How to Use the Unreimbursed Employee Expense

A very commonly missed deduction is the unreimbursed employee business expense.  You can deduct anything that is required by your job that you personally have to pay for and don’t get reimbursed for.   There are more things in this category than you might think that could be deductible.  The most common are transportation, travel, and meals and entertainment.  Here are a few others you might not know about:

1.     Business use of your home if it is required by your employer.

2.     Certain educational expenses to improve your existing profession.

3.     Legal fees related to your job.

4.     Damages paid to a former employer for breach of an employee contract.

One thing that is really important to know about unreimbursed employee business expenses are that they are limited to over 2% of your income. For example, if you earned $50,000 then 2% of your income would be $1000.  That means the first $1000 of your unreimbursed employee business expense is not deductible. So if you spend $1500 in this situation, $500 would be deductible. 

Sometimes people get really close to the 2% limit but they aren’t quite there.  Well, there is not need to give up because there are some other things you can add to the 2% limitation that aren’t business related.  So if you don’t think you have enough business expense to count, you may have some of the following expenses that will still give you a deduction: 

1.     Legal fees related to producing or collecting taxable income.

2.     Legal fees related to doing or keeping your job.

3.     Legal fees related to divorce as long as the bill specifies the amount.

4.     Cost of managing and maintaining income producing investments including investment fees, custodial fees, clerical help, office rent, and any other expenses.

5.     Appraisal fees for determining a casualty loss or the value of a charitable contribution.

6.     Safety deposit box.

7.     Tax preparation and tax advice fees.

We can’t cover everything in with unreimbursed employee expenses in this post because the unreimbursed deduction can be pretty confusing.  Check out www.avoidbeingaudited.com to learn a more about it!

Deducting Losses on Your Taxes

This week I am going to go over an itemized deduction category that is commonly missed on tax returns, casualty and theft losses.  If you have property that is destroyed or stolen you can deduct a portion of the loss.  Most people who are in the middle of a disaster don’t always think about the fact that it might be tax deductible.  As with most deductions there are some limits.  The loss you can deduct will be the amount you lost after any reimbursement from insurance.  The loss has to be over $100, and it is limited to over 10% of your adjusted gross income. 

There are two types of losses you can deduct.  In this post we are only going to cover casualty loss, which is a loss of property from fire, storm, shipwreck, or other casualty.  A casualty caused by things such as drywall rot and black mold are also allowed.  Usually a casualty loss is covered by insurance, so by the time you get reimbursed, your deductible is often not more than the 10% of your income limitation.  But, if you have a high deductible or no insurance you may qualify for the deduction. 

Let me give you an example of this type of loss using a flood that occurred few years ago in St. George, UT.  The St. George River runs through St. George.  Most people wouldn’t even call it a river because for over 90 years it was not much more than a trickle.  Because there was not much water in the river for so long, people began to build houses closer and closer to the river.  Also, insurance and mortgage companies did not require flood insurance because they never thought it would be a problem.  Several years ago St. George got a tremendous amount of rain, way more than normal and more than they had received in years.  This caused the St. George River to dramatically increase in volume.  Hundreds of people had to evacuate their homes.  Many homes received thousands of dollars in flood damage, and tragically, some houses actually completely washed away.  Because no one carried flood insurance, none of the damages were covered.  Eventually, there was some government assistance.  But the out of pocket expense that these home owners experienced would qualify them for the casualty loss deduction.  

When you experience a casualty loss you can take the deduction the year you experience the loss or you can actually go back and amend the previous year’s tax return, take the deduction, and get a refund.  For example, if you experienced a flood loss in 2010 you could claim the casualty loss on the 2010 tax return or you can amend your 2009 return, take the loss and get a refund for that year.

As I  said earlier, there is also a theft loss you can claim as well.  Check out our MP3 #8, “ItemizedDeductions and Gambling Winnings” on www.avoidbeingaudited.com to learn more about the property loss deductions.

Deducting Mileage on Your Taxes

This week I would like to talk about a common but valuable business tax deduction, vehicle mileage. When you deduct your vehicle mileage, you keep track of your mileage and then multiply it by the standard mileage rate.  You then take that amount and deduct it on your taxes.  For example, in 2010, the mileage rate was 50 cents per mile.  So if you drove 20,000 miles in 2010 you would have been able to deduct $10,000. 

If you choose to keep track of mileage, you will need some sort of way to record the mileage.  The most common method is to use a mileage book that can be purchased at any office supply store.  In it, you find a place for the date, purpose of the trip, and beginning and ending miles.  This is the best way to track miles and the most accepted by the IRS.  However, in the real world it is not always practical and almost never kept up.  We get in such a hurry and don’t take time to write it all down.  Another commonly used method is a small calendar.  Many people write down where they went and the total miles for the day.  There are also computer programs and phone apps that you can purchase as well.  For example, the newer version of QuickBooks has a section to record your miles. 

If you have certain places you go all the time, it is easy to record those miles and it is appropriate to keep track of when you go there.  For example, some years back I owned a sandwich shop.  There were certain places that I would go every day.  I would go to the bakery to pick up rolls; I picked up the produce; and I had to go to the bank to make the previous day’s deposit.  One day I clocked the miles and recoded it in the front of a mileage book.  Every day after that, I simply recorded the total miles.  If I had to make extra trips I would just add them to the book.  This is a perfectly acceptable way to track miles. 

However, you choose to record your miles the important thing is to be consistent and accurate.  If you have more than one vehicle that you use, you will need to record the miles for each vehicle separately.  If you have a vehicle that is used exclusively for business, in other words you do not use if for personal activities, then you can record the mileage at the beginning of the year and then again at the end of the year.  It must be used only for business though.

I hope this helps you know how to track and deduct your mileage.  There are a few more options when it comes to tracking mileage.  Check out www.avoidbeingaudited.com to learn more about vehicle expense as well as other tax saving deductions.

How to Deduct Charitable Property Donations

This week I want to talk about charitable donations.  This is a great deduction, and I hope this explanation will help you as you are filling out your taxes this year.  There are three different deductible ways you can donate to charity.  This post is going to focus on donating property. 

Property is something physical you donate such as clothing, toys, household goods, a car, art work or even real estate. If you donate more than $500 of property, you must report the name and address of the organization, what you donated, when you donated it, how and when you acquired the property, what you paid for it, what the fair market value is and how you determined the value.   It sounds like a hassle but for most people it is very simple.  Most people go through their house a couple of times a year and get rid of the things they don’t use anymore.  They may end up with a garbage bag of clothing and toys or a truck load of things.  Then they take them to the local Goodwill or Salvation Army type store.   When you get to the drop off place there is usually someone who you can get a receipt from.  Often the receipt is blank and you fill in the date, what kinds of things you donated and the approximate value.  There are books and online websites that can tell you what a men’s dress shirt in good condition is worth and if you want to be thorough you can list each item out and look up the value.  Or you can write on the receipt clothing and estimate the value.  A good way is to consider what you might get for the items if you had a garage sale.  The same goes for furniture, appliances, electronic equipment, toys, etc.  This covers when and what you donated and the value.  That leaves how and when you obtained the property and how much you paid for it.   Most of this kind of property is purchase over the years and no one keeps track of everything they have purchased.  Realizing this, the IRS allows you to put the word “various” in the date acquired box.  What you paid for it is another tricky question.  But an educated guess will work for this as well. 

Donating anything valued over $5000 such as real estate or artwork requires a little more work.  For these types of donation you do need to be very accurate and you need to obtain an appraisal to determine the value.  If you are thinking of donating a house or art piece or other collectible item, consult your tax advisor to make sure you have everything done correctly. 

There are some things you cannot deduct even though it may be an act of charity.  They are:

1.     Political contributions

2.     Dues, fees, or bills paid to country clubs, lodges, fraternal orders, or similar organizations.

3.     The value of your time or services.

4.     The value of blood given to a blood bank.

5.     Gifts to individuals or groups that are run for personal profit.

There is a lot more to know about the charitable donations deduction.  I’ve really just covered some of the basics.  To learn more about charitable donations as well as other tax deductions, check out this great MP3, “Itemized Deductions and Gambling Winnings” at www.avoidbeingaudited.com.