Yes, I said “BUY” deductions. They do cost you money, you know.
Did you know that our government has a FREE deduction for most of us?
That free deduction is called the STANDARD deduction. I say it’s ” free” because you don’t have to spend a dime to claim this one. The amount of your standard deduction does change from year to year and is based on your filing status. Single, Married Filing Jointly, Married Filing Separately, Head-of-Household status – each one has a different standard deduction.
There are various categories of deductions that are allowable on 1040 tax return form Schedule A, Itemized Deductions. These different categories are:
- Medical and Dental Expenses
- Taxes You Paid
- Interest You Paid
- Gifts to Charity
- Casualty and Theft Losses
- Job Expenses and Certain Miscellaneous Deductions
- Other Miscellaneous Deductions
In deciding whether to take the standard deduction or whether to itemize deductions, I ask my clients if they own their own home. And if that answer is yes, I ask if they have a mortgage on their home. The reason…Interest paid on a home mortgage is usually the largest of deductions. If you own your own home, you also pay real estate taxes. If you live in a state that has an income tax, those taxes you paid or had withheld from your paycheck are deductible. Since there are states that do NOT impose an income tax, the government allows us to choose to deduct sales taxes paid instead of income taxes paid. And if you have a car, you may also be able to deduct the license plate registration fee.
Unusually large medical expenses can also shift you from taking the standard deduction to itemizing deductions. I tell my clients that this is NOT the big deduction I want them to have. Amounts you pay for medical insurance, doctor and dentist visits, prescriptions and lab fees are the common deductions. There are costs that are deductible and there are costs that are NOT deductible. How do you know which is which? Talk to your trusted tax advisor.
If you know you want to itemize, then you will also want to look at the gifts you gave to a qualifying charity during the year. These gifts can be money and they can be what I call “stuff.” Money does not just mean paid by cash. Money means cash, check, credit card. The important key is to get a RECEIPT for your gift. The Internal Revenue Service is paying much closer attention to this deduction because of fraudulent deductions claimed every year.
Deductions take money OUT of your pocket. Is your expense ordinary and necessary? Is your expense one you decided you needed only because you wanted to lower your tax bill?
Did you know that if you are in the 15% tax bracket and you spend $1000 on an “elective” deduction, you might save $150 of tax, but you are still out $1000! If you don’t need this deductible expense, don’t spend the $1000. Pay $150 more in taxes and you still have $850 in your pocket! If you have a choice, what is YOUR choice?
I checked several sources to find the definitions of advertising, marketing and promotion. When it comes to operating a successful business, it doesn’t matter that you have the world’s greatest mousetrap if the world doesn’t know about it.
The Universal Law of Income determines how much income you will have. You will be PAID in direct proportion to the VALUE you deliver according to the marketplace. What will your income be if the marketplace doesn’t know what product or service you provide? Do you believe you have a valuable product or service? Then you need to share it with the world.
ADVERTISING is the activity or profession of producing information for promoting the sale of commercial products or services. Advertisements are messages paid for by those who send them. They are intended to inform or influence people who receive them. Advertising is usually done through some type of media. That media could be print, television, radio, and social media.
MARKETING is the activity and processes for creating, communicating, delivering, and exchanging offerings that have value for customers and clients. It is the action or business of promoting and selling products or services. It includes market research, advertising, selling, storing, shipping and delivering products to people.
PROMOTION is devised to publicize or advertise a product or service. Promotional pieces include a brochure, free sample, poster, television or radio commercial, or personal appearance. A sales promotion shows the features of the product or service. Product promotions can also be classified as “sales” or “specials.” and may include a discounted price.
PR stands for Public Relations. PR is the deliberate, planned and sustained effort to establish and maintain mutual understanding between the company and the public. Often these efforts are called PR campaign.
The whole idea is to make people aware. Attract them and them induce to buy your product or service, in preference over others.
If what you are doing is ordinary, necessary and reasonable, and not lavish or extravagant, for your business, then the Internal Revenue Service should have no problem allowing your deduction for advertising, marketing, or promotion expenses..
Your challenge will be to decide how you label your expense. In what category do you want to claim your expenses? Why are you incurring these expenses? What is the benefit to your business? Your responsibility to yourself is to keep your receipts so you can prove your expenses.
The IRS Examination Division is full of questions. The Tax Auditor or Revenue Agent will look to YOU for the answers to those questions. How much did you spend? When did you purchase it? How did you pay for it? If you used your credit card, your deduction is taken on the date you presented your credit card.
Advertising, marketing, promotion and public relations may come at a significant investment. While the benefits may be long-lasting, the costs are generally deducted in the year they are paid or incurred.
If you have questions, feel free to schedule a consultation. Send your email to email@example.com.
If you are an employer, you are expected to deposit the taxes you withhold from your employees on a timely basis. If you owe less than $2,500 total for the quarter, you may make this payment with your Form 941 report. This report includes both Federal Income Taxes withheld AND the combination of social security and medicare taxes withheld (known as FICA) from the employees’ paychecks PLUS the employer’s matching FICA amount. If you owe less than $2,500, you could be a business with a small number of employees.
If you are a business that will owe more than $2,500 for the three months in the quarter, you must pay your “trust fund” taxes on a monthly basis. The taxes you withhold from your employees are called “trust fund” taxes because your employees are trusting you to pay the taxes withheld from their checks to the Internal Revenue service for their individual tax benefit.
If you do NOT withhold the proper amount of social security or medicare taxes from your employees’ checks, you could be responsible to pay what should have been withheld. If you do not pay what you are responsible for paying, you could (you probably will) be charged with penalties. Those penalties can be substantial and they can be BIG.
Do not run your business on your employee’s monies. That decision can put you out of business. If you are trusting one of your employees to make these deposits, make sure they are being made. Trusting an employee who is not trustworthy can also put you out of business.
If an employee seems so dedicated to their job that they do not take any time off this could be a warning sign to you. The employee who refuses vacation and sick leave could feel they must be there every minute of every day to make sure their deception, their theft from you, remains undetected.
Yes, we must trust our employees, but we must also be vigilant in conducting our businesses. The newspapers are full of stories of big-hearted people who are taken advantage of by people with self-centered ulterior motives.
Are YOU are the one to sign the reports, to sign the checks, to decide who gets paid this month and who must wait if there is not enough money to pay all of the bills? Do not decide to make the IRS wait for these taxes. The IRS could decide to give you (the decision maker) more time, jail time that is. That can put you out of business, too.
It is not always easy being the business owner. You are the one that can put “The Buck Stops Here” sign on your desk. I wish you only the best in your business. I wish you only the best when it comes to your tax situation. If you need help, consult your tax professional.
This is such a BIG topic and it’s not possible to answer every question here. I’m not your insurance specialist, I am your Income Tax Audit Specialist. Here is the introduction to this new tax wrinkle that may impact your current and future tax returns.
The healthcare coverage you currently carry for yourself and your family may be all you need. If you have what is called Minimum Essential Coverage, you probably don’t have to do anything.
But if you go without coverage for any part of the year, there are special rules that apply. If you don’t qualify for an exemption, you may need to make a special payment called an Individual Shared Responsibility Payment.
Who qualifies for an exemption? Those who…
- Do not have to file a tax return
- Do not have access to affordable health care
- Are a member of certain exempt groups
- Are suffering a hardship.
- Have other situations as shown at www.IRS.gov/aca
If you and your dependents do not have coverage and do not qualify for an exemption, then you may have to make a “shared responsibility” payment when you file your tax return.
This payment is either a percentage of your income or a flat dollar amount, whichever is greater. The payment is based on the number of months you go without coverage, or the number of months you are exempt.
If you get your health insurance coverage through the Health Insurance Marketplace, you may be eligible for the Premium Tax Credit. This can help people with moderate income more easily afford the coverage.
If you meet the following requirements, there is a Premium Tax Credit:
- Your income must be within certain limits
- You must not be eligible for other coverage through an employer or government plan
- You cannot be claimed as a dependent on someone else’s return
- You cannot file your tax return using the Married Filing Separate status
When you apply for coverage through the Marketplace, you can choose to get the credit now or you can choose to get the credit later. If you choose to get the credit now, you are asking the marketplace to pay some, or pay all of the estimated credit in advance, directly to your insurance company. That will help lower your out of pocket premium costs. If you choose to get the credit later, you take that credit on your income tax return.
If you choose the advance payment, to get the credit now, be sure to report changes in your income or changes in your family size. Report these changes when they happen to ensure you are getting the correct amount of advance credit. This is important, because getting too much or getting too little credit can affect your income tax return refund or balance due.
I still get my insurance from a private insurance company. There is a lot to learn about ObamaCare and income taxes. In next week’s article, I will address the time line for getting coverage now for next year.
Let’s begin with…What is insurance? According to Merriam-Webster, insurance is “an agreement in which a person makes regular payments to a company and the company promises to pay money if the person is injured or dies or to pay money equal to the value of something (such as a house or car) if it is damaged, lost, or stolen.”
Here in Arizona we have blistering heat in the southern parts of our state. We have freezing cold in the northern parts of our state. We have had little earthquake tremors as well as devastating fires. We have had some tremendous wind storms and most recently so much rain that we had serious flooding issues.
There are many type of insurance:
Can you think of any others?
Do you have insurance to cover your losses? What does your policy cover? What are the limits of coverage. Do you have a deductible that needs to be met before the policy will pay you? If you do receive proceeds from your policy, must they be included in your income?
Just because you have insurance to help you cushion your loss, does not mean you will be successful when filing your claim. Just because you choose to purchase insurance does not mean it is deductible on your tax return.
Do you itemize your deductions? You may be able to deduct your medical, dental and long term care insurance premiums. But they are not 100% deductible. And if your policy pays you a daily amount for being the hospital, or for loss of limb or body part, that premium is not deductible.
Are you insuring items used in your business? Generally the business or business owner may be able to deduct the premiums paid. But what kind of insurance is it? What is being insured?
If you are an employee, you may want to insure the tools you own and use in your work. You must itemize deductions in order to deduct your policy premiums, and then they are not 100% deductible.
If you use your vehicle in your work, and you keep your log of business miles driven, you have a choice. You may choose to deduct the business percentage of your actual expenses, which may include vehicle insurance, or you may choose to take the cents-per-mile method of deduction.
There are always more questions than can be answered in any article. You have particular circumstances. You need an answer based on your situation. If you want to talk about your individual question, email me, You can’t buy your answer, but you can schedule a consultation with me. Nellie@BulletProofYourTaxes.com
It is election time again and everybody has their hand out. They want your money. They want your contribution. That is natural.
We just had our primary elections to determine who will be on the ballot in November. Candidates often spend a TON of money and there is not even a guarantee of winning. (Or there shouldn’t be.) Everyone is asking for money, but you need to know this: contributions to political candidates and political campaigns are NOT deductible. Those $1000 a plate dinners are NOT deductible.
Just what is a contribution? It is a donation or a gift made voluntarily with no expectation of receiving anything in return. It is a donation or gift to a qualifying organization or to be used by a qualifying organization. You must itemize your deductions on Schedule A of the Form 1040 Individual Income Tax Return in order to claim these deductions, but don’t let the requirement to itemize keep you from giving where you feel moved to give.
We are a nation of givers…some are more generous than others. The INTERNAL REVENUE SERVICE knows that some of you also tell tall tales when it comes to your deductions for charitable contributions. A few bad apples have spoiled it for everyone; in other words, you need to be sure to document your deductions. Safeguard yourself with good record keeping. That might sound boring now, but how glad will you be when your return is audited and you have EVERYTHING you need to keep you from owing more tax.
Not every contribution is deductible. But don’t let that stop you from giving to someone in need. If you want to keep it just between you and God, and don’t have the receipts to support your deduction, then keep this donation from the Internal Revenue Service, too, and leave it off your return.
How do you know if yours is a qualifying organization? The IRS has a list of most of them in their Publication 78 found at www.irs.gov. You can search by the organization name, city and state. It is easiest to search if you know the EIN or Entity Identification Number of the organization. If they have a number, they were qualified once. If they are still on the IRS list, and you have your proof of giving, then you can safely claim that deduction.
Don’t let the tax laws rule your life. Just let the tax laws rule your tax return. Don’t let the tax laws keep you from giving where you want to give. Just know when it can go on your income tax return and when it cannot.
Are you paying for your own meals while you are out of town for business? What is the purpose of your business travel? Is it to see a client? You may have an expense for your own meals and you may have an expense for wining and dining a client. Other blogs have addressed the deduction of meals while entertaining a client.
Is the cost of your meals included in your seminar registration? Understand that you must keep a record of how you are determining your deduction. You can keep the restaurant receipt showing what you paid. It will often show what you ordered and whether there was more than one guest on this ticket. Business entertainment is not part of this discussion.
Think about the meals you eat in a day. Breakfast? Lunch? Dinner? How much will you be spending? The cost of your meal PLUS the tip (an incidental expense) you leave your server for their good service is what you want to deduct. Remember, lavish and extravagant are not deductible. Ordinary and necessary can be deductible.
You can decide if you want to track and deduct the actual cost of your meals. Or, instead of actual expenses, you can use the standard allowance for the CITY you are in. The IRS posts this every year. The standard per diem (per day) rate for meals and incidental expenses for Phoenix, Arizona is $71. The standard per diem rate for Tucson, Arizona is $56. Smaller cities around the state of Arizona can claim $46 per day. On the days your travel TO and then back FROM your temporary business location you can claim 75% of the day’s per diem rate.
So, on the day I leave for my training meeting in Tucson, I can claim 75% of $56 which is $42.00. The government is thinking I’ll have breakfast at home before I leave. They would be correct in my case. On the day I return home, I can claim another $42.00. Would I have spent the full $42 for meals and tips those days? Maybe yes, maybe no. Whether I spend more or less, I will deduct the full $42. One more thing – your meal deduction is limited to 50%. So I will only deduct $21.
Do you need to keep receipts? The most recent tax laws state that you MUST have receipts for lodging. For other travel and entertainment expenses less than $75.00 you do not need to have the receipt. You MUST, however, keep a record showing the time, place, business purpose and amount of each separate expense. The IRS will match up the expenses you are claiming with your hotel receipt and other travel expenses, like airfare, in their verification process.
Do you receive reimbursement for your expenses? If you are reimbursed in full, then you are repaid for your expenses and really have nothing left to deduct. If your reimbursement is included in your W2 income, then of course you will have income in the amount of the reimbursement you received. You will certainly want to claim the expenses if you itemize your deductions.
Have I raised more questions than I answered here? The tax laws can be confusing. Email your questions to Nellie@BulletProofYourTaxes.com.
It is impossible to cover EVERYTHING on this topic, but I hope this gives you a basic understanding.
In order to deduct expenses for travel, transportation, meals and incidental expenses you must first be away from home overnight for business.
Before you even think about deducting expenses for being away from home, you must have a business purpose for that trip. What is the reason you are away from home? Is it a seminar? Is it a business meeting with a client or customer? Is it to make a presentation? Is it to seal the deal? Keep notes in your calendar and keep that calendar.
Why keep the CALENDAR? Why keep copies of letters sent and received confirming the appointment? The Audit Division of the Internal Revenue Service is all about proof. You must PROVE your deduction is legitimate and allowable.
Overnight sounds easy. You have a LODGING expense. Keep the hotel BILL. It will show your lodging expense with taxes and other fees. It will show if you charged meals to your room. The bill will also show if you charged personal (non-deductible) purchases like in-room movies or gift shop items.
Cancelled checks and credit card statements are not enough. They show the dollar amount. They don’t have the detail about what was purchased. Your credit card statement only proves that you paid the hotel. It does not prove that 100% of that payment is deductible. The best protection you can have is your paperwork. Keep the receipts!
If you stayed with friends or family, you won’t have any hotel bill. Will you have given them money for their hospitality? How does that compare to what a hotel bill would have been? Will they be reporting that income? Was is really a non-deductible gift? Oh, the IRS has so, so many questions.
Overnight might include TRAVEL expense. Did you travel by airplane? Did you travel by train? Did you travel by car? Did you travel by ship? I book my airfare online. I keep the confirmation showing when and where I am traveling. It will tie in with the seminar dates shown on the registration form. I keep that form. If you use your car, I hope you know you MUST keep a mileage log if you want to deduct business use of your vehicle.
TRANSPORTATION is different than travel. Travel gets you from city to city. Transportation gets you from place to place within the city. Did you have taxi, subway, bus, shuttle, ferry or other expenses? You can’t always get a receipt for those expenses. Do you have a fare chart to show what that service charges?
Often these expenses are paid by cash. Write down what you spent in your daily log. The IRS will look to see if what you are claiming appears ordinary, necessary and reasonable. Lavish and extravagant are not deductible. Remember, the IRS is your deduction “partner” when you claim items on your return that reduce the amount of tax you pay.
Are you paying for your own meals while you are out of town for business? Meals and incidental expenses and reimbursements will be the topic in my next blog. You’ll want to be sure to watch for that next week.
I’ve had my share of medical expenses. When you tell me, “Nellie, I need more deductions.” Medical expense is NOT the deduction I want you to have. I want you to be healthy.
Medical expenses are deductible if you itemize your deductions.
Medical costs must be primarily to alleviate or prevent a physical or mental defect or illness. Deductible medical expenses do not include expenses that are merely beneficial to general health, such as vitamins or vacations. I have taken vitamin and mineral supplements for most of my life. I believe we cannot get all the nutrition we need from just the foods we eat anymore. I believe that nutritional supplementation helps keep me healthy and out of the doctors offices. And yes, I do have my annual check ups. I am glad we have doctors. I am glad we have dentists. I am glad for the professionals to help when we need their help. I am just glad to be as healthy as I am.
The Internal Revenue Service does not allow you to deduct expenses for things that allow you to be healthy. The IRS allows you to deduct expenses for diagnosis, cure, treatment or prevention of disease. IRS allows you to deduct treatments affecting any part or function of the body. You can deduct payments for services given by doctors, surgeons, dentists, nurses, chiropractors, acupuncturists, and other medical practitioners.
What can you deduct?
- Include only the medical and dental expenses you paid during the year. If you pay by cash, check or credit card at the time of your visit, you deduct the amount you paid that day. If you wait to be billed, you deduct the payment you made on the date you mailed the check. If you use a credit card, you deduct the amount that was charged on the date it was charged even though you might make payments on the credit card later, or even the next year.
- Prescription drugs from within the US, not from other countries, are deductible.
- Transportation to and from the health care service is deductible. The current mileage rate for medical reasons is 24 cents per mile. Keep a log of your medical miles driven. Travel to other cities or states may be deducible if the service you seek is not available in your city or town.
- You can deduct the costs of equipment, supplies and diagnostic devices needed for these purposes.
Whose medical expenses can you deduct?
Include amounts paid for yourself, your spouse and your dependent child. If you are divorced or separated, you can deduct medical expenses you paid for your child even if the other parent claims the child as a dependent on the tax return. Medical insurance payments that cover doctors, dentists, hospitals and prescriptions are deductible.
What can you NOT deduct?
Life insurance is not deductible. Insurance that pays you a dollar amount for loss of body parts is not deductible. Insurance that pays you a dollar amount per day is not deductible.
The tax laws are complicated. It is impossible to address every aspect of medical expenses here. If you have a specific question, send an email to: Nellie@BulletProofYourTaxes.com.
You may wish to listen to my radio show on medical expenses on Friday, June 27th at 10:00 AM PT/1:00 PM ET. Listen to the recording if you can’t listen live. LISTEN HERE
The following is taken directly from IRS.gov for you:
“IRS Tax Tip 2011-46, March 7. 2011
If you paid someone to care for your child, spouse, or dependent last year, you may be able to claim the Child and Dependent Care Credit on your federal income tax return. Below are 10 things the IRS wants you to know about claiming a credit for child and dependent care expenses.
1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.
2. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.
3. You – and your spouse if you file jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or were physically or mentally unable to care for themselves.
4. The payments for care cannot be paid to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return.
5. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child. (Nellie says married filing separately cannot claim this credit.)
6. The qualifying person must have lived with you for more than half of the calendar year. There are exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents.
7. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income. (Nellie says this can range from 20% to 35% depending on your income.)
8. You may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit. (Nellie says this dollar amount can change from year to year, but has remained the same for several years now.)
9. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income.
10. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay social security and Medicare tax and pay federal unemployment tax.”