78 weeks in the first 24 months.

If you don’t receive money from your employer

If you don’t get reimbursed, keep your receipts and track your mileage. You can use the IRS Form 3903 to track your expenses. You don’t need the Schedule A since it’s not subject to a percentage of income test and it isn’t impacted by income phase-outs.

It’s a pretty straightforward process. Things you can deduct are: the cost of moving, 30 days of storage expenses, insurance for the move, the cost of disconnecting/connecting utilities, lodging expenses during the move, the cost of transporting pets, and the cost of shipping your car (or mileage if you drive). Things you can NOT deduct are:  the cost of meals and house hunting. (Boo!)

If you do receive money from your employer

Where it gets a bit tricky is if you get post-move reimbursements or a relocation allowance paid prior to your move. If you get reimbursed and it is a non-taxable reimbursement (like an expense check), you can’t double dip and then deduct the expenses. If you get reimbursed and it IS taxable (you can see if it’s on your W-2 form, box 12, Code P), you then are allowed to deduct the expenses. If you get a relocation allowance in December 2016 and incur expenses in January or February 2017, you can deduct the moving expenses as if you moved in 2016 – so you’d fill out the 3903 for the 2016 tax year, which means you’ll probably be bumping up against the April tax filing deadline.

Having just completed a move recently, I can tell you that moving is no fun. But looking for a new place can be a blast and it’s pretty cool once you’ve settled in to the new place. Remember, if you’re moving for work, it can also be something that can help you around tax filing season.

 

Can You Deduct Your Job Hunting Expenses?

October 19, 2016

Editor’s note: Please note that all miscellaneous deductions were eliminated with the passing of the Tax Cuts and Jobs Act of 2018, but would still apply for tax year 2017 and prior.

Did you know you might be able to deduct your job search? If you itemize deductions on Schedule A of your tax return and incurred significant expenses while searching for a new job in your field, you may be able to reduce your taxable income by keeping track of them. Here are the rules and caveats:

  1. Most importantly, job search expenses are considered to be miscellaneous deductions, which means they need to exceed 2% of your adjusted gross income (“AGI”) before you can even include them as deductions. To roughly calculate AGI, add up your total income (including interest, dividends, capital gains, alimony received, wages and self-employment earnings), then subtract any pre-tax IRA or 401(k) contributions, HSA contributions, moving expenses, alimony paid and student loan interest1. Multiply that by .02. If your job search expenses are in the ballpark of the result, then it’s worth tracking.
  2. It’s also important to realize that this does not apply if you’re actually switching careers. If you’re thinking of leaving your corporate job to be a yoga teacher, you won’t be able to write off the cost of your teacher training. Only expenses incurred while searching within your current field from one job to another qualify. This also means you can’t write off expenses associated with your first job or even after long breaks away from working unless you were searching the whole time. In that case, keep as much data as possible to prove you were actively seeking work during that stretch to prove it – things like calendars, cover letters submitted, receipts for travel, etc.
  3. Here’s what you can deduct, according to the IRS:
    Resume costs – anything you spent preparing and mailing your resume (if you actually mailed it to anyone!)
    Travel expenses – if you take a trip primarily to interview or seek a job
    Meals – if you happen to have lunch with someone to discuss a job while you’re on vacation, you can only deduct 50% of the cost of the lunch plus any transportation costs directly related to getting to lunch like parking or a cab
    Agency fees – the cost of using a placement agency to help you land interviews
    Networking events – attending events to meet prospective employers or even people who can help you meet prospective employers as long as that’s what you’re there to do – aka you’re actually asking people for help with landing a job
  4. Make sure you keep a solid record of any expenses you plan to deduct. The best way to remember what you need to note is to think of it like an invitation. You need a record of:
    Who was there
    What were you doing
    When you incurred the expense
    Where the expense was incurred (like the name of a restaurant)
    Why it would qualify as a job-search expense

Don’t forget that if you do land a new job in your field that requires a move, you may be able to deduct those expenses too! Searching for a new job can be a tedious and expensive process. Make sure you track the expenses to avoid paying more taxes than you need to.

1 Disclaimer: Not an exhaustive list of “above the line” deductions, but the most common

 

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How to Deduct Your Moving Expenses

October 12, 2016

Editor’s note: The moving expense deduction was eliminated with the passing of the Tax Cuts and Jobs Act of 2018, but would still apply for tax year 2017 and prior.

I know several people who have embarked upon long distance moves recently, which also means that they were often changing jobs. My first question when I learned of the moves was, “You know you can deduct your moving expenses, right?” First, here’s what the IRS has to say about it:

If you moved due to a change in your job or business location or because you started a new job or business, you may be able to deduct your reasonable moving expenses but not any expenses for meals [emphasis added]. You can deduct your moving expenses if you meet all three of the following requirements:

  • Your move closely relates to the start of work
  • You meet the distance test
  • You meet the time test

Here’s what that means:

Related to the start of work: Your move doesn’t have to be because you got a new job, but the two events do need to be closely related. Specifically, you can deduct moving expenses incurred within one year from the date you first started your new job.

Distance test: Your new job must be at least 50 miles further from your old home than your old job was from your old home. If you weren’t working before you moved, then your new job must be at least 50 miles from your old home.

For example, when I graduated college in Michigan and moved to Cincinnati to start my new job, I was able to deduct my moving expenses. But when I moved to a new house in Cincinnati about the same time I started a different job, my new commute was only 5 miles longer than my old commute, so those expenses were not deductible. If you had a 5 mile commute that turned into a 55 mile commute and you switched jobs to work closer to home, you could deduct.

Time test: You have to work full-time at least 39 weeks during the first 12 months immediately after you arrive in your new location. If you’re self-employed, that time requirement increases to require full-time work for at least 39 weeks out of 12 months and for a total of at least 78 weeks during the first 24 months. So a self-employed person who works full-time for a year and 26 weeks from the day they arrive would qualify. There are exceptions to this rule for death, disability, involuntary separation, and a few other things. Publication 521 lists them all.

If you pass all of those tests, then you can deduct your moving expenses. It’s what we CPA geeks call an “above the line” deduction, which has a more favorable effect on your taxes than “below the line” deductions like mortgage interest, taxes and charitable giving. Moving expenses actually decrease your adjusted gross income, a number upon which other tax calculations are determined, including eligibility to deduct medical expenses and even your state taxable income.

What You Can Deduct

Generally speaking, you can deduct any expenses that were incurred to move your stuff, including travel. That includes the cost of storage up to 30 consecutive days, supplies such as tape, boxes, moving blankets, etc., any costs to move pets (I once had a client pay FedEx to move his horse from Florida to California) and your mileage for making the drive there. If your move involves an overnight in a hotel, you can also deduct that along with the cost of renting a moving truck. You’ll have to complete Form 3903 and file it with that year’s return and make sure you keep receipts for everything in case the IRS wants proof.

Remember, the purpose of the move doesn’t have to be because you found a new job. You can move to a new place because you want to move and as long as you switch jobs and meet the three tests, you also get a little tax boost to offset the costs. Moving is expensive. Take advantage of all the breaks you can get!

 

If you have questions that we can answer on the blog, please send me an email, and I’ll do my best to help. Did you know you can also sign up to receive my blog posts every week, delivered straight to your inbox? Just head over to our blog main page, enter your email address and select which topics or bloggers’ posts you’d like to receive. You may also follow me on Twitter and Facebook as well.

How To Make That 1099 Less Taxing

February 12, 2016

One of the TV moments that I still find absolutely hilarious a long time after its first airing is Reverend Jim from “Taxi” taking his driver’s license exam. This clip STILL cracks me up every time I see it. While Rev. Jim not knowing what a yellow light means is not a big financial issue (although, I swear that A LOT of drivers I’ve seen lately have absolutely no clue what it means either), not knowing what a 1099 means could provide quite a shock to the recipient. Continue reading “How To Make That 1099 Less Taxing”

The Easiest Way to Save On Your Taxes

January 20, 2016

I think one of the reasons these mid-January and February days are so dreary is that it’s also tax time. Your mailbox and even your email inbox these days are being graced with tax forms, reminding you that preparing your income taxes is looming over your head. One of the reasons I dread tax time is because I can no longer procrastinate getting my records organized, and in doing so, it inevitably adds a bunch more to-do’s to my list of things I’d rather not be doing in my free time. Continue reading “The Easiest Way to Save On Your Taxes”

Last Minute Tax Savings With An HSA

February 16, 2015

In recent weeks, millions of taxpayers have been realizing the true impact of the Affordable Care Act as they file their tax returns. It’s probably no surprise the individual mandate required most Americans to have health insurance coverage as of January 1, 2014. If you had employer-provided health insurance coverage for most of 2014 or you purchased coverage through a private exchange or directly from an insurance company, the health insurance mandate will not have an impact your taxes. Continue reading “Last Minute Tax Savings With An HSA”

How to Prepare Your Tax Return Stress Free

April 12, 2014

Have you completed your tax return yet? The tax deadline is just a few days away so if you haven’t filed, it’s time to gather your documents and prep your return. If filing your income taxes stresses you out, you can keep your stress level in check with a few simple tricks. Use these six strategies to file your tax return accurately and effectively. Continue reading “How to Prepare Your Tax Return Stress Free”

The Deadline to Reduce Your Tax Bill is Approaching

March 24, 2014

Time is running out to stay off of Uncle Sam’s naughty list and complete those income tax returns prior to the April 15th deadline. (Even if you choose to file an extension until October 15, 2014 taxes are still due by April 15 to avoid paying interest and penalties.) Beyond making sure you aren’t missing out on any itemized deductions or tax credits, there are still some moves you can make to reduce your tax bill or increase your refund. Last minute contributions to deductible IRAs and HSAs are two effective strategies to lower your 2013 tax bill (or increase your refund). Continue reading “The Deadline to Reduce Your Tax Bill is Approaching”

Don’t Overlook These Commonly Missed Tax Breaks

February 25, 2014

You’ve probably seen the commercial with pallets of money being dropped from above, representing a billion dollars of missed tax deductions and credits from taxpayers who do their own taxes.  You don’t have to go to a tax pro to get your fair share, however.  Just make sure you don’t overlook some of the following items that could increase your tax refund: Continue reading “Don’t Overlook These Commonly Missed Tax Breaks”

Tax Planning for 2013 Begins Now

April 24, 2013

Just because tax season is over doesn’t mean your tax planning is done.  Whether you owed the IRS money or got money back, tax planning is something you can do all year.  Consider these tax tips: Continue reading “Tax Planning for 2013 Begins Now”

How to Avoid an IRS Audit

February 25, 2013

The IRS is a universally feared agency and for good reason. The IRS can garnish wages, seize bank accounts and lien property to those who owe them money!  That is not their first course of action of course, but they have the power to do all of those things so getting a letter in the mail from the IRS is something everyone wants to avoid. Here are some tips on how to do that: Continue reading “How to Avoid an IRS Audit”

How to Get Tax Relief for College Expenses

May 30, 2012

We’ve been talking for the last few months about the challenges of sending a child to college. First comes the choice of savings vehicles from the hundreds of options: state-sponsored 529s, private plans, Coverdell accounts, and self-managed investments. Then comes the crash course in financial aid, where parents and students have to figure out their eligibility for grants, scholarships, and government and private loans.   Continue reading “How to Get Tax Relief for College Expenses”

My Favorite Tax Deduction

December 13, 2010

When you’re a business owner or an independent contractor, of course you can write off everything associated with your business.  But what if you aren’t?  I have to say that I never really wanted to run my own business– I love being an employee with my W2 at the end of the year.  An entrepreneur?  Not me.  I pride myself at being an “intraprenuer” where I enjoy creative projects like writing and being the host of “your money minute,” as well as educating employees to become financially secure and helping the company to grow. Continue reading “My Favorite Tax Deduction”