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Home Office Deductions


Deducting Work-Related Expenses

Work expensesTaxpayers who work for an employer and who pay for work-related expenses out of their own pocket may be able to deduct them on their income tax returns.  Qualified employee business expenses are deductible if when combined with other miscellaneous deductions, the total spent is more than two percent of a taxpayer’s adjusted gross income.

Some examples of qualified deductible employee business expenses may include:

  • the cost of purchasing required uniforms or work clothes not worn away from the work environment,
  • business use of a home,
  • business use of a personal vehicle,
  • business-related meals and entertainment,
  • work-related travel away from home, and
  • tools and supplies purchased for use on the job.

Other deductible expenses that employed taxpayers often overlook are costs of things like the depreciation of their own computer they use for work-related purposes, union dues, malpractice or business liability insurance premiums and subscriptions to professional journals and trade magazines related to work.

Taxpayers must to itemize the deductions and maintain records of income along with receipts of expenses.  If expenses have been reimbursed by an employer, they are not tax deductible.

The expenses must also be ordinary and necessary for their work.  An employee who purchases an item featuring their company’s logo may not deduct the expense unless the employer requires them to wear or use the item while performing their job.  For example, flight attendants who must buy their own uniforms to wear while serving passengers on an aircraft may deduct the expense of the uniform, but not the cost of personal earrings worn to complement their uniform.

K-12 teachers may be able to deduct up to $250 of certain out-of-pocket expenses.  Deductible expenses for 2016 federal income taxes may include the cost of books, classroom supplies, equipment and other materials teachers use to help instruct students.  For example, a physical education teacher may deduct up to $250 of athletic supplies purchased for students that were needed and used by the student(s) to complete or perform physical education course requirements. This particular work-related deduction is calculated as an adjustment to income rather than an itemized deduction, so they need not itemize to claim this deduction.

IRS Publication 529 “Miscellaneous Deductions” and Publication 463 “Travel, Entertainment, Gift and Car Expenses” provide more specific details about deducting employee business expenses.

If you need more information on deducting work-related expenses, contact one of our experts on tax preparation at McRuer CPAs.


2017 Mileage Rates for Business Use of a Vehicle

As reported by the Journal of Accountancy: The IRS has announced  the optional standard mileage rates for business use of a vehicle will drop slightly in 2017, the second consecutive annual decline. For business use of a car, van, pickup truck, or panel truck, the rate for 2017 will be 53.5 cents per mile, down from 54 cents per mile in 2016. Taxpayers can use the optional standard mileage rates to calculate the deductible costs of operating an automobile.

Driving for medical or moving purposes may be deducted at 17 cents per mile, which is two cents lower than for 2016. The rate for service to a charitable organization is unchanged, set by statute at 14 cents per mile (Sec. 170(i)).

The portion of the business standard mileage rate that is treated as depreciation will be 25 cents per mile for 2017, one cent higher than for 2016.

To compute the allowance under a fixed and variable rate (FAVR) plan, the maximum standard automobile cost is $27,900 for 2017 (down from $28,000 for 2016) for automobiles (not including trucks and vans) and $31,300 for trucks and vans (an increase of $300 from 2016). Under a FAVR plan, a standard amount is deemed substantiated for an employer’s reimbursement to employees for expenses they incur in driving their vehicle in performing services as an employee for the employer.

See more at: http://www.journalofaccountancy.com/news/2016/dec/irs-2017-mileage-rates-201615701.html#sthash.sxZ6OHvw.dpuf


New Tax Laws Affecting 2015 Income Taxes

What's new?As we complete and file our 2014 federal income tax returns, this is a good time to make adjustments as needed affecting our current-year 2015 income tax plan.  To help, the IRS has released its list of new income tax changes, rates and updates that are now in effect.

As a reminder, federal income tax is designed to be a pay-as-you-go tax.  You are obligated to pay taxes throughout the year as you earn or receive income, and you may be subject to penalties if you don’t.  You may pay through payroll withholding, or by paying estimated taxes.  

The new updates regarding deductions and exemptions may directly affect the tax you owe.  Consider our tax planning services to give you a year-round tax perspective so the annual tax preparation season will go smoother with fewer surprises.

Standard Mileage Rates:  For taxpayers claiming itemized deductions, including deducting the cost of operating your personal vehicle for business purposes, the standard mileage rate allowed for business miles driven is now 57.5 cents per mile, up from 56 cents in 2014.

The business standard mileage rate is based on a combination of annual averages of fixed and variable costs of operating a vehicle including not only gas and oil, but also depreciation, insurance, tires and average maintenance and repairs.  Some taxpayers may enjoy a greater tax benefit by itemizing their actual annual vehicle costs, but they must choose between the actual costs method and the standard mileage rate deduction.

If you will drive more than usual for medical expenses or because of a move this year, the rate has dropped to 23 cents per mile for this year, down a bit from 2014’s rate of 23.4 cents.  The mileage rate allowed for miles driven in service of a charitable organization remains at 14 cents per mile.

Personal Exemptions ChangesFor 2015, the personal exemption amount has increased for certain taxpayers.  It has increased to $4,000 for taxpayers with adjusted gross incomes at or below $309,900 if married filing jointly or if a qualifying widow(er), $284,050 if a head of household, $258,250 if single, or $154,950 if married filing separately. The allowed personal exemption amount for taxpayers with adjusted gross incomes above these thresholds has been reduced from 2014 and may be calculated using a new Personal Allowances Worksheet.

Itemized Deductions Limitation:  Now in 2015, the total amount allowed for itemized deductions is reduced for taxpayers with adjusted gross income above $309,900 if married filing jointly or a qualifying widow(er), $284,050 if head of household, $258,250 if single, and $154,950 if married filing separately.

Alternative Minimum Tax (AMT) Exemption: The AMT exemption amount is increased to $53,600 ($83,400 if married filing jointly or qualifying widow(er); $41,700 if married filing separately).

Lifetime Learning Credit Income Limits: In order to claim a Lifetime Learning Credit of up to $2,000, your Modified Adjusted Gross Income (MAGI) must be less than $55,000, that’s down considerably from $64,000 in 2014 ($110,000 if married filing jointly, down from $128,000).

Adoption Credit or Exclusion: The maximum adoption credit or exclusion for employer-provided adoption benefits has increased to $13,400.  In order to claim either the credit or exclusion, your MAGI must be less than $241,010.

Earned Income Credit (EIC): You may be able to claim the EIC in 2015 if: three or more children lived with you and you earned less than $47,747 ($53,267 if married filing jointly), two children lived with you and you earned less than $44,454 ($49,974 if married filing jointly), one child lived with you and you earned less than $39,131 ($44,651 if married filing jointly), or a child did not live with you and you earned less than $14,820 ($20,330 if married filing jointly).

To learn more about how the 2015 tax year will affect your income tax planning, contact us at McRuer CPAs.


McRuer CPAs Year-End Tax Planning Guide

Income tax and flag imageIt's time to review year-end tax strategies that may help reduce your tax bill or prevent you from paying more than you owe.  

The 2014 tax year has been marked by more questions and unresolved tax issues than in years past.  The current uncertainty especially about expiring "temporary" tax provisions, income tax deductions and IRA conversions leads us to send a precautionary "yellow" signal as we stay alert to react to any last minute updates.

Click here to download the McRuer CPAs 2014 Year-End Tax Planning Guide with tips and information that may help you.

Your window of opportunity to take action regarding your 2014 tax obligation is rapidly closing, but remember, this is also a very good time to consider choices about your individual and/or business tax strategies for the 2015 tax year.

If you haven't already scheduled your year-end tax planning strategy session, please contact us right away.  Call us for an appointment with one of our tax strategy experts who will explain details to help you choose the best plan for you: 816.741.7882.



Most Common Taxpayer Mistakes

Taxing ConfusionStatistics show that one in five self-preparers either pay more income taxes than they owe or claim exemptions they don’t qualify for.  These often innocent mistakes are blamed on the growing tax code complexity that can befuddle even the most experienced professionals.

The most common errors costing taxpayers include:  claiming the wrong number of dependents, failing to itemize deductions, overlooking qualifying medical expenses, reporting an erroneous cost basis, and overstating charitable gifts.

Income reports involving 1099s are another area where a number of discrepancies occur.  The 1099 series are designed to prevent cheating by requiring payers to independently provide the IRS with income payments like interest, dividends, capital gains, and trust distributions.  They also must report payments made to independent contractors, sole proprietors and the like. 

An IRS computer matches these 1099 statements with information reported on a taxpayer's individual income tax return.  Taxpayers must make certain their returns and these 1099s report the same amounts.  If a taxpayer receives a copy of a 1099 that is not correct, he should request the payor send a corrected 1099 as soon as possible before filing a return. This helps avoid an IRS correspondence audit (a letter pointing out the discrepancy and potential tax liabilty issue) and the related delay and costs associated with handling the audit.  Unfortunately, even if that correction is not made in a timely manner, the taxpayer is still responsible for filing a tax return by the April 15th deadline.

Another common mistake is an easily avoided “oops” that likely occurs because it is simple.  Tens of thousands of taxpayers file unsigned returns each year.  If you overlook signing your return, the IRS may consider the return unfiled, and will withhold any refund until the matter is settled.  However, if you owe taxes, the IRS will cash your check without delay then will wait to hear from you to finish processing your return.

While engaging a tax preparation professional reduces these risks, these professionals are not clairvoyant so taxpayers must do their homework to provide correct information.


What's the Plan, Tax Man

It’s hard to plan for income taxes with the outcome of the presidential election still undetermined. Whether the Democrats remain in office or Gov. Romney wins the election determines how many Americans will be taxed and also if tax credits that will or will not expire by the end of the year. According to Tom Herman in his Wall Street Journal article, Tax Tips for the Next Two Months, the best strategy may be simply to procrastinate.


Here are 6 more ideas to consider.

1. Tax-loss harvesting. If you own stocks or securities that are worth less than your costs, consider using the capital losses to offset capital gains.

2. Don’t be penalized for wash-sale rules. If you sell a stock at a loss, be careful not to buy the same stock within the wash-sale period (usually 31 days or more). See Internal Revenue Service Publication 550 or seek advice from your CPA.

3. Consider donating highly appreciated stock to charity. Rather than selling and donating the proceeds, think about donating stock that you have owned for more than a year and that has risen in value. You may have no taxable gain on the appreciation while you may claim the entire value as a charitable contribution.

4. Watch mutual fund purchases now. Many funds distribute capital gains to shareholders late in the year, especially December. Sometimes it can pay to delay investing in a fund until after the date on which investors qualify for distribution.

5. Consider bunching deductions. You might consider combining charitable donations and deductions into a year when they will be worth the most to you.

6. Cash in on long-term winners. Upper-income investors could benefit from divesting big investment winners before December 31 to take advantage of this year’s unusually low capital-gains tax rates. Consult your CPA.


IRS Red Flags

Warning sign graphicAll of us want to file the most accurate tax return possible.  Yet, no matter how accurate the return, there are several red flags that can increase your chances of being audited by the IRS.  The top issues that raise the attention of the IRS include:

  • Large Amount of Itemized Deductions Compared to Income
  • Self-Employment Income
  • Office In Home Deduction
  • Automobile Expense
  • Meals and Entertainment Expense
  • Cash Basis Business
  • Large Charitable Contribution Compared to Income

You can improve your chances of successfully challenging an audit by maintaining receipts and records that show you are reporting accurately.  Let us know if you have any questions about this topic or another concern about your individual or business tax return.


Small Business Tax Deductions & Recordkeeping

We receive a lot of questions at this time of year about business deductions.  There are many expenses that business owners can deduct to reduce the amount of profit that that will be taxed.  But, for most of these business deductions, there are rules about recordkeeping that the IRS expects you to follow or the deduction may not be accepted.

Here is a short segment on McRuer Money Minutes explaining “Why Recordkeeping Matters”.

There are several common business deductions which have various recordkeeping requirements:

  • Auto Expenses
  • Expenses of Going Into Business
  • Books and Legal and Professional Fees
  • Bad Debts for Goods Sold
  • Business Entertaining
  • Travel Expenses
  • Interest on Credit
  • New Equipment
  • Moving Expenses
  • Charitable Contributions
  • Some Taxes
  • Education Expenses
  • Advertising and Promotions

Many small business owners don’t realize they can deduct the cost of learning more about how to be successful.  With receipts and a true business connection, some of those allowable deductions include:

  • audiotapes and videotapes related to business skills
  • business-related publications like magazines and books
  • seminars and trade shows
  • business association dues

Here are some business deductions that are easy to keep records of, but are often overlooked by business owners:

  • bank service charges and credit bureau fees
  • casualty and theft losses
  • on-site coffee and beverage service
  • consultant fees
  • office supplies
  • online computer services related to business
  • petty cash funds
  • postage
  • taxi and bus fare for business purposes
  • parking and meter fees

Business owners who properly track all of their expenses year round end up saving more on their tax bill.  That’s because they not only remember to list all their deductions, but they also have the documentation to prove their claims.

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