Tax Deductions:


When should my client choose to itemize their deductions instead of taking the standard deduction?

When their itemized deductions combined are more than what the standard deduction for their filing status would be. Right now, the standard deductions are as follows:

Single, $4,300
Unmarried head of household, $6,350
Married, filing separately, $3,600
Married filing jointly, $7,200
Qualifying widow(er) $7,200

What is the standard deduction?

For right now, standard deductions are as follows:

Single, $4,300
Unmarried head of household, $6,350
Married, filing separately, $3,600
Married filing jointly, $7,200
Qualifying widow(er) $7,200

What's the difference between a tax exemption and a tax deduction?

There are two main types of tax breaks, the exemption and the deduction. An exemption is a specific amount that can be subtracted from your client's taxable income. On the other hand, deductions are specific expenses that the government allows them to subtract from their income therefore reducing the amount of taxes they pay. Deductions are applicable to certain situations.

How can my client figure out how much a tax deduction really saves them?

Tax deductions save different people different amounts of money. The primary indicator of what a deduction is worth to your client is what tax bracket they are in. For example, they may have a $10,000 deduction. If they were in the 15% tax bracket, this would calculate to a $1,500 savings for them. However, if they were in the 28% tax bracket, that same $10,000 deduction would calculate to a $2,800 savings.

What is the alternative minimum tax (AMT)?

The alternative minimum tax (AMT) is a separate tax system designed to make sure your client pays their fair share of taxes. Only a small percentage of taxpayers are subject to AMT, and most that are either wealthy or have a lot of deduction and tax shelters. First you calculate your client's taxes using the regular system, and then you use the AMT system.

What tax schedule should my client use to itemize their deductions?

If they choose to itemize their deduction rather than take the standard deduction, they must use Schedule A, Itemized Deductions. Schedule A is not very long and is broken down into several parts, such as medical expenses, Mortgage interest paid, etc. After some calculations, they arrive at the total amount of itemized deductions they are allowed to claim on their tax return.

Can my client itemize deductions if they use Form 1040A or 1040EZ?

Unfortunately, the only form they can use to itemize deductions is the most complicated and longest of the three, the Form1040, AKA the "long form."

How does my client determine what percentage of their car's use can be attributed to business in order to take a tax deduction?

According to the IRS, business use menus the number of miles between two business locations. This means they can count the mileage between their office and a client's office as a business deduction. The commuting miles to and from their home are nondeductible.

Does my client need to keep mileage records for tax purposes if they have a company car that they are prohibited from driving while off the job?

They do not need to keep auto-related records for IRS use if they drive a company car but can't use it for personal reasons, or use it only to commute.

Are auto registration fees deductible?

Drivers in many states can deduct some or all of their registration fees in many states. If the following three criteria are met, they may be able to deduct their auto registration fees:

  • The fee is based on a percentage of value of the property
  • It is imposed on an annual basis, even though it is collected more or less frequently
  • It is imposed on personal property

Does my client have to keep track of their business-related car mileage on a car owned by their employer?

Whether they own a car or their employer does not matter when it comes to having to maintain good records for tax purposes. In addition, even if their employer is intending to take the flat per mile allowance rather than deducting the car's actual operating expenses, accurate records must be maintained.

What would be the best way for my client to keep records concerning business use their car?

If they want to take a tax deduction for the business use of their car, they must keep good records. They can simply jot their mileage down on a notepad. For each trip, they should include the date and time, the number of miles they drove, the person they visited and the purpose of the visit.

Can my client deduct their business travel expenses?

If the trip they take is purely for pleasure purposes, they may not deduct the expenses as a business expense. However, the IRS will allow them to deduct expenses related to business travel as long as these costs are not extravagant.

Can my client write off moving expenses if they started a new job this year that required them to move to another city?

They may be able to deduct moving expenses if they make a job-related move from one city to another if the move meets IRS guidelines. In order to take this deduction, they must stay in their new full-time job for at least 39 weeks, their new job is more than 50 miles away from their old home and job and they have relocated within one year of assignment to their new job.

What are the rules for deducting business meals and entertainment?

The IRS allows them to deduct 50% for meal and entertainment expenses that are directly related to their business. This means the primary purpose of the event was to discuss or transact business.

Are expenses related to career counseling deductible?

The cost of career counseling may be deducted as a miscellaneous deduction if your client is actively seeking a job in their current profession. If the new job they seek is outside of their current line of employment, these costs will not be deductible under the law. Similar rules apply to deductions for fees they pay to employment agencies and job-search firms.

Can my client deduct the cost of clothing they buy for work?

For most people, the answer is no. However, if their job requires that they wear special clothes or uniforms on the job and the clothing is not suitable for everyday wear, they may be able to deduct the cost of these work clothes. People who can usually deduct the cost of clothes or uniforms include police officers, firefighters, letter carriers, nurses, airline pilots and bus drivers.

Is it true that workers in certain types of industries can deduct more than 50% of their business-related meals?

Most business-people can deduct no more than 50% of the cost of their business-related meals. But a little-noticed provision in the massive Taxpayer Relief Act of 1997 allows many truck-drivers and airline pilots to deduct up to 80% of their business-related meals. Since the nature of a trucker's or pilot's job requires constant travel, Congress decided to provide them with some extra deductions for the meals they eat while working.

Can my client deduct the cost of subscriptions for business magazines and publications?

They can deduct the cost of subscribing to financial publications, such as Money magazine or the Wall Street Journal, as an investment-related expense. However, they have to be careful when taking the deduction. If they write out a check for a three-year subscription today, they get to deduct one-third of the cost this year, one-third next year, and the final third the following year.