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Deducting Travel and Transportation Expenses

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July 2, 2014

- Deductions

Statue of Liberty superimposed over waving American flagIt 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.
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Medical Expenses – What’s deductible? What’s NOT?

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June 23, 2014

- Deductions, Medical Expenses

Medical Expenses DeductibleI’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 
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Ten Things to Know About the Child and Dependent Care Credit

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June 18, 2014

- Charitable Giving, contribution, Deductions

ID-10069149School’s Out For Summer – What does that mean for your income tax return? 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.”
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Here comes the bride

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June 4, 2014

- IRS Audit, Taxes Due

10674400_s (1)Did you know that when you marry, you get to change your income tax filing status?  June has always been a popular month for weddings. Why? There are many different reasons. One is that the month of June is named for the Roman goddess, Juno. Juno is the goddess of marriage and would bring much happiness and prosperity to the marriage. The American “Tax Gods” of the Internal Revenue Service like that prosperity part. Did you know you are born with an income tax return filing status? We all start life as single. Even is you are a twin, you are a Single taxpayer. Can a baby be a taxpayer? Did you ever hear of the Gerber Baby? The answer is “Yes.” And as an American citizen, your taxable income includes your WORLDWIDE income. Your filing status is determined by your marital status on the last day of the calendar year. When you marry, and are married as of December 31st, you will generally choose Married Filing Jointly. What else could you choose? You could choose Married Filing Separately. You might qualify for Head of Household. When you file a joint tax return, your taxable income includes the worldwide income of both husband and wife. One of my clients asked, “You mean if I get married on December 31st, I am treated as I was married ALL YEAR?” And the answer to that question is YES. Maybe you want to marry on December 31st, but wait until after midnight to say “I DO!” and sign the license on January 1st. With planning, you can choose the year you begin your joint return. One thing I want you all to know is, “When you marry the person, you marry their tax troubles, too.” So be sure you know all the facts and enter into this new partnership, this new joint venture, with you eyes open. Traditional married couples, one man and one woman, file a joint return. Same-sex couples now also file a joint FEDERAL income tax return. Their state return will depend on where you were married and whether or not the state where you live recognizes same-sex couples. California recognizes same-sex marriage. Same-sex couples who are married and living in California, file both federal and California tax returns using the filing status of Married Filing Jointly. Arizona does not recognize same-sex marriage. If you live in Arizona and were married in California, or any other state that recognizes same-sex marriage, the couple will file ONE federal return as Married Filing Jointly and TWO Arizona state returns as Single. If you live in Arizona and are Registered Domestic Partners or celebrated a Civil Union ceremony, the Internal Revenue Service will still expect a separate Single income tax return from each of you. You are not married, so you cannot use Married Filing Jointly. Do you know what filing status to use? Have I generated more questions than answers? Taxes are not easy. Life if not always easy. Sometimes we get unmarried. Next time I’ll be talking about Head of Household and Qualifying Widow or Widower. Special tax rules come into play with each of these choices.
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Estimating Your Tax Payments

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May 29, 2014

- Tax Payments

money2Ours is a Voluntary tax system. Voluntary does not mean you can volunteer to file your tax return one year and not another. Voluntary does mean that we volunteer our information to the Internal Revenue Service. We voluntarily claim the deductions we enter on our tax returns. Other countries do not have the same kind of voluntary system we enjoy here in the United States. Remember that anyone who pays you generally has to file a W2 or a 1099 to let both you and the IRS know the income you should be including on your tax return. If you accidentally leave something out you will hear from the IRS. They will want to clarify this with you. If you deliberately omit income from your return, you will hear from the IRS. They will certainly want to talk with you. And you will be flirting with a variety of tax penalties. When you are paid on a W2, you tell your employer how many exemptions you want to claim. Your income tax withholding is based on the number of tax exemptions you claim. The more you claim, the less tax is withheld. You can adjust you withholding throughout the year with your payroll department. You may have taxable income from other sources that do not have income taxes withheld. Some of this “other” income could be sale of property, gambling winnings, and most commonly your small business or independent contractor income. You will want to estimate your other income and estimate your taxes to keep from being horribly surprised at tax time. According to me, Nellie Williams, “An Estimate is not a Guesstimate.” You can quote me on that. An estimate is based on current facts or based on past true numbers. These numbers are not PFA (Plucked From the Air) or WOTC (Written On The Ceiling). They may truly be SALY (Same As Last Year). Estimated Tax Payments are made every quarter. The trick is, these quarters are not even quarters. To me a quarter of the whole is one-fourth. To the IRS, it is based on their own calendar. Mark the dates 4/15, 6/15, 9/15 and 1/15 on your own calendar if you need to make estimated tax payments. The First Quarter, or Q1, is a true quarter of three months, January, February and March. Form 1040-ES for Q1 Estimated Tax Payment, is due by the 15th day of the following month, or April 15th. The Second Quarter is TWO months, April and May Form 1040-ES tax payment for Q2 is due by June 15th. The Third Quarter is back to three months, June, July, August. 1040-ES tax payment for Q3 is due by September 15th. The Fourth Quarter covers FOUR months, September, October, November and December. 1040-ES tax payment for Q4 is due January 15th. Understand that the payment you make in the first fifteen days of the following year is really for the previous year. So when you make your January 15, 2015 1040-ES tax payment, it is made in calendar year 2015, but it is applied to your 2014 tax liability. Your tax return preparer will know how to help you with this. If you don’t have a tax return preparer, you are welcome to consult with me. If you would like to schedule a time to talk, email Nellie@BulletProofYourTaxes.com. Remember this. Failing to Plan is Planning to Fail. Nobody ever PLANS to pay more than they have to. So keep you eyes open on your own tax situation to keep the IRS out of your wallet.
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Congratulations Graduates! Welcome to Your New Tax Bracket.

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May 15, 2014

- contribution, Deductions

ID-100188045I remember my first graduation. We all thought it was the end, the end of the school year. We didn’t understand it was only the beginning. A new chapter in our lives was about to commence. Was it high school, trade school or college that you have completed? What is your next step? Why do you have to weave TAXES into every aspect of life? Because lets face it, taxes do impact every aspect of our lives. Maybe you are beginning a new career. Do you already have a job lined up? Will you be looking for your first job? Will you be moving to a new area? A new city? A new state? Will there be a deduction for you? When you are looking for a NEW job in a NEW trade or business, there is NO deductible job-seeking expense. Even if you get a new job, you cannot deduct any of your job-seeking expenses. When you look for a new job in your present line of work, your expenses may be deductible on Schedule A as Miscellaneous Itemized Deductions. What kind of deductible expenses might you have when looking for work?
  • Fees paid to employment agencies and executive recruiters
  • Cost of typing, printing and mailing resumes
  • Cost of assembling portfolios of work
  • Transportation costs to job interviews
  • Newspapers and business publications bought for employment ads
  • Out-of-town travel expenses, including meals, lodging, local transportation as long as the main reason for your trip is to look for a new job.
  • If you travel for personal reasons, none of the travel expenses are deducible, but out-of-pocket job hunting expenses at your destination are still deductible.
To protect your deductions, keep a log of your activities. Keep a calendar of who you interviewed with, on what dates and any follow-up phone calls you made. Do you want to claim the expenses of buying and caring for uniforms or special clothing? They must:
  • Be required as a condition of employment AND
  • NOT be adaptable to everyday, general wear
What kind of clothing qualifies as a deductible?
  • Uniforms of professional athletes, firefighters, police, nurses, jockeys
  • Special shoes, shirts, ties, hats with  a company logo or other clothing designed strictly for the workplace
  • Protective clothing such as safety boots, safety glasses, hard hats and safety gloves
  • Special theatrical clothing if not suitable for everyday general wear
So when I said congratulations graduate, welcome to your new tax bracket, it was all true. I hope you have great prospects for your future. I hope your education will allow you to make a great future and more money than before. Your tax brackets are determined by your marital status and how much money you make. The lowest tax bracket in 2014 is 10%. The highest tax bracket in 2014 is 39.6%. There are a lot of factors to consider and calculations to be made before your bottom line tax liability is known. The more money you make, the higher your tax bracket may be. I wish for you and for all of my clients, that you pay your lowest legal tax. But I also say, “I hope you have to pay a lot of tax. Because that means you will have made a LOT of money.” 🙂
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APRIL 15th Is Over – Now What? (Part Three)

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April 30, 2014

- April 15, Charitable Giving, contribution, Deductions, IRS Audit Help, Tax Audit

donating“Contributions” is one of the deductions the Internal Revenue Service likes to audit, examine, or verify. Why is that? Because not everyone is honest. Some people take more of a deduction than they actually give. People ask me, what is the standard? What is the average? The only standard is the standard deduction based on your filing status and your age if you are 65 or older.. If you choose to itemize your deductions, there is no automatic deduction. You are allowed to claim a deduction for what you actually gave. BUT you need to be able to prove your deduction. You must have evidence for what you are claiming. That is not difficult when you get a receipt from the qualified charitable organization. You cannot verity the cash you leave in the donation plate or collection kettle. You can show cancelled checks and credit card statements, but those are not sufficient proof for the IRS. The Tax Auditor wants to see a receipt from the charity. Too many people have cheated on their tax returns and so the IRS tightened the rules. How can you verify what you give in the form of NON-CASH contributions? Just what is a non-cash contribution? I use the technical term “Stuff”. We all have stuff that is crowding our closets or cluttering our homes. And our “trash” is often someone else’s “treasure”. Used clothing and household items must be in good condition or better to be deductible. Charities will receive anything you want to give them. What they cannot use themselves, they will give to another organization. Give, just don’t try to deduct items in less than good condition. The fair market value of used personal items is usually much less than the original cost and depends on the condition and usefulness of the item donated.  Favorite websites I recommend to help determine the fair market values are www.salvationarmyusa.org and www.goodwill.org. When you decide to give away the good stuff you no longer need or want, take these simple money saving steps to support your deduction.  1. Make a list of the items you set aside BEFORE you put them in the box or bag

            a. What are you giving away (Describe each item.)

            b. What condition is each item? (Good? Excellent? New?)

            c. What is this thing worth today? (Use garage sale or thrift store values.)

            d. How many of each type of thing are you giving away?

            e. What is the name and address of the charitable organization?

            f.  What is the date of this contribution? (Note each date you donate.)

     2. Take a photo of what you are giving away to support the list you are making. We know a picture is worth a thousand words, but you need the list, too. This list is required when your non-cash contributions are more than $500. But even if your non-cash contributions are $500 or less, the IRS can still audit your deduction. Protect yourself. Protect your wallet. Protect your deduction.  Make all the contributions you want. Don’t let the tax laws turn you into a “Grinch”. If you feel this is too much work for you, you can skip the paperwork. But if you choose to skip the paperwork, you should skip the deduction, too.
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APRIL 15th is Over – Now What? (Part Two)

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April 23, 2014

- Deductions, Tax advisor, Taxes Due, Uncategorized

dollar and Donation BoxThis year is almost ONE THIRD OVER! What can you do now to  be in top shape for next April 15th? Last time I covered the basic thought that Organization is the key. Do you use the “jumble” method of keeping your receipts?  Is your jumble kept in a box or a bag or an envelope? YOU are the one to sort these papers into categories. Why wait until tax day? Get a jump and do your sorting all year long. If you haven’t already started a simple way of collecting your important tax papers, begin that new habit today. Use a table, the bed or even the floor to make little piles of receipts by category. Then you can put that now neat stack of receipts into the container of your choice. This will make for easy reference come tax time. You will see how convenient it is to put things were they belong so you can find that certain document when you want to, when you need to. When a new client comes to my office with their own jumble of records, I tell them the same thing I’ve just told you. YOU know how you spent your money. I need to know how you spent your money. There are different pages to a tax return and the deductions that belong on one page usually do not also appear on another page. My job is to prepare your proper and accurate tax return. I need your help to do this. Last time I promised to talk contributions. Do you get a receipt for every contribution you make? When you make an offering to your house of worship, do you write a check? Do you just put cash in the offering plate or basket? Do you use their gift envelope system? Internal Revenue Service wants to see evidence of what you claim as your deduction or expense. I remember hearing from a fellow auditor that a taxpayer being audited was claiming substantial cash contributions. When asked for his documentation, he said that was a matter between him and God. The auditor agreed and said that his deduction would also be a matter between him and God. The auditor determined that his deduction was disallowed. That is a favorite term at the IRS. His deduction was NOT allowed. He owed tax as a result of that audit. Records are your defense in a tax audit. Not just your best defense, they are your ONLY defense. Whether this audit is by the IRS or your state department of revenue or treasury, or by the sales tax division or by the unemployment division, PROOF is what they want to see. Timely (at the time of the contribution) records are necessary and your best friend. SO many reports can be audited. Even if you do not file a report you are required to file, the agency expecting that report can file one for you. Lack of knowledge is no defense. My objective is to help you increase your knowledge and increase your defense. I want you to avoid that audit. Keep a list of personal items you donate to a qualified charity (not the corner collection box) from your closet or home. Next time I’ll spend more time discussing this favorite deduction.
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APRIL 15th Is Over – Now What?

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April 17, 2014

- Uncategorized

Metal Spike File With BillsIf you already filed your return, relax.  If your return has not yet been filed, you want to file as soon as you can.  This year is almost ONE THIRD OVER!  What can you do now to  be in top shape for next April 15th?  If you haven’t already started a simple way of collecting your important tax papers, begin that new habit today. I started my first job after college working in an office with file folders and filing cabinets. I learned how convenient it was to put things were they belong so you can find them when you want to, when you need a certain document.  Whether you are in business or not, all of us who file an income tax return every year need to keep track of only two things. The first of those two things is money in.  Can you guess what the second thing is? Yep, it’s money out. In tax return language this means income and deductions.   Organization is the key. I have had clients bring me a jumble of receipts. Whether that jumble is in a box or a bag or an envelope, YOU are the one that gets to sort these papers into categories. Why wait until tax day? Get a jump and do your sorting all year long. If you get a paycheck, do you also get a paystub? Every payday put your new paystub on top of last week’s paystub. Then you’ll have your full year’s worth of paystubs in date order. The last stub of the year might be the most important one of them all, but something important could be found sometime during the year, too. Keep them all until after your tax return is prepared just in case your preparer needs to look at them. They could hold a wealth of information for your tax return. If you have pre-tax deductions (mostly medical-related), they have already been deducted before the taxable part of your paycheck was calculated. You don’t get to deduct them again. But you may have other expenses that will be important to your tax return. Do you go to the doctor regularly? Do you have to pay each time you visit? Whether you have a co-pay or you have to pay the full fee for the visit, you will want to keep that receipt. Keep those medical receipts for doctor and dentist visits, prescriptions, eyeglasses, and more, in a file folder or envelope just for medical deductions. Do you own a car? If so, you renew your license plates every year. You may be able to pay for more than one year at a time. Keep that expired registration receipt for the tax year in which you paid that fee. You claim the deduction in the year you pay it, not divided over the number of years to which it applies. And no, your car insurance is necessary, but not deductible. And speeding or parking tickets  are not deductible either. What about contributions? I’ll talk about them next week.
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APRIL 15th: THE BIG TAX DAY OF THE YEAR!

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April 10, 2014

- April 15, Tax advisor, Taxes Due

april 15Holy 1040, Tax Man! If you have already filed your 2013 tax return, you have nothing to worry about. While some of your friends are burning the midnight oil trying to finish up their tax returns, you can relax.  Next week’s blog is just for you. But, if you haven’t filed your tax return yet, the deadline is just a few short days away. What do you do first? First, find all of your income documents for 2013. These types of papers include  your W2 form from your employer, your bank statement showing interest income earned on your account, unemployment benefits received, alimony from your ex-spouse. All income is taxable unless it is specifically excluded. Child support you received is not taxable income and it is also not deductible by the person who pays it. What if you don’t have the papers you need?  Or what if  you can’t find, all of the papers you need?  Is filing an extension a good choice for you? What you need to know about extensions is this. An extension will only allow you more time to file your paperwork. An extension will not allow you more time to pay the taxes that are due on April 15th. If you usually get a refund, and if your income and withholding are the same this year as they were  last year, it may be safe for you to request an extension. But if you wind up owing taxes when you do file your tax return, your return will be considered filed late. Your taxes will be considered paid late. You could owe a penalty for filing late and you could owe another penalty for paying your taxes late. Plus, you will also owe interest on taxes that are not paid on time. If you think you might owe tax, are you able to make a payment with your request for extension? If you wind up having paid in more than was needed to cover your tax bill, you can request that overpayment be refunded to you. You can also request an overpayment be applied to next year’s tax. If you are having trouble getting your paperwork together, you will want to be sure to go to my website, www.BulletProofYourTaxes, next week. Check out the blog posts. I’ll be writing another article specifically on how to organize your important tax documents throughout the year. Some people thrive on the adrenalin rush. But if you are practicing “just in time” management, you may not even know the bliss in surrendering to the peaceful flow of life. Like many of my colleagues, I am deadline driven. April 15th is certainly another of those deadlines. I invite you to remember the nursery rhyme “Row, Row, Row Your Boat.” It encourages us to row our boat, but also to row it gently down the stream. Not upstream. Not against the current. And row your boat merrily. Enjoy life. We only have this moment. And we will never have it again.
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