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IRS/DOR Problems???
Are you having problems with the IRS or Mass DOR???
Enrolled Agent Dave Fazio is authorized by the U.S. Treasury to represent his clients before all administrative levels of the IRS.
* Examinations (Audits)
* Wage Garnishments
* Bank Levies
* Offers in Compromise
* Appeals
* Monthly Payment Agreements |
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 | Deductions |
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Deductions reduce the amount of income subject to tax. Many deductions can only be claimed if certain requirements are met (i.e. not filing as married-filing-separately; adjusted gross income under $100,000 or not claimed as a dependent on another tax return). This is a very brief explanation of the most common deductions available to the majority of taxpayers.
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| Deductions available to most taxpayers |
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- STANDARD DEDUCTION: Requires no receipts or other documentation. If not claimed as a dependent on another return the deduction is $5,700 (single); $11,400 (married) and $8,350 (head of household). Cannot be taken if you choose to itemize deductions
- PERSONAL/DEPENDENCY EXEMPTIONS: $3650 per exemption depending on income
- EDUCATOR EXPENSES: Up to $250 in expenses incurred as a school teacher or administrator
- MOVING EXPENSES: When incurred for job-related reasons subject to a distance test
- HEALTH INSURANCE: for self-employed taxpayers (including partners and S-Corporation shareholder-employees)
- FORFEITED INTEREST: Penalties incurred when closing a CD early
- ALIMONY PAID: Social Security Number of recipient required
- TRADITIONAL IRA CONTRIBUTIONS: Up to $5000 ($6000 if 50 or older)
- STUDENT LOAN INTEREST: Up to $2,500 depending on income (Contact lender if Form 1098-E not received)
- TUITION AND FEES: Up to $4000 depending on income. Must be for college/vocational education
- REAL ESTATE TAXES: New for 2008/2009 returns, seniors and other non-itemizers can add $500 ($1000 for a joint return) to their basic standard deduction for real estate taxes paid even if they do not itemize their deductions.
- NEW VEHICLE SALES TAXES: New for 2009 returns, most individuals can deduct sales and excise taxes on new cars purchased between 02/17 - 12/31. Income limitations apply.
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| Deductions Available to Taxpayers Who Itemize Deductions |
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- MEDICAL EXPENSES (but only if the total expenses exceed 7.5% of your income): includes health insurance, Medicare premiums, insurance co-payments, doctor/dentist fees, lab fees, Rx drugs, eyeglasses, some medically necessary devices (wheelchairs, crutches, blood glucose meters, etc.), mileage to seek medical care, medical-related travel expenses
- STATE INCOME TAX: Includes amounts withheld on Forms W-2 (wages), W2-G (gambling) and 1099-R (pensions and annuities) in addition to amounts paid with prior year's state tax returns, extensions and/or estimates
- REAL ESTATE TAX: Paid for primary residence, vacation home or investment property
- STATE SALES TAX: Only if not deducting state income tax (see above). If you purchased a car or prefabricated home this year your sales tax deduction may be more than your state income tax deduction. You are not required to save every receipt in order to deduct sales tax (other than for cars, boats and manufactured homes) since the IRS has provided tables based upon your income to estimate your annual sales tax burden.
- PERSONAL PROPERTY TAX: In Massachusetts this is the excise tax we pay to our city or town each year for our cars
- MORTGAGE INTEREST (FORM 1098): Interest on your primary residence loan, home equity loans and up to one second home (such as a vacation home or possibly a boat)
- INVESTMENT INTEREST: Margin interest or other interest paid when financing investments
- CASH OR CHECK CONTRIBUTIONS: See substantiation requirements in the FAQs below
- PROPERTY CONTRIBUTIONS: See substantiation requirements in the FAQs below
- CASUALTY LOSSES (but only if the total exceeds 10% of your income): Amounts not reimbursed by insurance for unexpected events such as hurricaines, floods, fires or theft [Note that for 2008 the 10% limit does not apply to federally declared disaster areas]
- MISCELLANEOUS DEDUCTIONS (but only if their totals exceed 2% of your income): Includes union dues, employee business expenses, safe deposit box rent, certain legal fees. See FAQs below for more information
- GAMBLING LOSSES: Deductible only up to the amount of gambling winnings declared as income
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- Are over-the-counter medications deductible as medical expenses?
No. However, these can be reimbursed by Flexible Spending Accounts. If your employer offers an FSA, consider utilizing this tax-saving benefit.
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- My wife is disabled and I have to remodel our house to accomodate her disability. Are any of these costs deductible?
In certain instances they may be. The IRS has ruled that the costs of certain changes to your house are 100% deductible as a medical expense (such as lowering countertops or widening doorways to accomodate a wheelchair). Other costs may be deductible depending on whether or not they actually increased the value of your house (such as installing central air conditioning after prescribed by a physician for a child with severe allergies). Call or email Dave for additional information.
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- I claim my mother as a dependent. Can I deduct the medical expenses I paid for her?
Dependent's medical expenses are deductible.
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- I paid my mother's real estate taxes. The home is in her name only. Can I deduct this?
No. You may only deduct real and/or personal property taxes for property owned by you.
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- I made substantial home improvements over the past year. What can I deduct?
Unless it is a rental property or used for business you probably do not have any deduction. You definitely want to keep that documentation to reduce any potential capital gain when you sell your house however. Also, be aware that for tax years 2007, 2009 and 2010 you may qualify for a credit for installing certain energy efficient doors, windows, furnaces, heat pumps and insulation. Contact Dave for more details.
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- I paid a HUGE amount to refinance my mortgage last year? Can I deduct these expenses?
Again, unless we are talking about a rental property or a home with a home office in it there is very little to deduct in the current year. If you paid points on the mortgage you can deduct a little bit each year based upon the number of years your new mortgage is. Other than that, most of the other fees (other than prepaid interest or back real estate taxes) are personal, non-deductible expenses.
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- I donated $20 each week to my church in cash. Can I deduct it?
Unless you have a letter from your church acknowledging the contribution the answer is no unfortunately. The IRS has changed the tax code to require either a canceled check, credit card receipt, statement, pay stub, or acknowledgment in order to deduct money donated.
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- What do you mean when you say "...must exceed X% of your income in order to deduct..."?
Certain deductions have "floors" which is basically the amount you can not deduct. Anything above it is deductible. Floors are based upon your Adjused Gross Income. Medicals have a 7.5% floor; Casualties have a 10% floor and Miscellaneous deductions have a 2% floor. For example, if your Adjusted Gross Income is $40,000 for the year you could not deduct the first $3,000 of medical expenses, $4,000 of casualties or $800 of miscellaneous expenses. However, let's say that your total medical expenses in this example totalled $8,000 for the year. Your deduction would be $5,000 ($8,000 - $3,000 floor).
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- What types of employee business expenses can be written off as miscellaneous deductions?
Certain unreimbursed expenses incurred to keep your job and required by your employer can be decducted. This includes union and professional dues; small tools; unreimbursed travel/meals/entertainment expenses or use of your vehicle (but not commuting to and from your main job); work-related education costs (including books and fees) that maintain or improve your skills in your current profession; uniforms; safety equipment (hard hats, goggles, steel-toed boots, gloves); business use of cell phones, pages, laptops, PDAs, etc.; costs of physical exams or drug tests required by your employer; fees paid to employment agencies and head hunters; the cost to prepare, print and mail resumes; subscriptions to professional journals.
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- What professional fees are deductible?
Fees for tax preparation, tax advice and taxpayer representation are deductible. Fees paid to rent a safe deposit box are also deductible. Attorney fees to collect or protect taxable income (such as alimony) are deductible. Fees paid for managing investment accounts (but not commissions/loads on purchases of investments), trusts or collecting taxable income are deductible. Attorney fees for divorce are generally NOT deductible, nor are fees to prepare or contest a will.
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- What documentation should I keep to substantiate my gambling losses?
Gambling loss audits are nightmares! The IRS requires that you be able to provide lottery tickets, betting slips, activity reports from online gambling websites, etc. If you favor table games, the IRS requires that you maintain a diary that includes the dates you gambled, the name and address of the casino, the names of people present with you and the amount won or lost.
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- What if I am missing documentation for deductible items?
With the exception of charitable deductions discussed earlier, you may provide me with your best reasonable estimate if necessary. However, if your return is examined by IRS the deduction may be disallowed and addtitional tax may be assessed.
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- What information do I need to provide you in order to deduct business use of my vehicle?
To claim this deduction you have two choices: The first is to use the standard mileage method of $0.55 per business mile driven in 2009. This method requires that you provide me only with your total miles driven, commuting miles driven and business miles driven. The actual expenses method requires you to provide all of the previously mentioned mileage related information in addition to the amounts spent on gas, oil, insurance, repairs and other operating expenses. Under this method you are also allowed to deduct depreciation on the vehicle. With rising gas prices and larger SUVs and trucks getting few miles to the gallon many taxpayers will make out better tracking their actual expenses. Note that both methods REQUIRE you to maintain a mileage log to substantiate every business mile driven. Logs are available at my office at no charge.
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IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any matters addressed herein.
David V. Fazio E.A. | Westbridge Accounting Services
161 Turnpike St.
W. Bridgewater, MA 02379
Phone: (508) 586-2600
Fax: (508) 580-8418
Email: Dave@westbridge-accounting.com
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