Topics covered in tax bulletin articles:
1 Deductions
 |
DID YOU KNOW YOU CAN DEDUCT .....?? |
In
light of the nearly certain increases in both federal and state tax rates,
taking advantage of allowable deductions becomes more important that ever.
This article reviews many of the costs that are deductible as
miscellaneous itemized deductions. A caveat: to use these deductions, you must either be
self-employed to use them as business deductions, or you must have sufficient
mortgage interest or state tax deductions (or both) so that you are itemizing
deductions rather than using the standard deduction. If either of these criteria apply to you, read on.
|
EMPLOYEE
BUSINESS EXPENSES. |
For tax purposes, being an employee is considered as being in a trade or business. Thus an employee may deduct expenses that are normal and necessary for a person in his or her profession. To be normal and necessary does not mean that everyone in a trade or business incurs this particular expense or type of expense; it means that it is an expense which you find necessary to conduct your business. For example, few employees advertize in their own name, but for those who do, the cost of advertising is normal and necessary for carrying on their own business. Some specific deductible employee business deductions are:
|
BUSINESS MEALS AND ENTERTAINMENT.
Employees may deduct 80% of the cost of non-reimbursed business meal
and entertainment expense. There
must be adequate documentation of the time, place, cost and business purpose
of the expense. Since 1986, the
cost of a meal with business associates, which is not specifically
associated with a business deduction is not deductible.
There must be documentation of specific business purpose to the
discussion that precedes, follows, or occurs during the business meal or
entertainment. |
|
EDUCATION EXPENSES. Employees
may deduct as business expenses costs for education that maintains or
improves skills required for employment or that are necessary to meet
employer's requirements, provided that the education does not qualify the
employee for a new trade or business and does not satisfy the employee's
job's minimum educational requirements.
Although the two preceding sentences seem to contradict each other,
they do not. Expenses incurred
in obtaining the education required to qualify for a job are not deductible,
but the once a person has a job, expenses incurred in obtaining education
required for the retention of the job are deductible.
|
Education includes not only instruction in a school or college, or a
formally conducted training program, but also includes the acquisition of
information and knowledge from a tutor. Education may also include informal
self-teaching. A commercial airline
pilot successfully argued that the cost of operating his own small aircraft was
a deductible educational expense because by operating a small plane he was able
to maintain his flying skills.
Education does not need to be strictly tied to your present duties as an
employee. For example, the cost of
learning a second or third language would be deductible, if it were plausible
that you would use that language in your business in the future.
Deductible education expenses include the costs of tuition, books,
supplies, laboratory fees, and similar items.
Where the course of study is out of town, the cost of appropriate
housing, meals and transportation is also deductible.
Local transportation costs incidental to deductible education are also
usually deductible.
|
TRANSPORTATION EXPENSE. Transportation
expenses incurred in connection with an employee's trade or business are
deductible, but employees generally may not deduct the cost of commuting. On
the other hand, travel incurred in a taxpayer's trade or business
corresponding with the taxpayer's daily commute does not make the
transportation costs nondeductible. For
example, a taxpayer whose main job was at a hospital 30 miles from her
residence also had a second job of picking up and delivering x-rays between
a hospital near her residence and the hospital at which she worked. Her
nondeductible commute was only to the hospital near where she lived.
The cost of the additional transportation to her normal place of
business was deductible. In
general, if you make several stops during the day in the course of your
trade or business, only the travel to the first stop is commuting; the cost
of travel to additional stops is deductible. |
There is also a deduction for commuting to temporary or minor
assignments. When an employee has a
temporary assignment at an office different from his or her regular office, then
the cost of commuting to the temporary office, even if it is in the same general
area as the taxpayer's usual place of work, is deductible. For this exception to apply, the job must be temporary (with
a stated deadline) as contrasted with an indefinite or indeterminate assignment.
There is also a limited tools and bulky equipment deduction. The fact
that you must carry tools or bulky equipment (including computers, computer
components, and printers) with you does not make the transportation expense
deductible. However, the additional
expense above that incurred if you did not have carry the tools or bulky
equipment is deductible. You must
be able to prove that the same commuting expenses would not have been incurred
had you not been required to carry the tools. Since many of us have access to
fairly good public transportation in the S.F. Bay area, this deduction would
appear to be potentially useful to many persons who need to carry bulky
equipment from home to the office and back.
Because of the limits on the deduction of depreciation of auto expense,
unless an auto is leased (not purchased), and costs more than $20,000, the
mileage method of calculating the deduction frequently provides as large a
deduction as the actual cost method of computing the deduction for local
transportation, and offers the advantage of much less record keeping and
gathering.
|
OTHER EMPLOYEE EXPENSES. Other deductible employee business expenses
include: |
* The cost of unreimbursed travel in connection with your trade
or business. Unreimbursed travel to
develop business contacts and prospects is included.
* Business
gifts up to the limit of $25 for gifts to any one individual in one year.
* Union dues and dues for other professional organizations;
* Membership fees or dues paid by individuals to a Chamber of
Commerce or to trade associations.
* Club dues (i.e., the City Club, the Decathlon Club) only if
the club is used primarily for business and the expense is directly related to a
trade or business.
* Cost of books, as well as subscriptions to professional and
business newspapers and journals if the deduction is sufficiently related to the
taxpayer's trade or business. For
most of us, the Wall Street Journal would be deductible, but the local daily
newspaper would not be.
* The cost of office supplies, if an employer does not provide
them.
* Payments to an assistant when an employee pays an assistant
to help him or her with a job. For
example, commissions and finder's fees paid by a broker to individuals who
assisted him or her with sales of investments are deductible.
|
INVESTMENT
RELATED EXPENSES. |
Deductible investment-related expenses include the following:
* The cost of the rental of safe-deposit box(es) required to
store securities and records;
* Fees paid to an IRA custodian;
* The cost of books and subscriptions to investment related
newspapers and journals;
* Legal and other fees incurred in the securing of title or
other benefits of investment property;
* Bank trust department trustee or custodian fees (to the
extent allocable to taxable income);
* Investment advisor's or counselor's fees (to the extent
allocable to taxable income);
* The expense of travel incident to investigation of property
that the taxpayer might invest in or has invested in to the extent that such
travel is actually proximal to investment in or management of the property. When
such travel is combined with personal travel, there will need to be a separate
allocation of the costs to each.