What kind of miles I can deduct on my tax return and what are the rates?

by Viktoriya Khusit | Nov 8, 2016 | Blog | www.VKconsultingllc.com

There are four major driving purposes that taxpayers can deduct miles for:

• Business
• Medical
• Moving for a job
• Charitable organization

There are two ways of deducting your car on your tax return, if you use it in connection with your business:

1. Taking an actual expenses: car payment, gas, oil change, tolls, parking, etc- this method might be beneficial if you lease a car and don’t drive to much

or

2. Take a standard mileage expenses, i.e. multiply amount of miles you drove by standard rate. For 2016 this rate went down from   57.5 cents per mile to .54 cents. This is a business rate, so any time you drive from your office to your clients offices, run business errands, going to meet with clients  you need to record miles.

Driving from your personal residence to your office does not considered business miles. Unless your primary place of work is your home and you have qualified home office in your residence, than you can start tracking your miles from your garage.

Even though you might not have a business, here is some miles you can still deduct on your tax return:

Miles you drive to have  doctor visits are deductible as well at .19 cents per mile ( down from .23 cents in 2015) and are calculated on schedule A ( Itemized deductions) and subject to 10%  AGI  (see posts about medical expenses), so if you do not Itemize, don’t waste your time tracking those miles

If you moved for your new job, miles you drove in your car are deductible as well. Rate is the same as for medical purposes and is .19 cent per mile ( see Moving Expenses)

The only rate that did not change from 2015 is rate per miles driven in service of charitable organization and is .14 cents per miles. This expense as well calculated on Schedule A- Itemized deductions.

My child wants to be an actor/model. What is next and what can I deduct on my taxes?

by Viktoriya Khusit  www.VKconsultingllc.com

You look at your child, and he/she is the most adorable human being, constantly acting as someone else, or may be really – really wants to be a movie star, so you decide to give it a shot and try to help your child become an actor. What do you do next?

If your child is a minor (under the legal age of full responsibility) you need to apply for entertainment work permit for your child. Click here to see a YouTube video that will show how to apply for 6 month entertainment work permit for your child, how to create an account, what forms you will need if your child of school age. To start you need to create an account, download school and medical forms, that need to be signed by school principal and your child pediatrician. Once you have those forms, you will need to upload them to the account and submit.

If your future star is of school age, you do not need to get a permission from the doctor, despite what the website says, school permission is enough. It might take you several weeks to receive a permit, if you are in a rush you can go directly to the office of Department of Industrial Relationship and get permit on the spot. Time in the office will go faster if you upload everything online before going in. And voila!, your child can work, or actually start submitting  for additions. Also, you child will need to get a Coogan account, which is not every bank will open. Two big banks are Wells Fargo and Bank of America. In order to open a bank account you as a guardian will have to bring your child first paycheck or an offer from an employer.

Meanwhile, keep receipts of all the payments you made toward acting, signing, sport classes, miles you drove to take your child to  additions, fees for casting websites you paid, payments for head shots and personal coaching for your child, wardrobes purchases ( not the closes child can wear on every day basis, only costumes), as these are all deductible on your tax return. But remember, in order to deduct these expenses, your child needs to actively peruse an acting/modeling/signing career.

Filing status for married couples: is there more than one option?

Filing status for married couples: is there more than one option?

There are three (3) options to file for married couples.

Most favorable and common is Married Filing Jointly. By filling Married Filing Jointly couple gets higher standard deduction- $12,600 in 2015.

If couple is married, but chooses to file Married Filing Separately, both spouses will have to file separate tax returns to report their own individual income, deductions, credits and exemptions. This way spouses responsible only for their own individual tax liability, and not responsible for any tax liability result from spouse’s tax return. If you chose to file MFS ( Marries Filing Separately), your certain deductions and credits are being limited, such as:
– If one spouse itemizing, the other one has to itemize to or claim “0” as a deduction. ( You cannot chose a standard MFS deduction)
– If both spouses claiming standard deduction, it will be 1/2 of what it would be on a joint tax return -$6,300.00 for 2015
– No Earned Income Credit is allowed
– No Educational tax credit – no America Opportunity or Life Learning credit, no tuition or student loan deductions
– Savers Credit is limited
– Child tax credit is limited

If you live in a community property state, it gets a bit more complicated as you need to report 1/2 of your community income and deductions in addition to your own income and expenses.
There is 3rd option when IRS consider you an “unmarried” because you lived apart from your spouse and meet certain test and can file as Head of Household. This can happened even if couple still legally married and not legally separated.

In any case contact your tax professional, so you can determine what is correct and most advantages filling status for you.

What is 941 Employer’s Quarterly Tax Return ?

Form 941 is an Employer’s Quarterly Federal Tax Return. Employers use this form  to report income taxes, social security tax, and Medicare tax withheld from employee’s paychecks, and pay the employer’s portion of social security or Medicare tax.

This form is filled out every quarter and has to be filled with IRS by April 30, July 31, October 31 and January .

If all the deposit for taxes due made timely, than employer has 10 more additional days after January 31 to file 4th quarter employer’s quarterly federal tax return- form 941 Q4.

If you are using payroll provider, it will be done by them. If you use Quickbooks Online and process payroll via Intuit, this form already pre-populated for you. But if you are using a desktop version of accounting software and process payroll manually, click here and use this video as a guide on how to fill 941 Employer’s Quarterly Federal Tax return up.  I used my company name in the header just an example.

See below where to mail your 941 Employer’s Quarterly Tax return.

Please leave comments and ask questions.

My child needs braces. Can I deduct this cost on my tax return?

So I am one of those lucky parents whose child needs braces. After shopping around for a while (my insurance doesn’t have ortho coverage) we picked a doctor. Our bill was around $5500.00. In addition during a year we had some prescription medication totaling $300 and dentist visits of $600. Total medical expenses of $6400. A lot of money, right? You would think we would be able to deduct it. For a lot people it’s a wrong assumption

Medical expenses are deductible only when you itemize, meaning you owe property and paying mortgage and real estate taxes, have some sort of donations, and may be have some work dues (not your country club dues). If you itemize then you can calculate how much of your medical expenses is deductible. It’s not 100%.  In short you can claim only difference between what you spent on medical expenses and 10% of your AGI. For example, if your family AGI is $55,000.00 your 10% is $5500.00. In my scenario medical expenses were $6400-$5500=$900. Here is a catch: your combine itemized deductions on Schedule A should be more than your standard deduction

Single and Married filling separately $6300,

Married Filling Jointly $12,600,

Head of Household $9250

if you elect to still take itemize deduction that is less than your standard deduction, you will be paying more taxes as your taxable income will be more.

Yes, you might have substantial medical expenses, but it’s not necessarily you can deduct them and if you do not always its better than electing to take a standard deduction.

See how to do it on your tax return HERE.

Health Saving Plans: how many are there, what do they offer and why would you want to have one.

Health insurance, health plans and tax-favored arrangements that help to offset health care cost….

Let’s look at Health Saving Plans: how many are there, what do they offer and why would you want to have one.

Tax-favored arrangements are:

Archer Medical Savings Accounts (MSA)

Medical Advantage Medical Savings Accounts  (MSA)

Health Reimbursement Arrangements (HRA)

Flexible Spending Arrangements  (FSA)

Health Saving Accounts (HSA)

Archer MSA is a first generation of HSA. Both employer and employee can contribute to the plan, but not in the same year. Contributions made by employee is deductible on tax return. However, this plan is available only for employees of small employers and self- employed individuals.

Medicare Advantage MSA is an Archer MSA run by Medicare. Account holder has to be enrolled in Medicare and contributions done by Medicare only.

Only employer can contribute to Health Reimbursement Arrangements on behalf of employees.

Flexible Spending Arrangements are funded via a voluntary salary reduction and are considered a reimbursement for medical expenses. It’s not a health plan, but only a way to reimburse for qualified medical expenses.

Health Savings Account (HSA) is a newest medical savings plan. Employee contributions can be used as adjustment to income, contributions can be carried over from year to year until are used. HSA are portable, and they stay with a taxpayer regardless of place of employment. HSA created by enrolling in a high-deductible health plan and opening a tax-exempt trust or custodial account with a qualified HSA trustee (bank, an insurance company or anyone already approved by IRS to be a trustee of IRA or Archer MSA)

Did you have to move for a job? Is this deductible?

This year one of my clients had to move to a different city because he got a job offer, he could not resist. After excitement from landing a dream job went a way, reality of moving his household settled in. My client, let’s call him John Doe is a single taxpayer without any dependents, so he packed his suitcase, started his car and drove for a couple of days from city A to city B. New employer reimbursed him $300 for the moving expenses. Let’s just pretend transportation of his expenses cost him $100 and hotel $500. Total move was $600, of which $300 was reimbursed by the employer and reported on W2 box 12.  Mr. Doe can deduct $300 on line 26 of Form 1040. This is above the line tax deduction, which will make his taxable income $300 less. If there was no reimbursement from employer, the whole moving expense amount is deductible, i.e. $600 in this example; and of course if employer reimburse him in full for the moving expenses, Mr. Doe cannot claim this deduction.

In order to see how much is deductible, one needs to fill out form 3903 (click here to see a short video that shows how to do it) and then transfer final number from form 3903 to line 26 on form 1040.

So, did you move this year? Want to see if you can benefit from this deduction? Follow steps in the video.

But before you even start filing out form 3903 you need to satisfy a few tests:

1. Your move need to be close to the start of new job. You move has to be within one year from the date you started your job.
2. Distance from your NEW home to a new job has to be NOT longer then from FORMER home to a new job.
3. 50 miles rule. If you had 10 miles distance from your old home to your old job, your new job must be 60 miles or more from your old home. If you did not work before, your job needs to be at least 50 miles from your old home.
4. Time test. For employees: you have to be employed full time for at least 39 weeks in the 12 months period following start of your new job. For self-employed: 39 week in the first 12 months and for a total of 78 weeks in the first 24 months

 And, if you want to claim this deduction, please keep all your receipts. By the way, your meals during move are not deductible.

Can I deduct job hunting expenses on my tax return?

If you currently employed and looking for another job in your line of work, job hunting expenses such as  cost of attending career fairs and resume preparation, miles driven to and from  and  out of town expenses for the interview or career fair, also fees paid to employment agencies are deductible. If you are looking for a job in the different field or changing your career, those expenses are not deductible. Also one needs to be currently employed to deduct job hunting expenses. One cannot take a break from work to attend a college or raise a child, then start looking for a job, and deduct expenses, those are not deductible.  Job hunting expenses are subject to 2% AGI limit and one needs to itemize in order to claim these expenses.

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Can I deduct hobby expenses?

Hobby is an activity where primary motivation for engaging into activity is to have fun, not to make profit.

Hobby expenses might be deductible. If hobby producing income, then one can deduct expenses associated with a hobby up to the amount of the income; however, a taxpayer cannot carry forward  the deductions. Meaning if expenses are $5000 and income earned from hobby $1000, one can deduct $1000 in expenses, but remaining $4000 will be lost and cannot be carried over to future years. Another thing to remember, that one can deduct hobby expenses only if he/she itemizes instead of taking a standard deduction and hobby deductions are subject to 2% AGI limit.

As far as tax law if the activity shows profit for 3 out of 5 years,  activity is considered to be engaged in for profit and treated a business.

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What is included into rental income and rental expenses?

If you have a place that you rent out, you have to report your income.

What is included in Rental Income? EVERYTHING!

In addition to rent payment, you have to include in the income

– any type of advance rent,

– payment to lease cancellation,

-security deposit (unless you are planning on returning it to your tenants at the end of the lease, but if you are keeping a part of the security deposit because tenants did not live up to the term of the lease, then you have to include that portion as your rent income.)

-if instead of the money you receive services or property, fair market value needs to be included as a rent income.

On a bright side, you can deduct pretty good list of expenses. Such as interest on your mortgage, real estate taxes, advertising, maintenance, utilities, insurance and homeowners dues and mileage.

You can deduct repairs that were done to keep a property in good operating condition.

If you did improvements that add value to the property such as change roof, add a pool, new fence, changed AC, etc these expenses have to be depreciated on a form 4562

And yes, if your expenses exceed your income, you can report loss up to $25,000; amount goes down for filers who AGI is above $100,000

Can I deduct my time or service working as a volunteer as charitable contribution?

One cannot deduct the value of time or services when he or she works as an unpaid volunteer, but can deduct cost of buying and cleaning uniform if  the uniform is unsuitable for normal wear.  For example nurse who is volunteering for local charity can deduct cost of buying and cleaning uniform. But if charity is asking for black bottom and white top-this is not deductible, because this type of clothes is suitable for normal wear.

If you make goods and donating them, you cannot deduct their value, only what it cost to make them. For example, if one makes cookies, deductible are only cost of cookies ingredients. If you are donating used clothes, value is calculated at 25% of the original cost, and of course you can deduct full price if your items  brand new, but not more than original price paid.

If value of donated property is overstated, IRS may assess the 20% or 40% penalty on the underpayment of the tax.

I paid to a lawyer. Can I deduct his fees?

It depends on a claim you hired attorney for. Legal fees are deductible only if they relate in some clear way to taxable income, thus fees occurred for personal claims are not deductible.  Car accidents or animal bites cases considered to be personal claims, and attorneys fees are not deductible.  However, taxpayer can deduct  legal cost involving claims of discrimination, sexual harassment, wrongful termination, etc.  Legal cost to collect alimony is also a deductible expense  since alimony is taxable income.

I am temporary working in California, but my home is in Chicago. Do I need to file California tax return?

YES.

Employee compensation (salary) need to be tax by the state where services where performed. Thus CaliforniaNon-resident tax return needs to be filled and taxes paid on income earned in California.

If you live in California, but work for a different state based company, your income is taxable by California state and you need to file California tax return for resident and include all your world-wide income.

Either way you look at it, if you earned money while in California, you need to file and pay state taxes. How much and what form to file, your tax professional will be able to determine.

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Is buying out-of-state tax-free?

Short answer is NO.

Sales tax is applied to ” tangible property”, anything you can see, touch, feel, weight, measure, etc. Californians do not pay sales tax on services.

When a consumer pays tax to a retailer- it’s a sales tax, when consumer pays tax directly to the state, sales tax becomes “use tax“. Both taxes have the same rate, which is 7.5% in California as of January 1,  2013 to December 31, 2016. One should calculate and pay use tax when tangible  items purchased from out-of-state retailers. Use tax has been in effect in California since 1935, but many people are not aware of it.

Your tax professional can help to chose which method to use when reporting use tax .

Did you know you can deduct theft losses?

Your theft loss is deductible if you are itemizing, and a subject to reduce loss by $100, and further to 10% of AGI. If you just missing property it’s not enough for deduction, theft needs to be proved!

In order to prove theft, one have to file a police report and attach it to tax return. Also police report needs to have detailed evidence of a break-in and list any witnesses.

Theft loss is deductible in the year its discovered, but not occurred, unless it all happened in the same year. If insurance is paying back for the lost items, then no deduction allowed. If taxpayer reimbursed only partially for the loss, then difference is deductible. If insurance reimburse taxpayer after theft-loss deduction is taken, taxpayer must add this payment back to the income on the tax return in a year reimbursement was received.

Computer fraud such as bank fraud, credit card theft, the “Nigerian” email scams, cyberextortion and ransomware, reimbursed monetary losses may be deductible as well.

Pokemon Go – augmented reality, medical expenses- real tax deduction

According to The Washington Post “People are really getting into Pokemon Go, a new mobile take on the classic franchise. In fact, they’re maybe getting a little too into it.The game, made by Niantic and the Pokemon Company, was released late on July 6, and allows players to capture Pokemon in real-world locations. It also quickly led to an unexpected side effect: a number of reported Pokemon-related injuries.”

Gaming is great , but lets talk about medical expenses and whats deductible on your tax return. To start you need to itemize and medical expenses are subject to 10% of AGI. So basically if your adjusted gross income is $50,000 and your medical expenses were $7,500 . If you itemizing you can deduct $2,500 ($7,500-10% of $50,000( $5,000-$2,500). What is deductible: (IRS Topic 502 – Medical and Dental Expenses)

• Fees to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and nontraditional medical practitioners
• Payments for acupuncture treatments
• Payments for a center for alcohol or drug addiction
• Payments to participate in a weight-loss program for a specific disease or diseases diagnosed by a physician
• Payments for insulin and payments for drugs that require a prescription
• Payments for false teeth, reading or prescription eyeglasses or contact lenses, hearing aids, crutches, wheelchairs, and for guide dogs for the blind or deaf.
• Payments for transportation primarily for and essential to medical care that qualify as medical expenses, such as payments of the actual fare for a taxi, bus, train, ambulance, or for transportation by personal car, the amount of your actual out-of-pocket expenses such as for gas and oil, or the amount of the standard mileage rate for medical expenses, plus the cost of tolls and parking

If medical expenses paid with a credit card, taxpayer must claim deduction in the year charge occurred, and not when payment made to the card.

If medical care provided in one year, but paid in the next year, taxpayer should claim expenses in the year payment is made, not year serves was provided.

Can I deduct mortgage interest on my second home?

Mortgage interest is deductible on a tax return if you are itemizing. How much is deductible  depends on when  loan was originated,  what was the amount and how proceeds were used.

In most cases, you can deduct all of your home mortgage interest for your primary residence. But what about that  vacation home? Can one deduct mortgage interest on a second home?

Yes, but there are certain conditions that needs to be met:

1.If you have a property that is not your primary residence, and it’s not rented out or hold for resale during a year, this property qualifies as a second home, and mortgage interest might be deductible. Beauty of it, that taxpayer does not need to use a home during a year.

2.If you rent out part of the year, you also must use it during same year. Owner  must use the property more than 10% of days rented   or 14 days, whichever is longer. For example:  if the house is rented for 20 days, 10% more than rented days is 3 day, which is less than 14, so taxpayer needs to use a house for 14 days, in order to be able to get deduction.

3.If you have more than 1 second house, you have to chose which one will be your second home.

Is workers’ compensation taxable?

So you are at work. Working your day away, and unexpected happens: you get injured. You file workers comp (don’t forget to call Victor Sargazy, ESQ), and receive compensation. Do you need to pay tax on this income?

In most cases worker’s compensation payments are not taxable on your tax return, benefits become taxable if person receives disability payment or supplemental social security. When filling tax return don’t forget to bring summary all your payment you receive during a year to your tax professional , so correct amount of taxable income calculated.

Entertainment expenses deductible at 50%, 80% or 100%?

If you had substantial business discussion or went to a convention with a purpose to further your business,  you can deduct 50% of your business related meals and entertainment expenses.

However, there are taxpayers who can deduct 80% and some that are not subject to 50% limit at all.

You can deduct 100% if:

* you are distributing food to a general public in order to promote goodwill in the community

or

* you paid for tickets to a qualified charitable sport event, where main purpose of the event was to benefit charitable organization, all the proceeds went to the charity, and the even uses volunteers to perform substantial amount of work.

You can deduct 80% if:

You are  air transportation workers under FAA regulations, Interstate truck operators and bus drivers under Department of Transportation regulation, railroad employees under Federal Railroad Administration regulation and merchant marines who are under Coast Guard regulation. These taxpayers  can deduct 80% of meal expenses while traveling away from their tax home if the meal falls under Department of Transportation’s “hours of service” limits.

You cannot deduct expenses for entertaining your spouse or  a customer’s spouse. However, if you can prove that you had a clear business purpose that led to some sort of business outcome, than you can deduct those expenses at 50%

Can I deduct my acting classes and headshots?

Ever thought of becoming an actor or even better have you child be a star?!

And here you go: pay for acting classes and camera coaches, taking headshots, getting and paying manager and agent fees. All those expenses are deductible if you are aggressively pursuing acting career.

Regardless of how aggressive you are pursuing your dream of becoming a star, union dues are always deductible, but only if you itemize.

Aspiring actor can deduct costume purchases, unless clothes for the costume can be worn as everyday wear. This type of purchase is not deductible. Don’t forget to keep your receipts.

And no, you cannot deduct tickets to a movie theater or a subscription to Netflix, unless you really did a research and documented in details what was the purpose of watching this specific piece and what did it do for you and your career.

Bottom line what expenses can be deductible depends on how IRS looks at activity and classification of it as a activity for profit or a hobby.

How to decided between entertainment expense and gift?

Generally, if an item can be considered gift or entertainment,  claim it as entertainment.

Packaged food, beverages, flowers, etc you give to a customer to use later, treated as gift expense.

Tickets to the event, that you attended together must be treated as entertainment expense.

However, if you did not go, you have a choice to pick gift or entertainment expense, whichever is more advantageous to you.

When you make your selection remember gift expense is limited to $25 per gift and entertainment expenses deductible at 50%.

Give a call to your tax professional  and he or she will be able to help you make a right choice.

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