Tag Archive tax deduction

Electric or Plug in Vehicle Tax Credit

Driving a vehicle that is good for the environment can also prove to be good for your wallet. Plug in vehicles, both cars and trucks, are available for a tax deduction on federal taxes. Vehicles with a plug in battery that hold five kilowatt hours of battery power are eligible for a $417 credit. Any additional five kilowatt hours are available for a $417 credit each. The limit of the overall car credit is $7,500 for any type of car or truck.

This credit, as known as the IRS Section 30D credit, is a part of the Energy Improvement and Extension Act. The vehicle that this tax credit applies to must be for personal use and bought through purchase or lease. The vehicle must be used in the United States to be eligible for this write off.

Any vehicles are eligible for this tax credit must be purchased or leased in full prior to the end of the tax period. For example, the plug in vehicle must be purchased and have the title completely in the taxpayer’s name before the end of the tax season. If the sale or lease is still incomplete, with regards to payment or registration, the vehicle cannot be used as a deduction for the tax season.

This Section 30D write off also applies to the two and three wheel vehicles until January 1, 2014. This means motorcycles and other vehicles that run off plug in power can be used as a tax deduction for each tax season until 2015.

Tax Breaks for Health Insurance

Health insurance is one of the largest costs that most people deal with on a monthly basis other than mortgage. Health insurance for those who are self-employed is normally higher than those who have employer offset health insurance. Luckily, there is a tax break for those who are experiencing large health insurance payments.

To qualify for the IRS health care tax deductions for you and your family you must be either a self-employed individual with a net profit, have a self-employed partner who qualifies, or be shareholder with more than a 2 percent stock in an S corporation.

The insurance plan must be established under your name or the name of your qualifying partner. For the self-employed, this can be your personal name as long as this is the name the business is run under. The self-employed individual or the stockholders must be the one who is paying the health insurance premium for this credit to apply.

Stockholders must have the health insurance plan in their name or be reimbursed by the business for health costs to be eligible. This must be verifiable via W-2. To qualify for the tax credit, you must use the Schedule C or 1040 form to apply for the credit.

This tax credit can be a large offset for those who are self-employed, as health insurance costs can equal up to a large amount of self-employed income each year. Self-employed persons also pay a higher tax rate than those with an employer so this credit can decrease the tax amount in an effective manner.

Damage and Theft Related Tax Claims

When you go through a loss of property, whether through theft or natural disaster, the first thing you think of may not be the ability to use the lost property as a tax credit. Fortunately, it is possible to use property that has been lost as a tax write off.

Unexpected loss of your property can be used as a deduction on your taxes for the year as long as you meet certain criteria. The property that you write off cannot have been covered by an insurance claim. If insurance has paid the monetary value for your property or replaced the lost items, then these cannot be used on your taxes. Items that have not yet been covered can be claimed and must be claimed at their depreciated value. The fair market value is used in the assessment of property related claims.

Any property related damages that you are eligible to claim must have happened in the tax year that you are placing the claim. Prior damaged are not typically eligible for deduction though later damages. In some instances, if damage relief is being relied upon and does not happen, then the damage may be claimed. Property that is stolen may be claimed in the tax year it is discovered.

Property loss or damage tax claims require the use of itemized deductions. If you are used to using the standard the deductions, this system will be a bit different. To itemize, you must use the 1040A IRS form to file taxes for the year. A 1040A form will allow you to place any deductions, including property damage and others, to subtract from your overall owed federal tax amount.

Job Search Expense Tax Deductions

Many have been having a hard time finding a job position in an economy that has been experiencing a recession. Job related expenses may seem negligible, but for those with no income, these expenses can take up a large amount of available money. Job search related expenses are eligible for a tax deduction.

Eligible job expenses that can be claimed in taxes must meet specific criteria. The job expenses are eligible for tax deduction if you they are related to your current career.  Employment agency fees are also eligible for a tax credit if you used an agency while unemployed.

Travel expenses can also be used for the time spent during your job search. Both bus fare and gas expenses can be claimed on federal taxes. The cost of stamps and mailing supplies for sending out resumes is another deduction that can be used for job applications that went through the U.S postal service.

Job search expenses are not eligible for deductions with those who are looking for work for the first time. This can apply to high school students looking for a job and it can apply for those who have never had a job and are finishing a degree program. If you have had a job and have had a substantial break from the workforce, you are still eligible to use the tax credit to offset any job search expenses that you have incurred. Job search and application expenses must be claimed for the specific tax year only.

 

Tips for Avoiding an IRS Audit for Charitable Giving

Taxpayers have a general inclination towards overstating their charitable contributions & gifts, compared to their income levels .This tendency can prove detrimental at raising the suspicion of the IRS and inviting audit on oneself. This is with reference to an article posted by me earlier, on how the year end contributions prove beneficial to saving tax.

Coming forth are tips on how to evade the roving eye of the IRS, along with extracting maximum benefits from this provision.

Make sure that all the donations are made before December 31 of the tax year. Make your donations imperatively to a qualified charity, which can be verified by taking simple measures: the charity concerned should be questioned on their tax exempt status, in order to avoid an identity theft scenario; by hitting the select check tool under the Exempt Organizations section on the IRS.gov site.

Donations and gifts made by credit card and a postmarked check consecutively by December 31st are acceptable donations.

The IRS has specified the list of possible deductions : Contributions made in cash to a qualified charity; value calculated as per the fair market of the donated property – clothes , boats , cars and household items in good and usable condition – to a qualified charity. Gifts to friends, family members, strangers and individuals do not qualify as acceptable donations.

All cash contributions, irrespective of the amount, need to be recorded in writing, in one of these specified modes: check which is cancelled; statement of bank or credit card and record of the payroll deduction; a written statement depicting the charity name, amount & date of contribution from the charity.

Avoid planning large purchase based on a tax refund. The IRS has already started giving indications on a possible delayed tax refund in 2013. It may be required of you to push ahead large purchases in case the refunds actually get delayed this year.

Gearing up towards preventing the audit by the IRS as discussed, is definitely a healthy step, especially in the wake of the IRS recently stepping up its collection activities. In case you have already passed the preventive phase and are having troubles related to taxes or are being audited by IRS currently; think of arranging representation qualified at presenting your case before the IRS on tax audit, along with helping you solve your other taxes related issues.

Deducting Rent Payments

Keywords that should come to your mind is “reasonable in amount”.   If you are renting from your family or friends than you should ensure that rent is a reasonable amount.  This is very important but not as important if you don’t know the landlord at all.  What is a reasonable amount you may ask?  Reasonable amount is any amount that will be paid by an unrelated party.

Rent paid for property used for business are deductible.  This also includes any additional expense you may have on behalf of your landlord.  For example, you may deduct property taxes as part of your rent payments providing your lease terms require you to do so.

What if the property you are renting is owned by a corporation in which you are major share holder?

This is where rent expense can get tricky.  Once again number one rule is that Rent Amount should be reasonable, but you can not teat the rents as passive income that you could use to offset your losses from other passive activities. This kind of transaction is strictly prohibited by the law.

Rent with Option to Buy?

This kind of arrangements are great but sometimes it may not be clear if payments made are “Rent Payments” or “Down payment”  for the purchase of the car.  Make sure agreement clearly states what payments will be treated as rent and what will be considered as purchase or down payment.

Payments are not- deductible as rent if they are made under “conditional sales contract” which states that you will acquire the car after making the certain number of payments.

For example  You lease a car for a period of three years.  Your lease agreement provides that at the end of three years you have an option to buy the car and all payments made to date will be applied towards the purchase price.  In this kind of situation, your payments will mostly likely be considered as purchase rather than lease payments.

Can you deduct advance rent payments?

No – you can not.  You can only deduct the portion of the rent that applies to use of the rented property during the year.

Cost of cancelling the lease?

This is a deductible expense.

Improvement made to leased property?

Improvements you make to leased property ? This can be tricky calculation.  Please make sure to consult a professional.  You can deduct the improvements. However, improvements are depreciated over their recovery period defined by the law.  Please note that you can not depreciated over your term of the lease.

Renting a portion of your home for business?

You can deduct the rent expense as “home office deduction”.

 

Charitable Contribution and Tax Deduction

Giving is part of Christmas and most holidays for that matter. It is tradition across the world for people to exchange gifts during holidays and other important days of the year. Corporate giving is one of the ways in which the companies give back to the communities in which they operate. It is a way in which the locals are allowed to share in the fortunes of the company that is in their environment. That is just one part of it; the gifts that are given away have tax implications to the company or the person who is giving them away. To start with, the company that is giving away the gift may be required to pay taxes due on that gift if it goes beyond certain thresholds. This is why it is important for the gift giving season to be handled with caution.

First, companies should confirm whether the firms to which they are bestowing the gifts are authorised. Checking whether a company is authorised can be done on the IRS website through a quick search. Those organisations that are not listed should be further scrutinised to determine if they are working under a tax deductible scheme. In general, it is much better to deal with firms that are listed since you can deduct your contributions to them for tax purposes. It is also important to note that the small gifts are not usually deductible unless a check is written or a receipt is received for such a gift. In the same vein, any donations that are in excess of $250 have to come with a contemporary receipt. This receipt acts as proof of the donation since the cheque only is not considered to be full proof. In general, you are allowed to deduct the value of the goods that you receive from the total of the receipt. In cases where you do not receive a gift in return, then you are supposed to indicate the same on the receipt for the IRS to consider it a valid proof of transaction. This receipt is required to be given at the time when you make the contribution as the IRS usually does not accept any receipts that are made out later. In essence, for every contribution you make that you intend to deduct from your taxable amount, it is important to get a receipt for the same immediately after making the contribution so as to be on the safe side with the tax man.

The rules for making contributions are generally simple. You are required to make a list of all the goods that you are contributing and to who you are contributing them to. Afterwards, calculate the value of these goods and get a receipt for them once you drop them off at their intended destination. Some of the goods such as art or cars may have special rules applying to them. For the larger donations, it is important to have an independent valuer make a valuation on your behalf for taxation purposes.

A To Z Of Home Office Tax Deductions

If you have a home based business you can save money by availing home office tax deductions. The IRS allows you to save money on insurance, mortgage, repairs and other utilities, if you have an office at home. Home office deductions are applicable for all kind of homes irrespective of apartments, flats and even mobile homes. So if you are wondering how to claim a home deduction this article will provide you with all the basic information.

Requirements for home deductions

The internal revenue service or the IRS has created certain specific requirements that must be met with to claim home office deductions. They are as follows:

  1. Regular use: For you to claim home office tax deductions you have to work from your home on a period of over two years.
  2. Exclusive use: You can also be eligible for home office deductions if you use your home exclusively for work. You can either have a separate area for work or a room within your house but it must only be used for work-purpose.
  3. Principal place for your work: Your home must serve as a principal area for your work. You cannot claim for tax deductions if you use your house occasionally for the purpose of your business. But even if you have another office at some other location but use your house regularly for client meeting and other administrative and executive purposes you can easily be eligible for home office tax deductions.
  4. What percentage of the house is being used: Another requirement that will decide the deductible amount is what percentage of the house is being used for work. So before you file your house deduction claim you need to understand what percentage of the house is used for work if you are using more than one room or only a portion of a room as your home office.

Rules for employees

The IRS has specified a couple of other rules for employees claiming home office deductions. So if you are an employee in addition to the above stated rules you would also have to comply with these other criterion.

  • For an employee looking for home deductions he must show that his working from home is actually more beneficial for the employer. You can easily claim home office deductions if your office does not provide any space for you to work in their location and you have to work from home. However the IRS does not have any specific rules to judge if your work is actually beneficial for your employer. They base their decision on facts and circumstantial information.
  • You cannot be eligible for tax deductions if you rent a part of your home to the employer and use that part to work for that same company.

What can you save

Filing for a home office tax deductions can reduce your tax bills considerably. If you meet all the required compliance criterion you can easily save a lot by home tax deductions. The IRS will deduct mortgage insurance, rent, repair, real estate taxes, depreciation and any other type of utilities.

However your deductible amount will depend on the percentage of the house you are using for your work.

Also if your income is lesser than the expenditure incurred for your business your deductions will be constrained.

How to file your claim

If you are thinking of claiming your home office deductions and you are meeting all the compliance criterion you can easily reduce a considerable portion of your tax bills. Here is how you can claim your home office deductions.

 

Self employed: For those who are self employed and using their homes as office they have to fill Form 8829 to understand the amount of deduction they will be eligible for. Then this amount has to be stated in Schedule C.

Employees: Employees have a different procedure of filing home office deductions. If you are an employee you can calculate your deductible amount using the work sheets of IRS publication 587. Once you have calculated your deductions you can then claim them as itemized deductions on Schedule A.

These are the basic information that one needs to know and follow to file a home office tax deduction. Successfully filing your claim can easily reduce a considerable amount of tax burden from your shoulders.