Income Tax Talk — Missed Deductions
by:
Annette M. Hall
It's that time of year again, time to tackle your
dreaded tax return. If you are
self-employed, as many homeschoolers are, it's likely you have put off
preparing your taxes, delaying
the inevitable. As a tax consultant for some 25-odd years, I'd like to offer some friendly
and hopefully helpful advice to get you pointed in the right direction.
I know several individuals who simply haven't bothered to file for several years, for various
reasons. For you, I'd like to point out the fact that just because you don't owe the IRS money,
doesn't mean you don't have
money coming back, even if
you did not pay a dime in taxes. Let me explain...
Earned Income Credit
Depending on your individual tax circumstances, you may be entitled to a refund. For
those who are self-employed, do yourself a favor and keep track of your income and
expenses. If you earn less than:
- $43,352 ($48,362 married filing jointly) with three or more qualifying children, or
- $40,363 ($45,373 married filing jointly) with two qualifying children,
- $35,535 ($40,545 married filing jointly) with one qualifying child,
- $13,460 ($18,470 married filing jointly) with no qualifying children
You could be entitled to a refund, even if you are
self-employed and have not
made estimated tax payments. You are required to pay self-employment taxes (SE Tax) if
you are self-employed,
however, in many cases, the SE taxes
you owe are more than offset by your Earned Income Credit (EIC), entitling you to a
handsome refund check.
If you have not filed a return in several years, it's not too late. The IRS will still
honor returns filed for the three previous tax years, which means that until April 15th
you can still file for a refund on your 2008 or 2009 Income Tax Return, in addition to
filing for 2010, without penalty (unless you owe the IRS money).
I know many today are doing their own taxes with Turbo tax
or H&R Block At Home software,
available or so it seems, on every corner during this time of year. Those programs are
more than adequate for a single person with one job, for a family who does not own their
own home and has only W-2 income or others who have a very straight-forward
tax return, taking the
standard deductions.
However, if you are not experienced with the tax code and lingo to some degree, you could
be losing hundreds, if not thousands of dollars in tax credits or refunds,
which could more than make up for the cost of paying an experienced preparer, which if
you itemize, is tax-deductable (subject to the 2% floor on miscellaneous deductions).
Do-It-Yourself
There is an abundance of available informational sources you may tap into, to assist you
in locating ideas on
how to reduce your tax burden.
There are literally thousands of websites, most offer valuable tax savings tips at no
charge. Several national magazinesoffer monthly tips on tax
savings resources. Your local library or bookstore will have hundreds of books on
how to save on your taxes. All you need to make use of these resources is a great deal
of time and some serious motivation.
The problem is how many people want to spend the hours it takes to properly review their own
tax situation? Today's tax programs make it easy as 1-2-3, or so it may seem, but how do you know
what all that tax jargon means? Are you subject to the "Alternative Minimum Tax"?
What exactly does "Earned Income Credit" mean
and how does it work? The rules can get complicated. Getting over the language barrier can
be a formidable task.
I spend a solid two-weeks
preparing our tax return,
going over every deduction and reviewing the present years tax changes. How many people
have that kind of time to spend trying to legally beat the tax collector at his own game?
It's one thing to spend a few hours with a consultant once or twice a year, but it's
something else to make it into a personal crusade or a part-time job.
For the weekend warriors, who are up to the challenge, I've prepared a short list of often
missed deductions. For those who are sure they are paying too much in taxes and are interested
in hiring someone to make sure the job is done right, be sure to read "A Tax Program or a Tax Professional"?
Often Missed Deductions
Moving Expenses
If you moved more than 50 miles in 2010 and took a new job, you may be able to claim
moving expenses and with
gas prices the way they are today, it could net you a tidy sum. While you can't deduct
meals during your move, you can deduct your moving expenses, including: a truck,
storage, actual costs or mileage for fuel expenses, oil, etc... Something else you
may not know is that even if you don't need the credit this year because of having a
lower income than normal, these credits can actually roll-over to next years return.
For more details on deducting moving expenses, download
IRS Publication 521
Employment Search
If you were out of a job last year, as so many Americans are, did you keep track of
all those résumés you mailed? You can deduct amounts you spend for typing,
printing, and mailing copies of a résumé to prospective employers if you
are looking for a new job in your present occupation.
Did you keep track of your mileage? Many taxpayers don't realize that those are
legitimate income tax deductions.
You can deduct certain expenses while looking for a new job in your present occupation,
even if you do not get a new job. However, you cannot deduct these expenses if:
- You are looking for a job in a new field or occupation
- If there was a substantial period of time between the end of your last job and beginning the search for a new one - or
- You are looking for a job for the very first time.
If you travel to an area and, while there, you look for a new job in your present occupation, you may be
able to deduct travel expenses to and from the area. You can 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
in looking for work is important in determining whether the trip is primarily personal
or is primarily to look for a new job. Even if you cannot deduct the travel expenses,
you can deduct the expenses of looking for a new job in your present occupation while
in the area. The standard mileage rate for 2010 is 16.5 cents per mile for moving purposes.
See IRS Publication 463
for more information on travel and car expenses.
Charitable Contributions
Generally, we remember when we donate on a cash basis to a charitable organization
but what about all those non-cash contributions? You can deduct the fair-market
value of items donated to qualifying charities. It's always best to get a receipt,
you still have to assess a value yourself but simply having a receipt in hand will
help insure you remember to take the deduction on your return.
When using your credit card to make contributions to charity, remember that the
deduction is allowed in the year that you made the charge, not when you actually
pay the bill. Also, you may write off certain
out-of-pocket expenses
related to charitable activities, including mileage. Appraisal fees paid to value
property donated to charities may be taken as a miscellaneous deduction subject
to the 2% floor on miscellaneous deductions.
In my next article we'll explore what to look for in a tax preparer and how to know when to
steer clear.
If you have a question regarding the material covered in this
article or an issue you'd like me to address, send your comments and questions
to: Annette M. Hall
Updated April 1, 2011
