Tax Credits & Deductions

2015 Standard Mileage Rates

The Internal Revenue Service issued the 2015 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, 2015, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 57.5 cents per mile for business miles drivenmileage-photo
  • 23 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

Other Helpful Info

2014 Personal Limits/Deductions

  • IRA/Roth Contribution limit   $5,500
  • 401k Maximum employee contribution   $17,500
  • 2014 Personal/Dependency Exemption   $3,950
  • Married Filing Joint Standard Deduction   $12,400
  • Head of Household Standard Deduction   $9,100
  • Single & Married Filing Separately Standard Deduction   $6,200

2014 Estates, Gifts, & Social Security

  • Annual gift, per person   $14,000
  • Estate Exemption Equivalent   $5,340,000
  • FICA Earnings Limit   $117,000
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Make the Most of a Health Savings Account

If you have a health insurance policy with a high deductible, you may be eligible to contribute to a health savings account. An HSA provides a triple tax break: Contributions are tax-deductible (or pretax if made through your employer), the money grows tax-deferred, and you can use it tax-free for medical expenses. HSAYou can contribute up to $3,350 if you have individual coverage or $6,650 if you have family coverage in 2015, plus up to $1,000 if you’re 55 or older. Many banks and brokerage firms offer HSAs, and you can open an account anywhere as long as you have an HSA-eligible health insurance policy. You aren’t required to use the HAS administrator that your insurer or employer has a relationship with, but doing so may streamline the claims-paying process, and it could be the only way to get an employer contribution. Look for HSA administrators by going to HSASearch.com.

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Higher Education Tax Credits

Are you, your spouse or a dependent heading off to college? If so, here’s a quick tip from the IRS: some of the costs you pay for higher education can save you money at tax time. Here are several important facts you should know about education tax credits:

  • American Opportunity Tax Credit.  The AOTC can be up to $2,500 annually for an eligible student. This credit applies for the first four years of higher education. Forty percent of the AOTC is refundable. That means that you may be able to get up to $1,000 of the credit as a refund, even if you don’t owe any taxes.
  • Lifetime Learning Credit.  With the LLC, you may be able to claim a tax credit of up to $2,000 on your federal tax return. There is no limit on the number of years you can claim this credit for an eligible student.
  • One credit per student.  You can claim only one type of education credit per student on your federal tax return each year. If more than one student qualifies for a credit in the same year, you can claim a different credit for each student.  For example, you can claim the AOTC for one student and claim the LLC for the other student.
  • Qualified expenses.  You may include qualified expenses to figure your credit.  This may include amounts you pay for tuition, fees and other related expenses for an eligible student. Refer to IRS.gov for more about the additional rules that apply to each credit.
  • Eligible educational institutions.  Eligible schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify.
  • Form 1098-T.  In most cases, you should receive Form 1098-T, Tuition Statement, from your school. This form reports your qualified expenses to the IRS and to you. You may notice that the amount shown on the form is different than the amount you actually paid. That’s because some of your related costs may not appear on Form 1098-T. For example, the cost of your textbooks may not appear on the form, but you still may be able to claim your textbook costs as part of the credit. Remember, you can only claim an education credit for the qualified expenses that you paid in that same tax year.
  • Nonresident alien.  If you are in the U.S. on an F-1 student visa, you usually file your federal tax return as a nonresident alien. You can’t claim an education credit if you were a nonresident alien for any part of the tax year unless you elect to be treated as a resident alien for federal tax purposes. To learn more about these rules see Publication 519, U.S. Tax Guide for Aliens.
  • Income limits. These credits are subject to income limitations and may be reduced or eliminated, based on your income.

Information from IRS Summertime Tax Tip 2014-23 was used in this posting.

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Deducting Moving Expenses

If you move because of your job, you may be able to deduct the cost of the move on your tax return. You may be able to deduct your costs if you move to start a new job or to work at the same job in a new location. The following is a series of tips about moving expenses and your tax return.

In order to deduct moving expenses, your move must meet three requirements:

1. The move must closely relate to the start of work.  Generally, you can consider moving expenses within one year of the date you start work at a new job location. Additional rules apply to this requirement.

2. Your move must meet the distance test.  Your new main job location must be at least 50 miles farther from your old home than your previous job location. For example, if your old job was three miles from your old home, your new job must be at least 53 miles from your old home.

3. You must meet the time test.  After the move, you must work full-time at your new job for at least 39 weeks the first year. If you’re self-employed, you must meet this test and work full-time for a total of at least 78 weeks during the first two years at the new job site. If your income tax return is due before you’ve met this test, you can still deduct moving expenses if you expect to meet it.

For more information about these rules, see Publication 521, Moving Expenses.

If you can claim this deduction, here are a few more tips from the IRS:

  • Travel.  You can deduct transportation and lodging expenses for yourself and household members while moving from your old home to your new home. You cannot deduct your travel meal costs.
  • Household goods and utilities.  You can deduct the cost of packing, crating and shipping your things. You may be able to include the cost of storing and insuring these items while in transit. You can deduct the cost of connecting or disconnecting utilities.
  • Nondeductible expenses.  You cannot deduct as moving expenses any part of the purchase price of your new home, the cost of selling a home or the cost of entering into or breaking a lease. Again, Publication 521 contains additional helpful information.
  • Reimbursed expenses.  If your employer later pays you for the cost of a move that you deducted on your tax return, you may need to include the payment as income. You report any taxable amount on your tax return in the year you get the payment.
  • Address Change.  When you move, be sure to update your address with the IRS and the U.S. Post Office. To notify the IRS file Form 8822, Change of Address.

Information from IRS Summertime Tax Tip 2014-20 was used in this posting.

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Deducting Professional Education Expenses

A frequently litigated issue is whether expenses incurred by an individual to pursue a professional degree are deductible as a business expense under Code Sec. 162. Resolution of this issue depends upon a number of factors such as:

  1. Whether the education maintains skills required by the individual in his or her trade or business
  2. Whether the education satisfies the express requirements of the individual’s employers
  3. Whether the education satisfies requirements of law or regulations pertaining to the individual’s trade or business
  4. Whether the education was required so the taxpayer would satisfy the minimum educational requirements for qualification in a trade or business

An individual’s education expenses are deductible as ordinary and necessary trade or business expenses if the education satisfies either of the two following tests set forth in Reg. § 1.162-5(a):

  1. The education maintains or improves skills required by the individual in his or her trade or business.
  2. The education meets the express requirements of the individual’s employer or the requirements of applicable law or regulations imposed as a condition to the individual’s retention of an established employment relationship, status or rate of compensation.

Nondeductible education expenses are those incurred by an individual “for education which is required of him or her in order to satisfy the minimum educational requirements for qualification in his or her employment or other trade or business” [Reg. § 1.162-5(b)(2)]. The minimum education necessary to qualify for a position or other trade or business must be determined from a consideration of such factors as:

  1. The requirements of the employer
  2. Applicable law and regulations
  3. The standards of the profession, trade or business involved

The fact that an individual is already performing service in an employment status does not establish that he or she has met the minimum educational requirements for qualification in that employment. Once an individual has satisfied the minimum educational requirements for qualification in his or her employment or other trade or business (as in effect when he or she enters the employment or trade or business), he or she shall be treated as continuing to meet those requirements even though they may change [Reg. § 1.162-5(b)(2)(i)].

Qualification for New Trade or Business

An individual may not deduct education expenses that are part of a program of study that will lead to qualifying him or her in a new trade or business. In the case of an employee, a change of duties does not constitute a new trade or business if the new duties involve the same general type of work that is involved in the individual’s present employment.

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Tips on Travel While Giving to Charity

Do you plan to donate your services to charity this summer? Will you travel as part of the service? If so, some travel expenses may help lower your taxes when you file your tax return next year. Here are five tax tips you should know if you travel while giving your services to charity.

1. You can’t deduct the value of your services that you give to charity. But you may be able to deduct some out-of-pocket costs you pay to give your services. This can include the cost of travel. All out-of pocket costs must be:

• Unreimbursed,

• Directly connected with the services,

• Expenses you had only because of the services you gave, and

• Not personal, living or family expenses.

2. Your volunteer work must be for a qualified charity. Most groups other than churches and governments must apply to the IRS to become qualified. Ask the group about its IRS status before you donate. You can also use the Select Check tool on IRS.gov to check the group’s status.

3. Some types of travel do not qualify for a tax deduction. For example, you can’t deduct your costs if a significant part of the trip involves recreation or a vacation. For more on these rules see Publication 526, Charitable Contributions.

4. You can deduct your travel expenses if your work is real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.

5. Deductible travel expenses may include:

• Air, rail and bus transportation,

• Car expenses,

• Lodging costs,

• The cost of meals, and

• Taxi or other transportation costs between the airport or station and your hotel.

For more see Publication 526, Charitable Contributions. You can get it on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

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Casualty Losses

Taxpayers who experience certain types of major personal casualties may be able to recoup some of their losses through tax savings.

An itemized deduction may be available for personal losses from fires, storms, car accidents, and similar “sudden, unexpected, or unusual” events. Losses from theft are included as well. Individuals who don’t itemize deductions can’t deduct their casualty losses.

The deduction is only available for physical damage or loss to your property. Thus, if you are in an automobile accident and pay for the damage done to the other driver’s car, the cost does not qualify. Similarly, if you’re injured in the accident, your medical bills do not qualify as part of your casualty loss (although they may result in a medical expense deduction).

Figuring the loss. The loss is not always the decline in economic value you suffer. It’s measured as the lesser of (a) the drop in value and (b) your basis in the property (usually, your cost).

Example: Dan bought an antique vase for $500 which rose in value to $3,000. It was damaged in a fire, after which it was worth only $1,000. For tax purposes, the casualty loss is only $500, even though the economic loss was $2,000 ($3,000 − $1,000). The lesser of cost ($500) and drop in value ($2,000) is used.

It may be difficult to establish these elements. If you have your original receipt, you can show your cost. In some cases, appraisals will be needed to establish pre- and post-loss values. Sometimes, repair costs can be used as a measure of drop in value.

Limitations on the deduction. The loss figure must be reduced by three amounts. In many cases, these reductions result in no deduction being available.

First, to the extent you are insured, you must reduce your loss by your reimbursement. However, you shouldn’t fail to file an insurance claim in the hope of increasing your deduction. If you do, IRS will reduce your loss by the insurance reimbursement you could have received.

Next, for each casualty, you must reduce your loss amount by $100. Note that this reduction is per event, not per item damaged. Thus, if a storm knocks over a tree that damages your car and home, you have three property losses (tree, car, house) and only one reduction.

Third, after combining all your losses under the above guidelines, you must reduce them by 10% of adjusted gross income (AGI). Only the loss amount above this “floor” can be deducted.

This final limitation is often the one that wipes out the deduction. For example, if your AGI is $75,000, your losses (determined as described above) are only deductible to the extent they exceed $7,500 (10% of $75,000).

When to take the deduction. Except for “disaster losses,” the deduction is taken in the year the loss is incurred (or, for a theft, the year it’s discovered). If your loss is from a disaster in a federally declared disaster area, you can elect to take your loss in the year before it was incurred. This may increase the tax savings from the loss and may entitle you to a refund earlier than if you waited to file the loss year’s return.

Casualty gains. Also bear in mind that not every casualty results in a loss for tax purposes. There is such a thing as a “casualty gain.” For instance, suppose a taxpayer buys a house for $100,000 (his tax basis) and it increases in value over the years. If it’s destroyed and the taxpayer receives $300,000 in insurance, he will have a gain of $200,000 since his basis was only $100,000. In many cases, tax on a casualty gain can be avoided or deferred.

For additional information on these issues, please contact one of our tax professionals.

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Home Office Deduction for Self-Employed Taxpayer

Home office expense deduction for self-employed taxpayer

If you’re self-employed and work out of an office in your home, and if you satisfy the strict rules that govern those deductions (discussed below), you will be entitled to favorable “home office” deductions—that is, above-the-line business expense deductions for the following:

  • the “direct expenses” of the home office—e.g., the costs of painting or repairing the home office, depreciation deductions for furniture and fixtures used in the home office, etc.; and
  • the “indirect” expenses of maintaining the home office—e.g., the properly allocable share of utility costs, depreciation, insurance, etc., for your home, as well as an allocable share of mortgage interest, real estate taxes, and casualty losses.

In addition, if your home office is your “principal place of business” under the rules discussed below, the costs of travelling between your home office and other work locations in that business are deductible transportation expenses, rather than nondeductible commuting costs. And you may also deduct the cost of computers and related equipment that you use in the home office, without being subject to the “listed property” restrictions that would otherwise apply.

Tests for home office deductions. You may deduct your home office expenses on tax Form 8829 if you meet any of the three tests described below: the principal place of business test, the place for meeting patients, clients or customers test, or the separate structure test. You may also deduct the expenses of certain storage space if you qualify under the rules described further below.

1. Principal place of business. You’re entitled to home office deductions if you use your home office, exclusively and on a regular basis, as your principal place of business. (What “exclusively and on a regular basis” means is not entirely self-evident. We can help you figure out whether your home office satisfies this make-or-break requirement.) Your home office is your principal place of business if it satisfies either a “management or administrative activities” test, or a “relative importance” test. You satisfy the management or administrative activities test if you use your home office for administrative or management activities of your business, and if you meet certain other requirements. You meet the relative importance test if your home office is the most important place where you conduct your business, in comparison with all the other locations where you conduct that business.

2. Home office used for meeting patients, clients, or customers. You’re entitled to home office deductions if you use your home office, exclusively and on a regular basis, to meet or deal with patients, clients, or customers. The patients, clients or customers must be physically present in the home office.

3. Separate structures. You’re entitled to home office deductions for a home office, used exclusively and on a regular basis for business, that’s located in a separate unattached structure on the same property as your home—for example, an unattached garage, artist’s studio, workshop, or office building.

4. Space for storing inventory or product samples. If you’re in the business of selling products at retail or wholesale, and if your home is your sole fixed business location, you can deduct home expenses allocable to space that you use regularly (but not necessarily exclusively) to store inventory or product samples.

Amount limitations on home office deductions. The amount of your home office deductions is subject to limitations based on the income attributable to your use of the home office, your residence-based deductions that aren’t dependent on use of your home for business (e.g., mortgage interest and real estate taxes), and your business deductions that aren’t attributable to your use of the home office. But any home office expenses that can’t be deducted because of these limitations may be carried over and deducted in later years. We can help you figure out how these limitations affect your home office deductions.

Sales of homes with home offices. If you sell—at a profit—a home that contains, or contained, a home office, the otherwise available $250,000/$500,000 exclusion for gain on the sale of a principal residence won’t apply to the portion of your profit equal to the amount of depreciation you claimed on the home office. In addition, the exclusion won’t apply to the portion of your profit allocable to a home office that’s separate from the dwelling unit or to any gain allocable to a period of nonqualified use (i.e., a period that the residence is not used as the principal residence of the taxpayer or his spouse or former spouse) after Dec. 31, 2008. Otherwise, the home office won’t affect your eligibility for the exclusion.

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Substantiating Charitable Donations by individuals

General rules. For a contribution of cash, check, or other monetary gift, regardless of amount, you must maintain a bank record or a written communication from the donee organization showing its name, plus the date and amount of the contribution. Any other type of written record, such as a log of charitable donations, is insufficient.

For a contribution of property other than money, you generally must maintain a receipt from the donee organization that shows the organization’s name, the date and location of the contribution, and a detailed description (but not the value) of the property. If circumstances make obtaining a receipt impracticable, you must maintain a reliable written record of the contribution. The information required in such a record depends on factors such as the type and value of property contributed.

If the charitable donation is worth $250 or more, stricter substantiation requirements apply. No charitable deduction is allowed for any contribution of $250 or more unless you substantiate the contribution with a written receipt from the donee organization. You must have the receipt in hand when you file your return (or by the due date, if earlier) or you won’t be able to claim the deduction. If you make separate contributions of less than $250, you won’t be subject to the written receipt requirement, even if the sum of the contributions to the same charity total $250 or more in a year.

The receipt must set forth the amount of cash and a description (but not the value) of any property other than cash contributed. It must also state whether the donee provided any goods or services in return for the contribution, and if so, must give a good faith estimate of the value of the goods or services.

If you received only “intangible religious benefits,” such as attending religious services, in return for your contribution, the receipt must say so. This type of benefit is considered to have no commercial value and so doesn’t reduce the charitable deduction available.

In general, if the total charitable deduction you claim for non-cash property is more than $500, you must attach a completed Form 8283 (Noncash Charitable Contributions) to your return or the deduction is not allowed.

For donated property with a value of more than $5,000, you are generally required to obtain a qualified appraisal and to attach an appraisal summary to the tax return. However, a qualified appraisal isn’t required for publicly-traded securities for which market quotations are readily available. A partially completed appraisal summary and the maintenance of certain records are required for (1) nonpublicly-traded stock for which claimed deduction is greater than $5,000 and no more than $10,000, and (2) certain publicly-traded securities for which market quotations are not readily available.

Recordkeeping for contributions for which you receive goods or services. If you receive goods or services, such as a dinner or theater tickets, in return for your contribution, your deduction is limited to the excess of what you gave over the value of what you received. For example, if you gave $100 and in return received a dinner worth $30, you can deduct $70. But your charitable donation is fully deductible if:

  • you received free, unordered items from the charity that cost no more than $10.40 in 2014 ($10.20 in 2013) in total;
  • you gave at least $52 in 2014 ($51 in 2013) and received only token items (bookmarks, key chains, calendars, etc.) that bear the charity’s name or logo and cost no more than $10.40 in 2014 ($10.20 in 2013) in total; or
  • the benefits that you received are worth no more than 2% of your contribution and no more than $104 in 2014 ($102 in 2013).

If you made a charitable donation of more than $75 for which you received goods or services, the charity must give you a written statement, either when it asks for the donation or when it receives it, that tells you the value of those goods or services. Be sure to keep these statements.

See our non-cash contributions guide

Cash contribution made through payroll deductions. You can substantiate a contribution that you make by withholding from your wages with a pay stub, Form W-2, or other document from your employer that shows the amount withheld for payment to a charity. You can substantiate a single contribution of $250 or more with a pledge card or other document prepared by the charity that includes a statement that it doesn’t provide goods or services in return for contributions made by payroll deduction.

The deduction from each wage payment of wages is treated as a separate contribution for purposes of the $250 threshold.

Substantiating out-of-pocket costs. Although you can’t deduct the value of services you perform for a charitable organization, some deductions are permitted for out-of-pocket costs you incur while performing the services. You should keep track of your expenses, the services you performed and when you performed them, and the organization for which you performed the services. Keep receipts, canceled checks, and other reliable written records relating to the services and expenses.

As discussed above, a written receipt is required for contributions of $250 or more. This presents a problem for out-of-pocket expenses incurred in the course of providing charitable services, since the charity doesn’t know how much those expenses were. However, you can satisfy the written receipt requirement if you have adequate records to substantiate the amount of your expenditures, and get a statement from the charity that contains a description of the services you provided, the date the services were provided, a statement of whether the organization provided any goods or services in return, and a description and good-faith estimate of the value of those goods or services.

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