Deducting Un-reimbursed Professional Expenses

According to the IRS, to be deductible, an expenditure must be both “ordinary” and “necessary” in connection with your profession.? The IRS defines “ordinary” as common and accepted in a particular profession and “necessary” as helpful and appropriate for a particular profession.

Here?s a list of 16 professional expenditures commonly incurred by young health care professionals:

  • Automobile expenses
  • Beepers and pagers
  • Books/library
  • Cellular telephones?
  • Computer purchases
  • Education, examinations & licenses
  • Equipment & instruments
  • Job search
  • Malpractice insurance
  • Meals & entertainment
  • Parking & tolls
  • Professional dues, journals & subscriptions
  • Psychoanalysis as part of training
  • Supplies
  • ?Travel & lodging
  • Uniforms & cleaning

?Please note:? Employees may not deduct professional expenses that are eligible for reimbursement from their employer.

4 Basic Tax Tips about Hobbies

From IRS Tax Tips:

Millions of people enjoy hobbies that are also a source of income. Some examples include stamp and coin collecting, craft making, and horsemanship.

You must report on your tax return the income you earn from a hobby. The rules for how you report the income and expenses depend on whether the activity is a hobby or a business. There are special rules and limits for deductions you can claim for a hobby. Here are four?tax tips you should know about hobbies:

1.?Is it a Business or a Hobby?? A key feature of a business is that you do it to make a profit. You often engage in a hobby for sport or recreation, not to make a profit. You should consider nine factors when you determine whether your activity is a hobby. Make sure to base your determination on all the facts and circumstances of your situation. For more about ?not-for-profit? rules see Publication 535, Business Expenses.

2.?Allowable Hobby Deductions.? Within certain limits, you can usually deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is appropriate for the activity.

3.?Limits on Hobby Expenses.? Generally, you can only deduct your hobby expenses up to the amount of hobby income. If your hobby expenses are more than your hobby income, you have a loss from the activity. You can?t deduct the loss from your other income.

4.?How to Deduct Hobby Expenses.? You must itemize deductions on your tax return in order to deduct hobby expenses. Your expenses may fall into three types of deductions, and special rules apply to each type. See of Publication 535 for the rules about how you claim them on Schedule A, Itemized Deductions.


IRS Tips on Gambling Income and Losses

From IRS Tax Tips:

Whether you like to play the ponies, roll the dice or pull the slots, your gambling winnings are taxable. You must report all your gambling income on your tax return. If you?re a casual gambler, odds are good that these basic tax tips can help you at tax time next year:

1.?Gambling income.? Gambling income includes winnings from lotteries, horse racing and casinos. It also includes cash prizes and the fair market value of prizes like cars and trips.

2.?Payer tax form.? If you win, you may get a Form W-2G, Certain Gambling Winnings, from the payer. The IRS also gets a copy of the W-2G. The payer issues the form depending on the type of game you played, the amount of your winnings and other factors. You?ll also get the form if the payer withholds taxes from what you won.

3.?How to report winnings.? You must report all your gambling winnings as income. This is true even if you don?t receive a Form W-2G. You normally report your winnings for the year on your tax return as ?other income.?

4.?How to deduct losses.? You can deduct your gambling losses on Schedule A, Itemized Deductions. The amount you can deduct is limited to the amount of the gambling income you report on your return.

5.?Keep gambling receipts.? You should keep track of your wins and losses. This includes keeping items such as a gambling log or diary, receipts, statements or tickets.

Home Office Deductions – part 2

By Richard Schwartz, CPA

In Part 1 of Home Office Deductions, we covered determining the qualifying space, regular and exclusive use, and multiple business locations.? In Part 2, we?ll look at determining dollar amounts of your deduction, what to do if you?re an employee, selling your house, and keeping good records.

How To Determine Deduction Amounts:?

% of Cost Method

Currently there are two ways to determine the dollar amount of your home office deduction.? Taxpayers can either calculate a percentage of their true costs or they can use the new Simplified Home Office Deduction Method.? Using the percentage of actual cost method, the taxpayer would determine the deduction by dividing the square foot area of the home office by the total square foot space of the entire home.? The home office deduction is calculated by totaling indirect home expenses such as mortgage interest (or rent if the home is not owned), real estate taxes, homeowners insurance, utilities and maintenance costs multiplied by the calculated square foot percentage.? Additionally, the home office calculation may include direct expenses as well as a deduction for tax depreciation (amortizing the original cost of your home over a period of years).

Simplified Method

Beginning in 2013, the IRS allows taxpayers to use the Simplified Home Office Deduction Method.? Electing this second method, taxpayers determine their deduction based upon $5 per square foot of home office space, not to exceed 500 square feet, or a $1,500 total deduction.? This new method certainly simplifies the calculation of the deduction and the recordkeeping required, but typically will result in a lower deduction for taxpayers.? Using either method, taxpayers may also qualified for multiple home offices in the same home if separate home office spaces exist and both qualify.? Examples would be each spouse utilizing separate home office spaces or if separate spaces exist for separate businesses.

What if you?re an Employee:

One key qualification to be aware of if you are an employee is that the home office must be for the convenience of the employer (and not the convenience of the employee).? Employees that do work in their ?home office? late at night or during the weekend, will not qualify for a home office deduction if they also have a place to do this work at the employer?s office, but choose to do the work at home rather than at their employer?s office.? If you are a self-employed individual taking the deduction, you have more flexibility with meeting the rules when another job site exists in addition to your home office.

What if you Sell your Home:

When you sell your house, be aware there could be tax consequences related to a sale when you have had a home office deduction claimed on your previous years? tax returns.???? Although the home office that is included within the dwelling of your home will fall under the capital gain home exclusion rules, any depreciation expenses relating to the prior years? home office deductions, whether actually taken on previous years? tax returns or not, would be included as income and taxed federally at a 25% tax rate, and taxed at the state level as well when the home is sold. ?One final note, if the home office is a separate dwelling unit from the home such as a converted barn or detached garage, additional taxes from the home sale could exist as well in addition to any depreciation being recaptured as income.

Remember, Keep Good Records and Photos:

But don?t think the IRS won?t question the validity of such a deduction if you are ever audited.? Keeping good receipts as well as taking a picture of the home office space and keeping it with your tax records will go a long way in substantiating and qualifying your home office deduction, and in giving you peace of mind as well.? If you meet the rules, claim the deduction.? The tax benefits relating to a qualified home office deduction on your tax return could be substantial, depending upon the size of the space, percentage of use and the resulting dollar value of the deduction claimed.? In addition to federal and state taxes saved resulting from the home office deduction, if you are self-employed the tax savings will also include self-employment taxes.? Thus, if you meet the rules, this deduction is one not to be missed.

Home Office Deductions – Part 1

By Richard Schwartz, CPA

Every tax season, I have several clients that I meet with excitedly inform me that they have finally purchased a new home.? And often times, the next bit of information they communicate to me, is that the new house has a home office.? However, having a room in the house to do work in versus using a dedicated area of the home that meets the rules of and qualifies as a deductible home office are often two different things.

What is a Qualifying Home Office Space:

In order to meet the rules as a qualifying home office resulting in a business deduction on your personal tax return, the home office space must be a separate section of your home used regularly and exclusively in connection with a trade or business.? The qualifying space typically would be a separate and identifiable room within your home.? However, the qualifying space could also be a section of a room, whether visibly partitioned off from the remainder of the room or not, as long as it is clearly distinguishable as being set aside for business purposes.? A common example of this setup would be a radiologist performing services for a hospital at his home and who has set up a desk with a computer, medical equipment and fax machine positioned in the corner of a second bedroom.

Key Rules – Regular and Exclusive Use:

Once you have determined that you have a qualifying space set aside for the home office the next two criteria are key to satisfy the home office rules:? regular and exclusive use.? The space must be used on a regular basis.? This does not necessarily mean that the office must be used daily, but it should be used on a continual basis throughout the year (or period claimed as a home office).? Occasional and infrequent use of the room would not meet the home office qualification.? The second qualification, exclusivity, requires that the space be used exclusively for business and not for personal purposes.? If the space is mixed use, both personal and business, then this portion of your home would not qualify as a home office.? Placing your laptop on the family room coffee table to do patient billings while watching TV would certainly not meet any home office rules, even though your primary intent, billing patients while working at home, is connected to your business.

What if you have Multiple Business Locations:

As noted above, the use of the home office must be in connection with your trade or business.? Additionally, having a second or multiple business locations to see patients or customers does not disqualify the deduction for your home office.? You may be a dentist with two office locations, one being in the basement of your residence and the other being in a neighboring town.? Having the second location does not disqualify the home office deduction.? Being connected with your trade or business extends to administrative work as well.? Using your home office to do your patient scheduling and billing, and to maintain your accounting and recordkeeping also qualifies the home office for business use ? even if you see no patients at your home office but have office visits at another location such as the hospital of clinic.

In Part 2, we?ll look at determining dollar amounts of your deduction, what to do if you?re an employee, selling your house, and keeping good records.

Job Hunting Expenses

From IRS Tax Tips:

Many people change their job in the summer. If you look for a new job in the same line of work, you may be able to deduct some of your job hunting costs.

Here are some key tax facts you should know about if you search for a new job:

  • Same Occupation.? Your expenses must be for a job search in your current line of work. You can?t deduct expenses for a job search in a new occupation.
  • R?sum? Costs.? You can deduct the cost of preparing and mailing your r?sum?.
  • Travel Expenses.? If you travel to look for a new job, you may be able to deduct the cost of the trip. To deduct the cost of the travel to and from the area, the trip must be mainly to look for a new job. You may still be able to deduct some costs if looking for a job is not the main purpose of the trip.
  • Placement Agency. You can deduct some job placement agency fees you pay to look for a job.
  • First Job.? You can?t deduct job search expenses if you?re looking for a job for the first time.
  • Work-Search Break.? You can?t deduct job search expenses if there was a long break between the end of your last job and the time you began looking for a new one.
  • Reimbursed Costs.? Reimbursed expenses are not deductible.
  • Schedule A.? You usually deduct your job search expenses on Schedule A, Itemized Deductions. You?ll claim them as a miscellaneous deduction. You can deduct the total miscellaneous deductions that are more than two percent of your adjusted gross income.
  • Premium Tax Credit.? If you receive advance payment of the premium tax credit in 2014 it is important that you report changes in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace. Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.

For more on job hunting refer to Publication 529, Miscellaneous Deductions on You can also call 800-TAX-FORM (800-829-3676) to get it by mail.

IRS YouTube Videos:

IRS Podcasts: