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IRS Tax Tip 2013-36: Home Office Deduction: a Tax Break for Those Who Work from Home

If you use part of your home for your business, you may qualify to deduct expenses for the business use of your home. Here are six facts from the IRS to help you determine if you qualify for the home office deduction.

1. Generally, in order to claim a deduction for a home office, you must use a part of your home exclusively and regularly for business purposes. In addition, the part of your home that you use for business purposes must also be:

• your principal place of business, or

• a place where you meet with patients, clients or customers in the normal course of your business, or

• a separate structure not attached to your home. Examples might include a studio, workshop, garage or barn. In this case, the structure does not have to be your principal place of business or a place where you meet patients, clients or customers.

2. You do not have to meet the exclusive use test if you use part of your home to store inventory or product samples. The exclusive use test also does not apply if you use part of your home as a daycare facility.

3. The home office deduction may include part of certain costs that you paid for having a home. For example, a part of the rent or allowable mortgage interest, real estate taxes and utilities could qualify. The amount you can deduct usually depends on the percentage of the home used for business.

4. The deduction for some expenses is limited if your gross income from the business use of your home is less than your total business expenses.

5. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. Report your deduction on Schedule C, Profit or Loss From Business.

6. If you are an employee, you must meet additional rules to claim the deduction. For example, in addition to the above tests, your business use must also be for your employer’s convenience.

For more information, see Publication 587, Business Use of Your Home. It’s available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

 

Tax Deductions for Unemployed Persons Looking For Work

By Stacie Kitts, CPA

There are so many people looking for work, I agree it’s was a good idea to remind people that there is a tax deduction waiting for taxpayers.  Although – I think some of the restrictions here are totally bogus as it applies to this economy.  I think the restrictions should be lifted. But that’s just my opinion.

Here are seven things the IRS wants you to know about deducting costs related to your job search.

  1. To qualify for a deduction, the expenses must be spent on a job search in your current occupation. You may not deduct expenses you incur while looking for a job in a new occupation. [This restriction irks me. Rather than wasting away on unemployment, any attempt to get a job should be rewarded]
  2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income, up to the amount of your tax benefit in the earlier year.
  3. You can deduct amounts you spend for preparing and mailing copies of your résumé to prospective employers as long as you are looking for a new job in your present occupation.
  4. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
  5. You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one. [In this economy, I think this restriction is stupid also]
  6. You cannot deduct job search expenses if you are looking for a job for the first time. [Okay well maybe I can go along with this one]
  7. The amount of job search expenses that you can claim on your tax return is limited. You can claim the amount that is more than 2 percent of your adjusted gross income.  You figure your deduction on Schedule A. [bogus – these should not be limited – all attempts to find employment – again in this economy – in my opinion should be fully deductible]

For more information about job search expenses, see IRS Publication 529, Miscellaneous Deductions. This publication is available on www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Tax Credits to Help Offset College Costs

Barnard College, 1913 (LOC)

Tax Credits To Help Pay For College

Check out these tax credits to help offset the cost of college – presented below by the IRS from their tax tips series.

  1. American Opportunity Credit  This credit, originally created under the American Recovery and Reinvestment Act, has been extended for an additional two years – 2011 and 2012. The credit can be up to $2,500 per eligible student and is available for the first four years of post secondary education. Forty percent of this credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment. The full credit is generally available to eligible taxpayers whose modified adjusted gross income is below $80,000 ($160,000 for married couples filing a joint return).
  2. Lifetime Learning Credit  In 2011, you may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student, but to claim the credit, your modified adjusted gross income must be below $60,000 ($120,000 if married filing jointly).
  3. Tuition and Fees Deduction  This deduction can reduce the amount of your income subject to tax by up to $4,000 for 2011 even if you do not itemize your deductions. Generally, you can claim the tuition and fees deduction for qualified higher education expenses for an eligible student if your modified adjusted gross income is below $80,000 ($160,000 if married filing jointly).
  4. Student loan interest deduction  Generally, personal interest you pay, other than certain mortgage interest, is not deductible. However, if your modified adjusted gross income is less than $75,000 ($150,000 if filing a joint return), you may be able to deduct interest paid on a student loan used for higher education during the year. It can reduce the amount of your income subject to tax by up to $2,500, even if you don’t itemize deductions.

For each student, you can choose to claim only one of the credits in a single tax year. However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for your sophomore daughter and the Lifetime Learning Credit for your senior son.

You cannot claim the tuition and fees deduction for the same student in the same year that you claim the American Opportunity Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.

Summer Camp and Taxes

By Stacie Kitts, CPA

Pampered Camper

This summer I had the privilege of being included in the first ever Pampered Camper Event sponsored by the Girl Scouts of Orange County.

This grown up girl event organized to raise money for the benefit of girls in Orange County included a catered gourmet meal, wine tasting, a massage, arts and crafts, horseback riding, rock climbing, archery, hiking, boating, swimming and climate controlled cabins.  Undoubtedly one of the greatest weekends ever!!!!!

Now that summer is over, I want to remind taxpayers to tell your tax preparer if you paid for the cost of day camp (sorry, overnight camp isn’t deductible) for your kids.   Below is some helpful information for parents who are working or looking for work and have children under 13.

Pampered Camper

Here are five facts the IRS wants you to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the summer and throughout the rest of the year.

  1. The cost of day camp may count as an expense towards the child and dependent care credit. [check with your tax preparer – there are some nuances related to the type of camp]
  2. Expenses for overnight camps do not qualify.
  3. Whether your childcare provider is a sitter at your home or a daycare facility outside the home, you’ll get some tax benefit if you qualify for the credit.
  4. The credit can be up to 35 percent of your qualifying expenses, depending on your income.
  5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

For more information check out IRS Publication 503, Child and Dependent Care Expenses. This publication is available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
Links:

IRS Publication 503, Child and Dependent Care Expenses
YouTube Videos:

Summer Day Camp ExpensesEnglish  | Spanish | ASL

Ten Tax Tips For Farmers at Tax Time

A dairy farm near Oxford, New York in the Unit...

Image via Wikipedia

Farmers, does your tax preparer know these 10 important tax tips?  No?  Yes?  They should….

If you are in the business of farming, there are a number of tax issues that you should consider before filing your federal tax return. The IRS has compiled a list of 10 things that farmers may want to know before filing their federal tax return.

  1. Crop Insurance Proceeds You must include in income any crop insurance proceeds you receive as the result of crop damage. You generally include them in the year you receive them.
  2. Sales Caused by Weather-Related Condition If you sell more livestock, including poultry, than you normally would in a year because of weather-related conditions, you may be able to choose to postpone reporting the gain from selling the additional animals due to the weather until the next year.
  3. Farm Income Averaging You may be able to average all or some of your current year’s farm income by allocating it to the three prior years. This may lower your current year tax if your current year income from farming is high, and your taxable income from one or more of the three prior years was low. This method does not change your prior year tax, it only uses the prior year information to determine your current year tax.
  4. Deductible Farm Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses.  An ordinary expense is an expense that is common and accepted in the farming business. A necessary expense is one that is appropriate for the business.
  5. Employeesand hired help You can deduct reasonable wages paid for labor hired to perform your farming operations. This would include full-time employees as well as part-time workers.
  6. Items Purchased for Resale You may be able to deduct the cost of livestock and other items purchased for resale in the year of sale. This cost includes freight charges for transporting the livestock to the farm.
  7. Net Operating Losses If your deductible expenses from operating your farm are more than your other income for the year, you may have a net operating loss. If you have a net operating loss this year, you can carry it over to other years and deduct it. You may be able to get a refund of part or all of the income tax you paid for past years, or you may be able to reduce your tax in future years.
  8. Repayment of loans You cannot deduct the repayment of a loan if the loan proceeds are used for personal expenses. However, if you use the proceeds of the loan for your farming business, you can deduct the interest that you pay on the loan.
  9. Fuel and Road Use You may be eligible to claim a credit or refund of federal excise taxes on fuel used on a farm for farming purposes.
  10. Farmers Tax Guide More information about farm income and deductions can be found in IRS Publication 225, Farmer’s Tax Guide which is available at IRS.gov or by calling the IRS at 800-TAX-FORM (800-829-3676).

Links:

Some Tax Payers Will Need to File Their 1040 Later Rather Than Sooner This Coming Filing Season

the taxman!

Image by vj_pdx via Flickr

By Stacie Clifford Kitts, CPA

Heads up for all taxpayers eager to file your 2010 tax return.  The IRS has announced that last weeks changes in the tax law ie the  Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, extended three provisions that will need to be reprogrammed in the IRS’s processing system.  This means that the IRS will not be ready to process some individual returns Form 1040 until mid to late February 2011.

Who is affected:

  • People who itemize deductions on Schedule A
  • People who claim sales tax deduction, higher education deduction, educator expense deduction

Read on for more detailed information regarding your 2011 tax return filing:

WASHINGTON — Following last week’s tax law changes, the Internal Revenue Service announced today the upcoming tax season will start on time for most people, but taxpayers affected by three recently reinstated deductions need to wait until mid- to late February to file their individual tax returns. In addition, taxpayers who itemize deductions on Form 1040 Schedule A will need to wait until mid- to late February to file as well.

The start of the 2011 filing season will begin in January for the majority of taxpayers. However, last week’s changes in the law mean that the IRS will need to reprogram its processing systems for three provisions that were extended in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17.

People claiming any of these three items — involving the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction as well as those taxpayers who itemize deductions on Form 1040 Schedule A — will need to wait to file their tax returns until tax processing systems are ready, which the IRS estimates will be in mid- to late February.

“The majority of taxpayers will be able to fill out their tax returns and file them as they normally do,” said IRS Commissioner Doug Shulman. “We will do everything we can to minimize the impact of recent tax law changes on other taxpayers. The IRS will work through the holidays and into the New Year to get our systems reprogrammed and ensure taxpayers have a smooth tax season.”

The IRS will announce a specific date in the near future when it can start processing tax returns impacted by the late tax law changes. In the interim, people in the affected categories can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes.

The IRS urged taxpayers to use e-file instead of paper tax forms to minimize confusion over the recent tax changes and ensure accurate tax returns.

Taxpayers will need to wait to file if they are within any of the following three categories:

  • Taxpayers claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted Dec. 17, which primarily benefits people living in areas without state and local income taxes and is claimed on Schedule A, Line 5. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.
  • Taxpayers claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students — covering up to $4,000 of tuition and fees paid to a post-secondary institution — is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.
  • Taxpayers claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16.

For those falling into any of these three categories, the delay affects both paper filers and electronic filers.

The IRS emphasized that e-file is the fastest, best way for those affected by the delay to get their refunds. Those who use tax-preparation software can easily download updates from their software provider. The IRS Free File program also will be updated.

As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure a smooth tax season.

Updated information will be posted on IRS.gov. This will include an updated copy of Schedule A as well as updated state and local sales tax tables. Several other forms used by relatively few taxpayers are also affected by the recent changes, and more details are available on IRS.gov.

In addition, the IRS reminds employers about the new withholding tables released Friday for 2011. Employers should implement the 2011 withholding tables as soon as possible, but not later than Jan. 31, 2011. The IRS also reminds employers that Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on IRS.gov before year’s end.

Related Item: Forms Affected By the Extender Provisions

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