Money Management Tips for Hoosiers - Putting Miscellaneous Tax Deductions to Work
Indianapolis, Indiana (PRWEB) April 08, 2014 -- Most people know they can deduct items such as charitable donations, mortgage interest and property taxes. But they may not be aware of a long list of other deductions that fall into the “miscellaneous” category. Taxpayers who fail to take these deductions pass up the opportunity to make significant reductions in their tax bill, according to the Indiana CPA Society. Here’s an overview of what you need to know.
Calculating Your AGI
To claim some deductions, you must have expenses that add up to more than 2% of your adjusted gross income (AGI). How can you determine if your deductions qualify? First, add up your total income for the year. Then, subtract the adjustments to your income, also known as “above the line” deductions. These adjustments typically include deductions for educator expenses, moving expenses, student loan interest and tuition payments, alimony payments, IRA contributions, and several others. Let’s say that what’s left—your AGI—adds up to $50,000. Two percent of $50,000 is $1,000. So, after you subtract $1,000 from the total amount of certain miscellaneous expenses, you can deduct the rest. You can refer to your prior year federal income tax return to get a quick estimate of your current year AGI.
Using the 2% Limit
Which expenses are subject to the 2% limit? They include job-related expenses that your employer does not reimburse, such as travel, entertainment and gifts associated with your work or license or legal fees or educational costs you incur. Any qualified costs you incur for a home office fall in this category, as well as depreciation on a computer your employer requires you to use in your work. Uniforms, work clothes not suitable for everyday use, and tools you need for your job would also fall into this category, as would union dues. When you look for a job in the same field, your related expenses would be subject to the 2% limit. Deductions for tax preparation fees and several other expenses are also subject to the 2% limit.
Other Miscellaneous Deducations
A lower income may help you qualify for a variety of programs, including the federal Earned Income Tax Credit (and similar state and local credits available in 22 states, the District of Columbia, New York City, and Montgomery County, Maryland), which can lower your taxes or even provide a refund, depending on your income level and the number of children you have. Other credits that may reduce your federal tax outlay include the Child Tax Credit and the Child and Dependent Care Credit. Your CPA can offer advice on the tax and other benefits that can improve your financial outlook while you're looking for work.
Other Commonly Overlooked Deductions
Those are a few of the miscellaneous deductions that many taxpayers fail to claim, but there are other valuable deductions and credits that taxpayers overlook every year. They include deductions for state and local income tax, medical and dental care expenses, the child and dependent care credit, mortgage refinancing costs and self-employment expenses. Your CPA can determine whether you qualify for these deductions, including the limits that apply in some cases.
Learn About Self-Employment Taxation
There's good and bad tax news for people who begin consulting or set up their own business when they find themselves out of work. You should be able to deduct many of the ordinary and necessary expenses related to starting up and running a new business, including costs associated with a home office or the business use of your car. But, since you won't have an employer withholding taxes for you, you will have to make quarterly estimated tax payments on your self-employment income. That will include paying the full cost of self-employment taxes as well as income taxes.
Your Local CPA Can Help
There’s lot more to know about miscellaneous deductions and about the kind of tax planning that can ensure you’re paying the right amount of taxes. Before you finalize your tax return, be sure that you’ve claimed all the deductions and credits to which you’re entitled. If you’re not sure that you’ve taken the right ones, turn to your local CPA for expert advice. He or she can answer all your financial questions.
###
About the Indiana CPA Society:
Currently, more than 7,000 CPAs in public practice, industry, government and education are members of the Indiana CPA Society. INCPAS serves the public interest as well as its members. Its members are required to abide by the CPA profession’s code of conduct. INCPAS members also receive access to quality educational programs provided by the Society, resources that enable them to better perform their job functions, and peer networking for information sharing that broadens their skills and knowledge base. Indiana CPA Society members are the most highly qualified and competent CPAs in Indiana. Make sure your CPA is a member of the Indiana CPA Society. For more information, visit incpas.org.
###
The following Money Management column is provided jointly by the AICPA and the Indiana CPA Society as part of the CPA profession's nationwide 360 Degrees of Financial Literacy program.
Elise LeBlanc, Indiana CPA Society, http://www.incpas.org, +1 (317) 726-5012, [email protected]
Share this article