Tax Deductions FAQs

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Tax Deductions FAQs

Q When should I choose to itemize my deductions instead of
taking the standard deduction?

When your itemized deductions combined are more than what the standard deduction for your filing status would be. Right now, the standard deductions are as follows:

Q What's the difference between a tax exemption and a tax deduction?

There are two main types of tax breaks, the exemption and the deduction. An exemption is a specific amount that can be subtracted from your taxable income. On the other hand, deductions are specific expenses that the government allows you to subtract from your income therefore reducing the amount of taxes you pay. Deductions are applicable to certain situations.

Q How can I figure out how much a tax deduction really saves me?

Tax deductions save different people different amounts of money. The primary indicator of what a deduction is worth to you is what tax bracket you are in. For example, you may have a $10,000 deduction. If you are in the 15% tax bracket, this would calculate to a $1,500 savings for you. However, if you are in the 28% tax bracket, that same $10,000 deduction would calculate to a $2,800 savings.

Q What is the alternative minimum tax (AMT)?

The alternative minimum tax (AMT) is a separate tax system designed to make sure you pay your fair share of taxes. Only a small percentage of taxpayers are subject to AMT, and most that are are either wealthy or have a lot of deduction and tax shelters. First you calculate you taxes using the regular system, then you use the AMT system. You use the

Q What tax schedule do I use to itemize my deductions?

If you choose to itemize your deduction rather than take the standard deduction, you must use Schedule A, Itemized Deductions. Schedule A is not very long and is broken down into several parts, such as medical expenses, Mortgage interest paid, etc. After some calculations, you arrive at the total amount of itemized deductions you are allowed to claim on your tax return.

Q Can I itemize deductions if I use Form 1040A or 1040EZ?

Unfortunately, the only form you can use to itemize deductions is the most complicated and longest of the three, the Form1040, AKA the "long form."

Q How do I determine what percentage of my car's use can be attributed to business in order to take a tax deduction?

According to the IRS, business use menus the number of miles between two business locations. This means you can count the mileage between your office and a client's office as a business deduction. The commuting miles to and from your home are nondeductible.

Q Do I need to keep mileage records for tax purposes if I have a company car that I am prohibited from driving while off the job?

You do not need to keep auto-related records for IRS use if you drive a company car but can't use it for personal reasons, or use it only to commute.

Q Are auto registration fees deductible?

Drivers in many states can deduct some or all of their registration fees in many states. Check with a tax professional for details. If the following three criteria are met, you may be able to deduct your auto registration fees:

Q Do I have to keep track of my business-related car mileage on a car owned by my employer?

Whether you own a car or your employer does not matter when it comes to having to maintain good records for tax purposes. In addition, even if your employer is intending to take the flat per mile allowance rather than deducting the cars actual operating expenses, accurate records must be maintained.

Q What is the best way to keep records concerning business
use of my car?

If you want to take a tax deduction for the business use of your car, you must keep good records. You can simply jot your mileage down on a notepad. For each trip, you should include the date and time, the number of miles you drove, the person you visited and the purpose of the visit.

Q Can I deduct my business travel expenses?

If the trip you take is purely for pleasure purposes, you may not deduct the expenses as a business expense. However, the IRS will allow you to deduct expenses related to business travel as long as these costs are not extravagant.

Q Can I write off moving expenses if I started a new job this year that required me to move to another city?

You may be able to deduct moving expenses if you make a job-related move from one city to another if the move meets IRS guidelines. In order to take this deduction, you must stay in your new full-time job for at least 39 weeks, your new job is more than 50 miles away from your old home and job and you have relocated within one year of assignment to your new job.

Q What are the rules for deducting business meals and entertainment?

The IRS allows you to deduct 50% for meal and entertainment expenses that are directly related to your business. This means the primary purpose of the event was to discuss or transact business.

Q Are expenses related to career counseling deductible?

The cost of career counseling may be deducted as a miscellaneous deduction if you are actively seeking a job in your current profession. If the new job you seek is outside of your current line of employment, these costs will not be deductible under the law. Similar rules apply to deductions for fees you pay to employment agencies and job-search firms.

Q Can I deduct the cost of clothing I buy for work?

For most people, the answer is no. However, if your job requires that you wear special clothes or uniforms on the job and the clothing is not suitable for everyday wear, you may be able to deduct the cost of these work clothes. People who can usually deduct the cost of clothes or uniforms include police officers, firefighters, letter carriers, nurses, airline pilots and bus drivers.

Q Is it true that workers in certain types of industries can deduct more than 50% of their business-related meals?

Most business-people can deduct no more than 50% of the cost of their business-related meals. But a little-noticed provision in the massive Taxpayer Relief Act of 1997 allows many truck-drivers and airline pilots to deduct up to 80% of their business-related meals. Since the nature of a trucker or pilot's job requires constant travel, Congress decided to provide them with some extra deductions for the meals they eat while working.

Q Can I deduct the cost of subscriptions for business magazines and publications?

You can deduct the cost of subscribing to financial publications, such as Money magazine or the Wall Street Journal, as an investment-related expense. However, you have to be careful when taking the deduction. If you write out a check for a three-year subscription today, you get to deduct one-third of the cost this year, one-third next year, and the final third the following year