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Favorite Tax Deductions of
It's a fact of life. The current tax system rewards taxpayers who are
aggressive with their deductions. When it comes to your taxes, are
you aggressive with your deductions each year? Or do you play it
safe, hoping to avoid being audited by the IRS?
To find out what people are deducting, we undertook an informal
survey of many of our CPA colleagues. What we found out is that there
are a handful of tax deductions that show up repeatedly on the tax
returns of those taxpayers who tend to be very aggressive with their
deductions, including the following:
Home Office Deduction:
Two things make claiming the home office deduction very attractive.
First, the rules were changed effective 1/1/1999, making it much
easier to qualify for the home office deduction. And if you don't own
your home, the rent you pay isn't otherwise deductible on your
federal tax return.
Let's take a look at the rules. To be eligible for the home office
deduction, you must use a portion of your home regularly and exclusively
for your trade or business. If your home office is used even one day
during the year for any other purpose, no deduction will be allowed.
In addition, you must perform either the income producing activity or
your administrative or managerial tasks within the home office on an
ongoing basis to qualify for this deduction.
Temporary Job Assignment:
Temporary job assignments provide taxpayers with the opportunity to
claim a huge tax deduction. As long as the following three conditions
are met, individuals can deduct all of their travel and living
expenses while away from home on a temporary job assignment:
The assignment must be for a specific length of time.
The assignment must last for a period of one year or less.
The taxpayer must continue to be engaged in business activities in
the general vicinity of the original home, incur duplicated living
expenses, OR intend to return to his or her original home after the
temporary assignment ends.
Just imagine how huge this deduction can be. Remember, someone
qualified to claim the temporary job assignment deduction can deduct
travel to and from the job location plus the total amount
spent for lodging for up to one full year plus the daily per
diem allowance of $34 - $46 per day (see below).
Claiming the automobile deduction has been a favorite of aggressive
taxpayers for years. For 2001, people are allowed to claim a
deduction of $.345 per business mile driven, which includes:
Travel between two different workplaces.
Travel between a residence and a temporary workplace at which a
person works on an irregular or short-term basis.
Travel to and from job interviews, conferences and continuing
education seminars that qualify as deductible business expenses.
Since the only information needed to calculate the automobile
deduction is the number of business miles driven, it's not too
difficult to see why this is one of the favorite deductions for
taxpayers who like to be aggressive with their deductions.
Individuals who itemize their deductions are allowed to claim a
deduction for contributions they make to qualified charitable
organizations. The gift can be either cash, check, or property. Gifts
of property, such as clothing or automobiles, are known as
"non-cash" contributions, and are deductible based on the
fair market value of the donated property as of the date of the gift.
To deduct a non-cash contribution (of up to $5,000), it's up to the
person who made the donation to determine fair market value. Enough said.
Per Diem Rates:
Each year, you might travel quite a bit in connection with
conferences and seminars, job searches, and/or temporary job
assignments. The cost of travel, lodging and 50% of the cost of meals
incurred while away from home (and not reimbursed) in connection with
these business trips is generally deductible.
There are two ways that you can keep track of the cost of meals and
incidentals incurred while away on business. You can either keep
receipts each time you eat a meal during your business trips, or you
can use the per diem rates established by the IRS. Depending on the
city, the per diem rate is either $46, $42, $38, or $34. A list of
per diem rates by state can be found in the IRS Publication 463,
Taxpayers who are aggressive with their deductions generally prefer
to base their meals and entertainment deduction on the per-diem rates
since the only information needed to calculate their deduction is the
number of days they were away on business. And from what we've seen,
these taxpayers seem to always find some business purpose for every
trip that they take.
How Aggressive Are You With Your Tax Deductions?
How aggressive are you with the deductions you claim on your income
tax returns each year? We've put together this five question quiz to
help you perform a quick self-evaluation:
1. Did you claimed the home office deduction last year?
2. Have you ever deducted for a temporary job assignment?
3. Do you claim a deduction for you automobile expenses each year?
4. Did you claim any non-cash contributions last year?
5. Did you do much business travel last year that wasn't reimbursed?
Interpreting you score:
Greater than 5: Consider yourself aggressive
Between 4 and -4: You're an average Joe
Less than -5: Go to Home Depot, get yourself a red flag, and raise it
up. Maybe that will help you get over the irrational fear that you
have about raising red flags.
Should You Consider
Consolidating Your Student Loans?
If you're like most people, you
have a collection of educational loans. You may also have to make
payments to several different companies or organizations. Why not
take a look at what the no fee and no-prepayment penalty Federal
Student Consolidation Loan has to offer.
Are You a Candidate to Consolidate Your Student Loans?
What Type of Loans Can be Consolidated?
Stafford and PLUS, Perkins Loans, Federal Insured Student Loans
(FISL), Health Professional Student Loans (HPSLs), Loans for
Disadvantaged Students(LDS), Federal Direct Loans, National Direct
Student Loans (NDSL), Nursing Student Loans (NSL)
What is a Consolidation Loan?
Federal Consolidation Loans allow you to pay off the balance of many
loans and make only one payment per month. Plus, the repayment period
of a Consolidation Loan is between 10 and 30 years. For many, the
most important benefit of the Consolidation loan is the fact that you
can lower your monthly payments, by as much as 40%!
Consolidation Loans come in three types:
If you're considering consolidating your student loans,
contact one of our financial planners for some assistance.
CALENDAR FOR THE MONTH OF JUNE, 2001
Saving and Investing
For 2000, the standard deduction for a single individual is $4,400
and for a married couple is $7,350. A person will benefit by
itemizing once allowable deductions exceed the applicable standard
deduction. Itemized deductions include state and local income taxes,
real estate taxes, mortgage interest, charitable contributions, and
unreimbursed employee business expenses.
- For 2000, the personal exemption is $2,800. Individuals
will claim a personal deduction for themselves, their spouse, and
- The maximum earnings subject to social security taxes
has been increased to $80,400 in 2001 from $76,200 in 2000.
- The standard mileage rate has been increased to $.345
per mile as of January 1, 2001 from $.325 per mile during 2000.
- The maximum annual contribution to a 401(k) plan or
a 403(b) plan remains at $10,500 for 2001.
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