It’s back to school time! As everyone is busy getting ready to head to class, I want to remind the teachers out there that they have a special educator expense deduction.
Eligible educators can deduct up to $250 of any unreimbursed expenses paid for books, supplies, computer equipment, and materials used in the classroom on their personal tax return. To be eligible educators must be a kindergarten through twelfth-grade teacher, instructor, counselor, principal, or aid, and work at least 900 hours in the school year.
Currently, this deduction is only good for 2013. It expired last December and as of today, has not been renewed for 2014 or later. Hopefully, Congress will extend this.
When you purchase big ticket items such as computers, furniture, and equipment these are called capital expenditures. Usually these items last more than one year so we allocate the cost of them across the years of their use. This process is known as depreciation.
There are special rules for tax depreciation. If you know these rules, you can effectively expense significant purchases all in one year, which can be an effective tax strategy. For 2014, this is accomplished by taking advantage of Section 179 deductions.
Section 179 has a number of rules that must be followed to take advantage of it. It can only be used on certain purchased items such as machinery, equipment, furniture, fixtures, and signs. It cannot be taken on buildings, their structural components, or land. The items must be purchased for use in business, and if they are used for both business and personal they must be at least 50% business use to qualify. Finally, there is a limit on the deduction currently in place for 2014 of $25,000.
If you use your car for your business your CPA has probably told you to track your mileage. The reason is that there are two way to calculate the auto related costs for your car- actual expenses and standard mileage rate- and both rely on knowing the number of business miles you drove for the year. The great thing here is the IRS lets you chose the method that leads to a greater deduction.
You can keep track of and deduct the costs for actual auto expenses. These expenses would include gas, oil, repairs, tires, insurance, registration fees, licenses, and lease payments. If you use your car for anything personal your deduction is reduced. The way to calculate your business use is to track your business and total miles for the year. For example, if you drove 10,000 for business and 15,000 total, your business use percent would be 10,000 / 15,000 = 66.67% and you would only be allowed to deduct 66.67% of all of your auto expenses.
Standard Mileage Rate
For 2014 the standard mileage rate for business is 56 cents per mile. To determine your auto expenses using the standard mileage rate you multiply the rate times the number of business miles driven. For example if you drove 10,000 miles for the year your auto expense deduction would be 0.56 x 10,000 = $5,600.
Have trouble keeping track of your driving? There are aps you can use to make it easier. Check out Triplog that tracks your rides using GPS.
It is almost summer and many people will be thinking about traveling. If you plan it right you might even be able to deduct a good part of your trip.
Travel Primarily For Business
The IRS says that travel primarily for business is fully deductible. If you take a trip that is primarily for business and while you are there you extend your stay for a vacation or take a personal side trip you can still deduct the business related travel expenses. Personal trips are not deductible, but you can deduct any expenses while at your destination that directly relate to your business.
How do you figure out if a trip is primarily business or pleasure? Generally this is determined by the amount of time you spend on business vs. personal activities. If more time is spent on business activities your trip is primarily for business purposes.
There are a multitude of expenses that qualify as travel expenses. Transportation, hotel/lodging costs, car expenses (gas, oil, repairs, etc.), taxis, tips, and telecommunication fees are all examples of deductible expenses. Meals and entertainment expenses, however, are subject to a 50% limitation.
Keep in mind that if your spouse or children travel with you, only your portion of the travel expenses are deductible. Even if other family members occasionally assist you in business, unless their presence is necessary for you to conduct business, their travel will not be deductible.
The cost of high education keeps rising. If you, or a dependent, are in college make sure you take advantage of the tax breaks you might be eligible for. The neat thing here is that you are allowed to take the credit or deduction with the best tax benefit for you. So hand your CPA that 1098-T tuition statement and make sure he or she chooses the right one for your situation!
American Opportunities Credit (AOTC)
The AOTC (formerly the Hope Credit) is available for the first four years of college when a student is pursing a degree. Eligible students can get up to $2,500 annually. To be eligible the student must be enrolled at least half time, have not claimed the AOTC or the Hope Credit for more than four years, and not have a felony drug conviction.
The bad news- the AOTC might be limited depending on your income. If your income is over $90,000 for single or $180,000 for married filing jointly you cannot claim the credit.
Lifetime Learning Credit (LLC)
The LLC is available for an unlimited number of years for undergraduate, graduate and professional degree courses. The credit is worth up to $2,000 per tax return. Claim the LLC if the student is still in school after the AOTC has run out.
The bad news- the LLC might be limited depending on your income. If your income is over $62,000 for single or $124,000 for married filing jointly you cannot claim the credit.
Tuition and Fees Deduction
The tuition and fees deduction works a little differently than the AOTC and LLC. The deduction reduces your income by up to $4,000 without requiring you to itemize your deductions. This can be helpful if you are not eligible for the tax credits above.
The bad news- the deduction might be limited depending on your income. If your income is over $80,000 for single or $160,000 for married filing jointly you cannot claim the credit. Married filing separately filers cannot claim the deduction.
There is a simplified home office deduction new for the 2013. This is a great thing for those work-at-home types. To calculate the deduction you take the square footage of the home office and multiply it by $5 per square foot, with a maximum deduction of $1,500. If you use the simplified method you don’t even need to file that extra form anymore- it goes right on the Schedule C, line 30 (see it here).
Here’s the catch- in some cases the traditional method of calculating the home office deduction will result in a bigger deduction. This could happen if you have a lot of direct expenses, such as paying for repairs and maintenance specifically to your home office. That means that you might still want to go through the whole long, complex calculation anyway. Check with your CPA to see what is your best bet.
With the economy as it is these days people might find themselves moving to find work. It is possible for these expenses to be tax deductible. Here is a guide as to how.
A Case of Two Tests
There are two tests that determine if your moving expenses are deductible- distance and time.
The distance test – your new work must be at least 50 miles father from your old home than your old job was from your old home; OR if you have no previous workplace or have been out of work or working part-time for a substantial amount of time your new job must be at least 50 miles from your old home.
The time test – Employees must work full-time for at least 39 weeks during the first 12 months immediately following your relocation. You do not need to work for the same employer for all 39 weeks and the weeks do not need to be in a row. Self-employed people must work full time at least 39 weeks during the first 12 months and a total of at least 78 weeks during the first 24 months immediate following your relocation.
You also need to make sure that your move is within 1 year from the date you first report to work for the new job. So if you move to a new area hoping to find work, hope you find it before 1 year passes!
Are We There Yet?
Haven’t met the time test by the time you need to file your return? You can still take the deduction for the tax year in which you moved if you think you will satisfy the time test during the following tax year. If you don’t take the moving deduction for the tax year in which you moved and meet the time test during the following tax year, you can go back an amend your tax return to take the deduction. You must take the deduction on the tax return of the same year in which you moved.
What if you take the deduction for the tax year in which you move but then don’t end up meeting the time test? You have two options. Either take the amount of the deduction as “other income” the following tax year or amend the tax return on which you claimed the deduction to remove it.
What Moving Expenses Can Be Deducted?
You can deduction the cost of moving your household goods and personal effects and travel including lodging. Some expenses might include:
Costs of connecting or disconnecting utilities.
Cost of shipping your car and pets.
Costs to store and insure your stuff within any period of 30 consecutive days after the day your things are moved from your former home and before they reach your new home.
There are many items that CANNOT be deducted, including the costs of meals while moving. You also CANNOT take a deduction for any expense that was reimbursed by your employer.
Moving expenses are deducted by filing Form 3903. You can find a copy of the form here. The deductible expenses are reported on Form 1040 (line 26 on 2011) and a copy of Form 3903 is filed with your return.