Friday, August 31, 2012

Job Search Expenses Can be Tax Deductible


Summertime is the season that often leads to major life decisions, such as buying a home, moving or a job change. If you are looking for a new job that is in the same line of work, you may be able to deduct some of your job hunting expenses on your federal income tax return.
Here are seven things the IRS wants you to know about deducting costs related to your job search:
  1. To qualify for a deduction, your 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.

  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 received 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 resume to prospective employers as long as you are looking for a new job in your present occupation.

  4. If you travel to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area to which you traveled. 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 unrelated to your job search 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 your 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.

  6. You cannot deduct job search expenses if you are looking for a job for the first time.

  7. In order to be deductible, the amount that you spend for job search expenses, combined with other miscellaneous expenses, must exceed a certain threshold. To determine your deduction, use Schedule A, Itemized Deductions. Job search expenses are claimed as a miscellaneous itemized deduction. The amount of your miscellaneous deduction that exceeds two percent of your adjusted gross income is deductible.
For more information about job search expenses, contact The Business Hub www.biznesshub.com or by calling 510-432-2891 or 510-366-2824, and see how we can help you save on taxes.

Links:
  • Schedule A, Itemized Deductions ( PDF)
  • Publication 529, Miscellaneous Deductions ( PDF)

Thursday, August 30, 2012

IRS Announces 2012 Standard Mileage Rates, Most Rates Are the Same as in July


The Internal Revenue Service today issued the 2012 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
  • 55.5 cents per mile for business miles driven
  • 23 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations
The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in Rev. Proc. 2010-51.
Notice 2012-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.
Related Item: IR-2011-104, In 2012, Many Tax Benefits Increase Due to Inflation Adjustments


Wednesday, August 29, 2012



Mortgage Interest and Unmarried Co-Owners

Debt limits applied to per-residence basis, not per-taxpayer basis

Taxpayers can only deduct interest on qualified personal residence debt of $1 million ($500,000 for married filing separately) of acquisition debt plus $100,000 ($50,000 for married filing separately) of home equity debt. 

In a recent Tax Court case, an unmarried couple who jointly owned their home argued that the $1 million and $100,000 limits applied separately to each of them, which would have allowed them together to deduct interest paid on up to $2.2 million of debt.

The Tax Court held that the home mortgage debt limits are applied on a per-residence basis, not on a per-taxpayer basis. The Tax Court relied on the definitions of “acquisition indebtedness” and “home equity indebtedness” in Code §163(h)(3)(B)(i) and §163(h)(3)(C) (i). These definitions indicate the debt must be related to a qualified residence, not to an individual taxpayer. The limits are on the total amount of acquisition or home equity debt of the qualified residence, not the amount that may be claimed by each taxpayer. Thus, the taxpayers, as unmarried co-owners, were collectively limited to a deduction for interest paid on a maximum of $1.1 million debt on the home.

Although this case did not specifically address it, if a taxpayer has more than one qualified residence, the taxpayer’s mortgage interest deduction is still limited to the interest on up to $1 million of acquisition debt and up to $100,000 of home equity debt. Owners of two qualifying residences can’t apply the limits separately to each residence.
Charles J. Sophy, et al. v. Commissioner138 TC No. 8


August Tax Tip

The IRS is helping minimize the time spent on the completion of the Free Application for Federal Student Aid (FAFSA) form by automating access to federal tax returns with the IRS Data Retrieval Tool. This tool provides the opportunity for applicants to automatically transfer the required tax data onto the FAFSA form.

Tuesday, August 28, 2012

BOOKKEEPING TIPS:

Returned checks. When the bank notifies you that it is returning a customer’s check for NSF (not sufficient funds), debit the customer’s account immediately—even if you plan to redeposit the check the same day. For good internal controls, instruct your bank to address all returned checks to someone other than you—possibly the owner or a senior manager. This can protect you if an employee tries to use fictitious checks to cover temporary shortages.

Postdated checks. If a customer gives you postdated checks, treat them as a note receivable. In other words, debit it to Notes Receivable, not to Cash. On the date written on the check, deposit it to your firm’s account, debiting Cash and crediting Notes Receivable.

Caution: Unless you know that a customer is currently (not last month or last year) in strong financial shape, do not accept a postdated check.

Why risk falling behind? 



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