Monthly ArchiveMarch 2015

Understanding Depreciation For Taxes

Depreciation is a market term used to signify the fall in value of a commodity or a market in a bigger context. Generally, depreciation is observed over a period of time; and in commercial aspect, it is used to represent the fall in price of an asset over a fiscal year.

Depreciation is a method which allows income tax deduction for the taxpayer in order to claim the cost based on specific property. This acts as an annual allowance for devaluation, wear and tear or uselessness of a property.

The properties that can be categorized as tangible property, furniture, buildings, machinery, vehicles and other equipment other than land, all these properties are depreciable. Similarly, patents, computer software programmes and copyrights are also depreciable.

The Internal Revenue Service specifies properties that can be depreciated and how they can be depreciated. There are certain depreciation schedules for various types of assets as per IRS. Referring these schedules, you can know about the percentage of an asset’s value that you can deduct every year and for how many years. These depreciation deductions determine the asset’s recomputed basis when you sell the asset

You are required to use Form 4562, Depreciation and Amortization for reporting depreciation when filing a tax return. Form 4562 has six sections and you can get information on filling out each section by contacting your tax professional or searching online.

 Section 167

In US law book, the section 167 deals with depreciation tax deduction of commodities. If you are purchasing a property that you are going to use in some form of business activity or to make money from it, it is possible that you fail to subtract the complete business expense in the same year of acquiring the property. You need to spread the cost over a fiscal year and then deduct part of the cost every year. This fall in the cost of a business property is called depreciation.

 Repairs are immune to depreciation

Investments made on property to increase its life time are immune to depreciation. If you are spending some more money on repairs and adding new things to the property to increase its usefulness, then you can slow down the rate of depreciation.

The procedure of depreciation

In order to depreciate, the investment property and other business matters should be placed for Modified Accelerated Cost recovery System (MARCS). This method allows deduction for a larger amount during initial years and during later years, lower amount of deductions are done and both are compared through straight line methods.

Conditions required for allowing depreciation tax deduction for any property

  • The legal taxpayer must be the owner of property. Taxpayers also have the right to deduct tax regarding capital improvements for any property that he/she has taken on lease.
  • The property must be used by the taxpayer for business or any other activity that can produce income. In case of using any property for business and personal use, the taxpayer may reduce the depreciation depending upon use of the property only for business purpose.
  • The property for which depreciation and tax deduction is applied, must be useful for at least more than a year or two.

Under the following circumstances a taxpayer cannot depreciate his or her property, in case of property being disposed within the same year.  When equipments are used for building capital advancements, a taxpayer is only allowed to do so for equipments used during construction depending on the improvements. And certain terms and interests are also an issue.

Depreciation initiates only when the taxpayer provides the property for a trade or for business, after using it for the production or as a source of income. When the taxpayer fully recovers the cost of property, then the property becomes invalid for depreciation. Even if the taxpayer takes voluntary retirement from service, the above mentioned scenario is applicable!

 Things to know for proper depreciation tax deduction

  • Knowing the absolute method for depreciating your property.
  • Knowing your asset details well.
  • If the property falls under the listed property category.
  • If the taxpayer is electing for the expense for any part regarding the assets.
  • How depreciation is possible, based on the property.

179 deductions for deprecation

As per this section, one can deduct a cost for the limited account for a certain amount of depreciable property, only if you have placed it for service.  This kind of deduction is called section 179.  In 2013, the maximum amount that could be deducted was $500,000. However, higher limits are also applicable but it depends upon the asset.

The limitation is reduced depending upon the amount, and the cost of property offered for the service during tax year goes above $2 million. Publication 946 clearly states about regulations and details about properties which are applicable for deduction, its limitation, and how one can place the deduction at the right time.

Traditionally, the capital assets and their deduction is based upon casual fact that vehicles, buildings, roads and similar improvements have a life for more than one year. But relying on the theory and facts, they get paid out of the savings brought together for several years.

Taxpayer should keep in mind that the land property does not fall under the category of depreciation, simply because it never wears out! The bookkeeping method is mainly used for reflecting the operations, which are an on-going procedure for the current year.  Specifically for this obvious reason, inflows about capital investments and depreciation are not reflected, same for income as well.

Should you take depreciation ?

With the proper guidance and knowledge about depreciation tax deductions, one can save a good deal of money from tax. Several methods are available for calculating depreciation tax deductions based on the property. But it should be kept in mind that there are also some limitations in it.For example, when you sell an asset to earn profit and have made depreciation deductions on it, depreciation recapture is applied to impose tax on the profit or gain from its sale. Since you have already benefitted  from  depreciation deduction from ordinary income, any gain you get, up to the depreciation sum, is required to be entered as ordinary income to make up for the previously made deduction.

Why You Should Have A Pension Plan?

If you are worried about your retirement, the time to get everything organized is now. First consider the options that are available. Your pension plan is the security of your retired life. I is obvious that you don’t want any kind of financial burden after retirement, so the earlier you plan the better. There are lots of plans authorized by US government, and you can select any one of them suiting your needs. Before that you need to know the basic things involved in retirement planning.

Two types of pension plans

There is a policy known as cash balance pension plan. According to this plan, you can go for two different pension plans i.e. defined benefit plan and defined contribution plans. In the first plan, you will get a perfect amount  of money after your retirement and in the second plan you will have to deposit a set amount of money every time and according to the other terms and conditions you will get the amount of money against your deposit. The second plan can be beneficial in case your account gains more. Otherwise you can simply opt for the first plan if you do not want to take any kind of risk.

Fixed date pension plan

Investment can also be categorized in other ways. There is a term known as 401(k) plans. A policy known as target date retirement refund comes under the 401(k) plan. This is basically long term investment planning, and you can only opt for this pension plan when retirement time is fixed. However, there are also lots of options and categories in a single date target plan. You may get options like target 2030 plan. Furthermore, there may also be lots of different types of plans in 2030 plan itself. You will need to choose according to your risk taking capacity.

You can also try to understand few things before going for this plan. Check the investment strategy and see how much of your involvement is required or is it mainly the bank that gets involved, and then compare these things with your requirement. Try to understand where your money will be invested. If there is option of changing the invested plans then also you need to check where, when and how you can change. You should also clearly know when you can access your money.

Tax payment issues

Another major fact is tax payments. You should have a clear picture on the amount of tax that you need to pay on the retirement pension plan, and also the cost of the plan. There are also some important facts stated in The Employee Retirement Income Security Act of 1974 which protects the plan users from different problems. Considering all of this now will also help in your current tax deduction, and will ensure your future is secure.



Tax Deduction: Entertainment for Customers and Clients

A crucial part of business is building and nurturing relationships with clients. While doing this, the business owners meet clients, customers and business partners during social events and occasions. The expenses incurred on these are considered by the IRS for tax exemption. Tax deductions and considerations are very essential part of business interactions. Business owners and employees are allowed to take a federal tax deduction that amounts to half of their qualifying costs when they entertain their customers and clients. Although the IRS does not allow complete tax deduction, but approximately 50% of deduction is allowed on all kinds of entertainment. The pointers mentioned below would help to understand how tax deduction would help in entertainment for customers and clients.

  •  Expenses incurred in almost all kinds of business recreational activities that involve a business owner and clients can be considered for tax deduction. Entertainment deduction is applicable if that form of entertainment relates to the specific business field. Activities include going to nightclubs, theaters, films, fishing trips, hunting, athletic club and even vacations.
  • As per the IRS, meals, beverages, tips and taxes combine to form entertainment expenses. Tax deduction helps entertainment of customers and clients whereby business owner and employees pay on behalf of their clients. In return they get 50% deduction on the meal prices. When both the parties are found to divide the bills, neither of the two can avail tax deduction of the meal. Thus, if you plan to take your client out for a lunch in order to discuss a new project and the objectives, you can go for deduction in taxable income. However, if you are self-employed, then IRS would let you deduct a part of the entire lunch bill as you travel or meals and entertainment business cost when you successfully comply with certain criteria.
  • Tax deduction for entertainment of customers and clients can happen when entertainment fulfills personal and also business agenda. In such a case, an individual would get a deduction for a part of expenses that he incurs for business reasons. Such business expenses include the taxes and tips that are paid on meals, room rents, parking fees and nightclub cover expenses.
  • It may happen that an employee pays for business-related entertainment from his pocket and later gets reimbursement from the employer. But in a situation where the employee does not get the cost reimbursed by the employer, then the former can get a 50% deduction on tax for the difference that the employer compensated in return and the actual amount that he paid from his own pocket.
  • Tax deduction clause can help you in keeping customers and clients entertained if you keep all the records. You should keep tangible records handy at the time of IRS audit. Such records include itemized restaurant receipts and credit card slips correlating to the meals during a business meeting.


But just because tax deduction can help entertainment for customers and clients, you cannot exploit it.

Tax Amortization Deduction Benefits

What is Amortization and how it works ?

Amortization is a system of deducting certain capital expenses over certain duration. In other words is a way of recovering the cost of intangible assets. It is like the straight line system of devaluation.

How to reduce amortization from taxes?

To reduce the amortization amount incurred during the current tax year, fill out Part VI of Form 4562 and submit it along with your income tax return.

For reporting amortization from previous years, apart from amortization that begins in the current year, make an entry on Form 4562 and record each item separately. For example, in 2013, you began amortizing a lease. In 2014, you began to amortize a second lease. The new lease being amortized will be reported on line 42 of your 2014 Form 4562 while the previous lease being amortized from 2013 will be reported on line 43 of your 2014 Form 4562.

If there are no current expenses of amortization in the year for which you are going to file tax return, there is no need to fill Form 4562 (unless you are asserting devaluation). Report the current year’s written off expenses for amortization that started in the earlier year directly under the “Other deduction” or “Other expense line” of your return.

How amortization deductions can help?

Sole Proprietorships

Guaranteeing government tax as a sole proprietor implies that your organization works under your heading without the profit of joining or aid from a board or standard staff. Sole proprietors make use of Schedule C with Form 1040 or C-EZ in order to record the federal income taxes. This expense assertion permits amortized derivations as a component of your regular tax recording. Schedule C allows a deduction for devalued supplies with a valuable operational life of more than one year. The favorable circumstances of utilizing amortization reductions under a sole proprietorship incorporate the capacity to recoup the expense of your “standard and vital” devices through a progression of yearly assessment derivations.

Business Expansion

The Internal Revenue Service permits amortizing property rents, the expenses of beginning an organization and any unmistakable resources that are bought to direct business. Actually when amortized over various expense years, these conclusions offer the organization the chance to grow operations by buying top quality devices and modernizing the hardware expected to work. For example the Laundry or the dry cleaners can buy pressing apparatus to supplant hand irons and recuperate the cost over the helpful life of the mechanical presser.

Manufacturing Expansion

Producing operations can utilize the amortization deductions for general equipment utilized as a part of operations and also to buy supplies to grow assembling techniques. Entrepreneurs ought to counsel an assessment expert in order to understand the perceived legitimate lifetime of equipment since the administration terms sporadically change under the government law. Bookkeepers with assembling knowledge have the learning of late rules characterizing the life of equipment and capital ventures. Producers utilize the amortized gimmick, in order to grow a solitary mechanical production system to different lines to build generation. Amortization deductions permit organizations with the opportunity to completely waive off amounts over the life of supplies.

Monetary Expansion

The capacity to deduct capital expenses as amortized expense derivations helps fuel the monetary extension for organizations and makers supplying products to organizations. The government amortization tax deductions procurements help to grow the organization deals for items utilized as a part of assembling and products utilized by both little and vast organizations. Business commercials reiterating it for clients to remember the accessibility of expense derivations for qualified things help offer items, since the utilization of the yearly amortization in the end brings reimbursement of the expense of item. The constrained lifetime of a few items debilitates the buy without added focal point to amortize the thing as an amortized business charge deduction.

 How is amortization deduction different from depreciation deduction?

A lot of people consider amortization and depreciation to be the same thing. However, there is a thin line of difference between the two. The explanations given below give clarity regarding this.

The idea of depreciation/amortization is an assessment system that is intended to spread out the expense of a business resource, what the IRS calls “cost recuperation.” In the event that you purchase copy paper for your business, you expect the valuable life to be months and not years. So copy paper can be included as a cost for the year it is bought in.

However, on the off chance that you purchase office furniture or some supplies, you hope to utilize it for quite a while, so the IRS says you must “recuperate” the expense by taking it as a cost for a while, considered as the “functional life” of that asset. Along these lines, in the event that you purchase a work space for your office, the IRS has set a particular time for which you can spread out that cost, not including any rescue (remaining) quality.

What is Depreciation?

In terms of accounting, depreciation point towards the value of an asset that has been utilized. Regarding tax needs, one can deduct the expenditure incurred in purchasing tangible assets by labeling them as business expenses. Nevertheless, businesses are required to depreciate these assets as per the IRS norms as to how and when the deduction must be made in accordance with the type of asset and its life. For instance the work area as mentioned above depreciates, as is an organization vehicle, a bit of assembling gear, racking, and so on. Anything that you can see and touch and that endures longer than a year is viewed as a depreciable resource (except a few special cases).

What is Amortization?

Amortization is the same process as depreciation but applies to intangible resources i.e. those things that have value and you can’t touch. For instance, a patent or trademark has value, so does goodwill. To add to this, the amortization additionally has an importance in paying off an obligation, in the same way as a home loan.

The IRS has assigned certain intangible resources as qualified for amortization in excess of 15 years, as indicated by Section 197 of the Internal Revenue Code.

Thus, the fundamental general guideline is that you devalue assets that are tangible and amortize assets that are intangible. For both categories, there are possible deductions in tax payable, and so you need to clearly understand this topic in order to use it to the best.

business expense deduction

Advertising Cost Tax Deduction

Tax Deductions for Advertising and Promotion Expenses

Numerous expenses need to be incurred when running a business. While some of these things make organizations qualified for exceptional expense deductions and credits, there are also others that just cut into the benefits that the business makes accordingly diminishing its tax liability by bringing down its taxable income. Expenses incurred on advertising and promotions can come under either category.

Nature of Deductions

For people who record their tax savings, every deduction is a different transaction on the tax return, and this diminishes income value on which tax is to be calculated by the estimation of the derivation. The methodology is to some degree diverse for written off amounts on business taxes. Organizations represent their costs, which they then subtract from aggregate income to give out taxable income. Promotion and advertising expenses are deductible because they are a piece of the expense of working together, pretty much like payroll, crude materials, rented business space and property taxes.

Deductable Expense Regulations

Organizations can just deduct the expense of publicizing and marketing when these costs are normal and vital. This implies that publicizing and promotion costs are also reasonable when they have a reasonable relationship to the business and its capacity to achieve clients, deal with its image or give data about its items. Endeavors like nameless sponsorships or gifts are not special because they do not speak about the business to the customer, making them ineligible for deductions.

Qualifying Deductions

Other than anonymous and unnamed endeavors, a business can deduct the majority of its promoting and advertising costs from its taxable income. This incorporates outdoor promotions; expenses for TV, radio and internet showcasing; expenses connected with utilizing publicizing offices or advertising firms; and the expenses of copyrighting promotions, logos and promoting mottos. Other advertising/marketing costs that is deductible incorporates printing business cards with organization logos, printing fliers, holding exceptional occasions for clients, supporting games groups and making gifts that result in mass recognition.


The aftereffects of deduction on taxes for promotion and special expenses are that organizations spare cash on taxes when they spend on publicizing. These reserve funds assume a little part in deciding the amount that a business ought to spend on showcasing. Nonetheless, viable showcasing additionally builds deals and supports income, leaving a business with a significantly higher expense obligation later on. Spending less on promoting diminishes the deductibles on taxes, however gives a business more cash (much in the wake of paying its taxes) to use for extending its workforce, creating items and paying down liabilities or debts.

 What can be deducted as Advertising expenses?

Goodwill Advertising

If your business is expected to benefit from a promotional activity, cost of institutional or goodwill advertising may be deducted. This is because the motive of advertising activity is to present your name in front of the public. Goodwill advertising includes:

  • Promotional activities that ask people to donate for charity
  • Getting a business sponsor
  • Distributing product samples, and
  • Organizing contests and offering rewards or prizes

Nonetheless, labor costs involved in organizing such activities cannot be deducted. Actually, you need to pay a certain amount of money to record it as advertising expense.

Giveaway items

Merchandize distributed as part of promotional activities (pens, diary, key chains, caps, t-shirt etc) can also be deducted. However, there is a restricted amount of money for each individual that can be deducted under this category.

 What cannot be included in advertising tax deductions?

There are several expenses incurred in the process of advertising and promotions. While most of them can be deducted, some need to be excluded:

  • You cannot deduct costs that are basically individual, even if they may have some advancement attached to them. Suppose, if your son is getting married and you welcome some of your best clients to the wedding; you can’t deduct the wedding expenses.
  • You cannot deduct expenses of individual leisure activities experienced or performed with business partners. In case you and a client like to go to NASCAR occasions, you can’t deduct these expenses under ‘advertising’.
  • You can deduct the expense of putting a commercial for your business on your auto (business or individual), yet you can’t deduct the expense of driving your auto around the town as a publicizing cost.


Points to Make Note of

  •  On the off chance that you utilize your site for publicizing, you may deduct web support costs as a promoting cost. In the event that you utilize your site for sale and have an e-commerce option, then this is an expense for sales and is considered independent. You are eligible for deducting designing and maintenance costs of the website. This would include the monthly charges that you need to pay to the developer and designer.
  • Costs of temporary signs are viewed under costs of advertising. Costs of long term signs (that last for more than a year) are not promoting, yet signs may be depreciated in accounts as long haul resources. Generally, the paper or cardboard signs are seen as temporary signs and come under operating expenses. Signs created on permanent metal or plastic sign have a longer life that cannot be deducted under business operating expense.
  • Costs for help-needed promotions are a deductible expense for businesses, yet they are not viewed as ‘advertising’.


To conclude, the broad categories of advertising expenses can be deducted from tax returns include expenses incurred on activities like:

  • Business cards
  • Leaflets/brochures
  • Advertisements printed in yellow pages at local level
  • Print advertisements (magazines & newspapers)
  • Radio and television advertisement
  • Advertisements on the web
  • Display signs and visuals
  • Billboards
  • Charges and expenses incurred as costs paid to agencies performing public relations and advertising activities, and
  • Designing costs for packaging

When you total the amount that you have spent on the above mentioned advertising fee services, you will be able to reach an amount that can be deducted from your tax return.

Tax Filing

Deduct Accounting Fees Paid to your tax professional

Accounting Fees Deduction

The Internal Revenue Service is the authority of the tax code as approved by the Congress. The IRS deciphers the tax code and has the power to permit or deny deductions with regards to income reported by people and organizations.

When it’s time to file the tax return, individuals start panicking about the amount of money that they have to pay as tax. They try to find out ways to get some amount waived off or deducted in order to save money. One such expense that can be deducted is the fees paid for hiring a tax professional. This includes the charges that you pay for preparing tax returns, tax planning advice, procedures of collections and criminal investigations and also representation in tax audits. Bookkeeping charges are at the heart of estimating wages and taxes payable.

Tax payers getting returns prepared for individual expenses can deduct professional accounting fees as per Schedule A, under the miscellaneous itemized deduction. Conversely, tax payers depositing taxes for business enterprises can get specialized tax service fees written-off on relevant tax forms for their business. The absence of clarity in the code increases the importance of tax professionals.

 Is the expense ordinary?

A cost is deductible if it is recognized as ordinary to the course of business. As it were, you would be able to work together in some other path so as to evade the cost. The code gives a great deal of scope in order to figure out what is conventional, and this gives a lot of chance for bargaining and negotiation. Bookkeeping administrations come under the definition of ordinary expenses. Without them, an individual or organization will be unable to precisely ascertain their pay.

 Is the expense essential?

A second thought for an admissible derivation is whether the cost is important for the business. While taking the representatives out for frozen yogurt every week may not be essential, bookkeeping expenses are. Actually, the intricacies of the tax code make these expenses totally vital as entrepreneurs usually don’t have absolute knowledge about the tax code.

 What category does accounting fees tax deductions come under?

The tax code and guidelines for estimating income and tax payables more than once reference representing exchanges. This shows the importance of bookkeeping expenses, giving additional evidence that accounting expenses are an ordinary and essential cost and so it falls under the category of tax deductible. However, the accounting fee varies depending on the amount of work and the tax preparer.

 Types of accounting fees tax deductions

There are different expenses that you incur right from the stage of calculating the tax payable amount to filling forms, and then finally getting the tax deposited with the government. All expenses including accounting expenses, bookkeeping expenses and auditing expenses are come under accounting fees tax deductions. Take a look at a more detailed analysis of accounting-related expenditures that can be deducted:

  •  Fees for a professional – Accountant/Financial Adviser/CPA: The fees charged by professionals for reviewing accounting books or financial statements and financial planning can be deducted. However, this only includes tax processes that are carried out for the business organizations and not individuals.
  • Bookkeeping charges: Bookkeeping is the process of recording financial transactions conducted throughout the year for maintaining accounts and statements. Expenses incurred on bookkeeping, include both accounting software and bookkeeper costs.
  • Auditing: Public corporations go through audits. Expenses paid to auditing firms can be deducted.
  • Tax Preparation and Strategy: Certified Public Accountants, tax advisers or attorneys are hired to help with tax preparation and strategy. These professionals assist with filling and submission of forms. All expenses paid for these services can be deducted.
  • Defense Expenses: Travel costs and other expenses incurred as a result of problems with IRS, state agency audits or any other challenges, including costs charged by advisers for their services can be deducted.
  • Additional Tax Issues: You cannot be present at every audit or before the IRS at every event. CPAs or agents hired by you represent you during investigations, and then they charge you for the preparation and the time that they invest.

 When to make accounting fees tax deductions?

 Accounting fees for tax preparation can be deducted in the same year for which the fee was paid. For instance, if you have paid for accounting services in 2014 for preparing accounts and tax returns of 2013, then the deductions are made on the tax payable amount of 2014, since you are paying the fee in that year.

Where to deduct fees for accounting?

Publication 529 of the IRS provides an understanding on how the tax preparation fee needs to be recorded in the tax return for maximum savings. Expenses on tax preparing must be deducted on appropriate schedules. Take a look at the various schedules that you need to file the taxes under:

Business Profit or Loss – Schedule C or C-EZ

Farm Income or Expenses – Schedule F

  • Rentals or Loyalties – Schedule E
  • Preparing taxes of the remaining part of the return – Schedule A (Form 1040), line 22 or Form 1040NR, line 8

For an individual salary expense form, proficient tax arrangement charges can be deducted in the accompanying spots:

  • Accounting fees for tax arrangement identified with setting up sole proprietors Schedule C are deducted on Schedule C on grounds of lawful and expert charges.
  • Tax preparation fee identified with putting together Schedule E for rental salary and costs are deducted on Schedule E with regards to the lawful and expert expenses.
  • Tax preparation services identified with the preparation of Schedule F for income and costs of farm are deducted on Schedule F under the segment for different costs.
  • Expenses for tax preparation identified with different parts of the government form are deducted on Schedule A on line 22 as miscellaneous itemized deduction.

Keep all the above expenses in mind while recording the accounting fees transactions in your tax return and get the amount waived off in order to be able to reap maximum benefits.


Theft Loss Deduction -Should you claim it ?

Theft Loss Deduction – Understanding what you can and can not deduct

The very thought of paying Uncle Sam becomes cumbersome. But again thinking of the benefits that you receive from tax deduction gives you relief. Out of the many areas where tax deduction can help, loss of uninsured properties due to theft is a significant one. In case you are a theft victim, there is no need to worry a lot. In order to know more about tax deduction pertaining to losses on account of theft, the following information will surely help.

As a taxpayer, you are provided deduction by the IRS in case you have suffered sudden loss of substantial properties without any negligence from your end. But you need to ensure that you meet all the requirements in order to avoid reporting any wrong deductions on tax returns.

As per the Federal Law, theft refers to confiscation of property by any individual with the intention of depriving another individual of that property. This act is undoubtedly illegal and is certainly punishable. Some of the known instances of theft are blackmailing, burglary, kidnapping for ransom, larceny, extortion and robbery. However, if you lose money and property i.e. if you have misplaced those, then that does not fall under the category of theft. But if you get threatened by a person with physical coercion when you are attempting to get back your wallet, this kind of loss gets elevated to category of theft and becomes deductible.

You need to produce the proof that you have lost your property on account of theft and the monetary amount of deduction should also be substantiated. In order to do this, as per the IRS, you need to show the precise time of loss and also provide ample proof that you own the pilfered properties. In case you fail to provide minute details of the event and your property, IRS would consider certain other types of proof that support the deduction.

The deductible loss for the money that has got stolen is equal to the sum of money you are unable to recover. In case of property thefts, the basis has to be determined by you. The IRS says that it requires you as a taxpayer to not receive any reimbursement from any insurance company if you are taking the deduction. Insured properties that get stoned are not eligible for tax deduction.

Tax deduction can help in losses due to theft if you follow the steps mentioned below in reporting the loss on tax return.

  • You need to download a copy of IRS form 4686.
  • You are required to complete the first item in Section A of the form and then list every piece of property that has got stolen. The detailed description of every property should be provided by you along with the location from where it had got stolen and also the date of originally acquiring the property.
  • Next, you need to move on to the item 2 of the form. This means that now you have to list the price that had to pay for every item that has not got stolen. Every detail should be provided and should be original.
  • The item 3 talks about the reimbursements. The list of reimbursement covers insurance payment that you have received for your property that got stolen.
  • Next you need to check if the totals listed under Item 2 and item 3 vary. If you find that the totals pertaining to item 3 are more than those under item 2, then you are required to list the increase under item 4.
  • In item 5 you need to list the probable market value of the items before the theft took place. Then after you come to item 6, you need to inform about the properties that are of no value to you. Against those stolen properties, you have to list $0 meaning that those are of no value to you.
  • In the line 7 you need to re-enter the figures from line 5. Again in line 8, you need to re-enter figures either from line 7 or line 2, depending on whichever figure is lower. Then you need to deduct or subtract item 3 from item 8. The result that arrives has to be entered on line 9.
  • Next, complete line 10 by adding the total of all the items on line 9. Line 11 is meant for entering the lower line of number 10 or $500. In line 12, you need to subtract line 11 from line 10 following which you need to enter the result.
  • Line 13 is complete when you enter the total of line 12s from all the form 4684 in total that you are filing. You need to enter the sum of line 4s from all the form 4684 in total in line 14 that you are filing with your taxes.
  • You should determine if the amount that you have entered in line 14 is greater than line 13. If it is, then you will get a capital gain from your losses due to theft and again the difference has to get added in line 15 and on Schedule D of your tax return. In case you enter a capital gain, you need not complete the test of the form.
  • Line 14 has to get deducted from line 13 and the result needs to be entered in line 16. You need to list in line 17 entering $0 in case the theft loss is not disastrous. Similarly you need to enter $0 on line 18 as well. The figure from line number 16 has to be entered in line 19.
  • Then you need to calculate 10% of your gross earnings from Form 1040 and also line 38 and then enter that figure in line number 20. The figure that you would get by subtracting line 20 from line 19 has to be entered in line 21.
  • After adding the lines 18 and 21 the result that comes has to be entered in line 22. All these would reveal you capital loss in total from the theft for income tax reasons. This result should be entered on Schedule a, line 20.

Home Mortgage Deduction

Mortgage Payment Deduction

Mortgage Payment Deduction on Business Property

There are many types of mortgage loans. The thing that you should be concerned about regarding mortgage on a property is if the mortgage interest is tax deductible or not, and if it is, then how much of the total interest is deductible. In order to clearly understand mortgage interest deductions, you first need to understand the different types of mortgages and the different criteria to determine the mortgage interest deductible.

Various types of housing mortgages

The main types of housing mortgages include home mortgage, second mortgage, home equity loan or a line of credit. All these types of mortgages have interests. Any interest that you pay for these home mortgages are known as home mortgage interest or property mortgage interest.

Based on the kind of mortgage, you will be able to calculate how much interest you will need to pay and how much can be deducted. There are different terminologies involved in this and you need to understand all of it first.

The Grandfather Debt

The first term that you need to understand is the grandfather debt. The name itself is not very descriptive. Perhaps, the only thing that you can judge from this term is that it is a long standing debt. In practice, any debt or mortgage taken before October 13, 1987 is referred to as grandfather debt. Contrary to popular belief, having a grandfather debt can be very beneficial for tax deduction.

There are three different conditions following which you can completely deduct the interest. The entire interest is deductible if you are considering a grandfather debt. This is the key benefit of grandfather debt.

The second condition is when you are not considering a grandfather debt, but a mortgage loan has been taken to build, improve or buy a home, and the total amount of debt (including other grandfather debts) does not exceed a million dollar. In this scenario too, you can have the complete interest amount deducted from taxable income.

What is secured debt?

As mentioned earlier, home mortgage loans can be of different types. The secured debt helps to provide security only if the mortgage is secured. A secured debt ensures the following three things, where you sign for mortgage, real estate or if there are three parties involved for providing the loan, which is known as deed of trust:

  • It naturally gives you the ownership which helps you to qualify for home security matters and enables you to make payments related to debts.
  • It provides security if you fall under the default list and your home can gratify the debt.
  • Lastly, the entire procedure is recorded under the laws that are essential part.

To put it in simple words, you can keep your home mortgage as secured debt only if you keep your home as a security for the repayment of the amount borrowed from the lender. In case you fail to clear the debt, your home, which has been pledged as a security, would serve as a means of payment to the money lender to clear the debt. This procedure for home mortgage loan is termed as secured debt.

What if you don’t have secured debt through home mortgage?

When a debt is not secured through your home, then it is entirely due to the right to have possession for the property which belongs to the money lender unless the debt is owed by the borrower.

Wraparound mortgage and its utility

This method is more commonly known as “Wrap”, and it is termed as secondary financing mostly associated with purchasing real estate property. The seller finds a buyer and extends the mortgage amount, which gets wrapped around, and then the buyer is expected to pay the amount for mortgage apart from purchasing the property at a specified amount. So the entire amount gets divided between the buyer and the seller. However, this procedure does not ensure secured debt from at any point.

Things To Know About Qualified Home Mortgage Interest

In order to enjoy some deduction for the home mortgage interest, the debt carried by you must be defended by qualified home. The qualified home is your home where you reside and this includes second home. All these may cloud your mind but with all the documentations available, it is simple to understand. Generally, a home is where you live, and it has other important attachments, such as mobile home, condominium, boat, etc. Similarly, any property that allows you to provide with sleeping facilities, toilet or even cooking is considered as a home.

When we consider home mortgage, it can be cut down or reduced only if the loan was expended towards business purpose or any other investments that are lawfully fit for the deductible method. Other than that, the loan would be considered entirely for personal means and so no deduction can be done based on that.

This is entirely a complex procedure with strict laws and one must know all the details that are involved in this process. It is very difficult for a common man to remember and manage all the tax procedures by following complex procedures. The Taxpayer Advocate Service could be a great relief in this regard because it is the association that you can look up to, in order to get accurate advice for mortgage interest tax deductions. This is an organization working independently, a body within IRS that takes care of taxpayers issues and at the same time, it also does the job to protect the right of taxpayers.


car deduction

How to Make Tax Deductions for Cars and Trucks ?

Cost of operating a truck, car or other kind of automobile is tax-deductible when moving and relocating or driving for medical, business or charity purposes. The deduction made corresponds to the mileage driven for such tax credits. You may opt for standard rate of mileage in place of calculating actual car expenditure for these individual tax credits.

Medical Purpose

Driving in order to obtain medical care for either yourself or your dependents is what Medical Purpose covers. This kind of drive must primarily cater for medical care, as indicated by IRS (Publication 502) and the deduction is reflected on Schedule A and comprises part of medical expenses for an individual.

Business Purpose

Business purpose pertains to driving away from your regular employment location to a different work site in order to meet with client or travelling for a business engagement. Commuting from home to office does not qualify for this category of individual tax credits. This kind of incentive is captured by Schedule C for self-employed individuals, Schedule F for farmers or as itemized deduction that forms part of unreimbursed business expenses provided in Form 2106 for an employee.

Moving and Relocating

You can deduct the driving cost for relocating to a new place of residence as part of moving expense deduction. To qualify for this incentive, it will be necessary to cover a distance of at least 50 miles away from the old home more than what you earlier covered in-between the old home and old job. The deduction is present on Form 3903.

Charitable Purpose

Individual tax credits are available for any vehicle used for providing services to charitable organization. The corresponding deduction is covered by Schedule A as part of charitable donations. It may involve driving for volunteer causes for a charity, church or hospital.

Actual Expenses

Various elements count as truck or car expense including:

  • parking fees and tolls
  • vehicle registration fees
  • interest on loan
  • rental and lease expense
  • vehicle registration fees
  • personal property tax
  • fuel and gasoline
  • insurance
  • depreciation
  • repairs including tires, oil changes and such routine maintenance

However, fines and tickets such as for parking may not be deducted. In addition, expenditure relating to commuting or personal use is not deductible. Various car expenses may also be deducted depending upon why you are driving. One cannot claim interest, insurance and depreciation as well as auto repairs for medical expense and charity deductions.

Standard Mileage Rates

Rather than tally up all actual car expenditures, you may utilize a standard mileage rate to aid in calculating deductions. There are standard mileage rates to achieve this goal. It is multiplied by the mileage drive to establish the dollar amount deductible for car expenses as obtained from Notice 2014-79 of IRS.

Standard Mileage Rates
Type of use Year 2015
Business 57.5 cents per mile
Medical or moving 23 cents per mile
Charitable service 14 cents per mile


In addition to standard mileage rate, taxpayers may also deduct tolls and parking fees as stipulated by the IRS in chapter 4 of Publication 463.

Comparing between Actual Expenses and Standard Mileage Rate

You may use any method that will lead to a larger amount of your tax deduction. This varies with individuals depending upon the number of miles driven, amount of depreciation claimed and other expense variables. Claiming standard mileage rate provides results with less paperwork. It is suited best for situations where the car is driven at times for charity, work or medical appointments and the owner is avoiding lengthy scrutiny of all car-related expenditure.


You will require selecting the standard mileage rate option within the first year of using your automobile for business purposes in order to claim the corresponding deduction. If you start by claiming actual expenses, it will be necessary to retain the actual expense option for the entire time duration of using your vehicle for business. IRS Publication 463 offers further clarity on this situation.

Where to Make Claims for Car and Truck Expenses

Expenses for vehicles get reported on Schedule C for self-employed individuals and Form 2106 for the Employee Business Expenses. In particular, this deduction is miscellaneous itemized deduction that is subject to 2 percent of the adjusted gross income limit. It implies that unreimbursed employee expenses may be deducted, although the tax payer does not benefit from the full deduction dollar-to-dollar on tax returns.

Vehicle expenses get reported on Schedule A for medical vehicle uses, together with other medical expenses.

For charitable car use, the expense gets reported on Schedule A, together with related charitable donations.

Practicing Good Record-Keeping

Ensure keeping a mileage log as it will demonstrate your eligibility for car and truck individual tax credits. This document should show date of each trip made that is tax-deductible. It will be necessary as well to record the total mileage covered for the entire year, which makes it pivotal indicating the odometer reading as each year begins at the first.

electric vehicle tax credit

Electric Vehicle Tax Credit

Electric Vehicle Tax Credit

Taking Advantage of Plug-In Electric Drive Vehicle Credit (IRC 30D)

Tax Credits vs. Tax Deductions

Tax deductions reduce the taxable income of a taxpayer, whereas tax credits cut down the amount of tax owed to the government. Congress can grant tax credit in order to promote a certain industry or behavior, like purchasing a plug-in electric vehicle.

Hybrid Vehicles vs. Plug-In Hybrids

Hybrid vehicles, designated as HEVs have become popular brands today which are selling very fast within the automobile market. The technology utilizes an internal combustion engine as well as an electric drive train. These mainly run on electric power at city speeds and reserve costly gasoline power for use at highway speeds. Electric batteries get recharged by capturing energy usually wasted during the idling and braking processes.

PHEVs or Plug-in Hybrid Electric Vehicles have greater advantages than HEVs, being able to travel further on electrical power. They are equipped with a plug-in battery charger for use when the battery levels go low.

Plug-In Electric Drive Motor Vehicle

Plug-in electric vehicle refers to an automobile propelled by an electric motor to significant extent, which in turn is battery-propelled and capable of getting recharged from an external electrical source.

New Plug-In Electric Drive Motor Vehicle implies a vehicle whose original usage starts with the taxpayer and gets acquired for lease or use by taxpayer and not resale.

Section 30D of Internal Revenue Code provides credit for Plug-in Electric Drive Motor Vehicles that are qualified. This includes light trucks as well as passenger vehicles. Vehicles acquired later than December 31, 2009 are allowed credit worth $2,500 and above, for vehicles which draw from battery propulsion energy having a minimum capacity of 5 kilowatt hours together with an extra $417 for each battery acid kilowatt hour which exceeds 5 kilowatt hours. There is a limit of $7,500 for the business credit allowed for any particular vehicle.

This form of credit starts phasing out for any manufacturer that has sold 200,000 vehicles at minimum for use within the US. For sales done later that 31st of December, 2009, this is determined on cumulative basis. Notice 2009-89 carries further details on this matter.

Originally, Section 30D was enacted in the 2008 Energy Improvement and Extension Act. The 2009 American Recovery and Reinvestment Act amended section 30D which took effect for vehicles obtained later than December 31, 2009. As well, American Taxpayer Relief Act (ATRA) modified Section 30D got for some 2 or 3-wheeled automobiles acquired after 31st of December 2011 and prior to January 1, 2014.

However, such vehicles need to have been purchased for either leasing or usage and not resale. In addition, original use of such vehicle should commence with taxpayer, with the vehicle being predominantly used within the US. Under state law, a vehicle is not classified as acquired before its title passes to taxpayer, relative to application of 30D credit.

Notice 2009-89 applies for vehicles obtained after December 31, 2009. It delineates which procedures apply for vehicle manufacturers when certifying a vehicle for requirements pertaining to the Qualified Plug-in Electric Drive Motor Vehicle Credit. This piece of regulation also enables them to know what amount of credit is permitted relative to a particular vehicle.

The new qualified plug-in electric drive motor vehicle credit, designated as NQPEDMV credit does not cover two- and three-wheeled vehicles. However, qualifying vehicles (those acquired later than December 31st 2011 and prior to January 1st 2014) of two- and three-wheeled nature, were served by a separate form of business credits.

Allowance of credit

Credit is allowed against tax imposed by Chapter 30D for taxable year for an amount equal to sum of credit amounts determined the subsection (b). This shall apply to each new plug-in electric drive motor vehicle that is qualified and which the taxpayer has placed in service during the same taxable year.

In addition, dollar limitations apply per vehicle. Specific applications are available too for various situations. This includes personal credit and business credit handled as a section of general business credit.

  • There are additional criteria which are required of a vehicle in order to qualify for this tax credit as follows:
  • Credit is allowed within the year when a vehicle is placed in service
  • Original use of eligible vehicle should begin with an individual purchaser (vehicle has to be new)
  • Eligible automobile must be predominantly used within the U.S., apart from weighing below 14,000
  • Credit is allowed when a vehicle is acquired for lease to another person, but disallowed if the car is meant for resale
  • Tax benefits available for an eligible vehicle get reduced unless one opts for the credit not to apply to the vehicle eligible

Different rules apply for limiting application of credit against alternative and regular minimum taxes for the portion of credit pertaining to personal use and that pertaining to business or other profitable usage