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.

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.

Renting Your Vacation Home?

A vacation home can be a house, apartment, condominium, mobile home or boat. If you own a vacation home that you rent to others, you generally must report the rental income on your federal income tax return. But you may not have to report that income if the rental period is short.

In most cases, you can deduct expenses of renting your property. Your deduction may be limited if you also use the home as a residence.

Here are some tips from the IRS about this type of rental property.

? You usually report rental income and deductible rental expenses on Schedule E, Supplemental Income and Loss.

You may also be subject to paying Net Investment Income Tax on your rental income.

? If you personally use your property and sometimes rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. The number of days used for each purpose determines how to divide your costs.

Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.

? If the property is ?used as a home,? your rental expense deduction is limited. This means your deduction for rental expenses can?t be more than the rent you received. For more about this rule, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes).

? If the property is ?used as a home? and you rent it out fewer than 15 days per year, you do not have to report the rental income.

For more details on this topic, check out IRS Publication 527. It is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Disability Business Overhead Expense Insurance

By guest author Lawrence B. Keller, CLU, ChFC, CFP?

As the owner of a medical or dental practice, you are the key to its success. Your patients and staff rely on you. If you become disabled, you may be unable to provide the services your patients expect or the leadership that your employees need.

Overhead Expense disability insurance is a cost effective way to ensure that your practice can meet its ongoing expenses during a period of disability. Protecting your practice from financial loss is important whether you eventually return to work or decide to sell your practice. Just as individual disability income insurance can help you pay your living expenses while you recover from a serious injury or illness, Overhead Expense disability insurance can help you to keep your medical practice healthy.

Business Overhead Expense insurance is a cost effective way to ensure that your business can meet its ongoing expenses during a period of disability by reimbursing the owner(s) of a practice up to 100% of the normal ongoing business expenses incurred during a disability, including items such as:

  • Rent
  • Electricity
  • Telephone
  • Heat
  • Water
  • Laundry, janitorial and maintenance services
  • Employee salaries
  • Employee benefits
  • Real estate taxes
  • Property, liability and malpractice insurance
  • Interest on debt
  • Depreciation
  • Rent or lease expense of furniture or equipment
  • Legal and professional services
  • Professional, trade, and association dues
  • Licensing fees
  • Billing and collection fees
  • Other tax-deductible business expenses
  • Salary for your replacement (depending upon insurance carrier)

Typically, monthly benefits up to $50,000 are available with benefit periods up to 30 months. While this may seem to be a substantial amount of coverage, it is not uncommon to find healthcare practices with overhead expenses that far exceed this limit. As a result, special risk insurers, like Lloyd?s of London, are able to supplement the traditional market with monthly benefits in excess of $250,000.

Premium payments for Overhead Expense insurance are tax-deductible as a reasonable and necessary business expense (Rev. Rul 55-264, 1955-1 C.B. 11). As such, benefits received during disability, while taxable upon receipt, are used to pay practice related expenses, which are tax-deductible. The net tax result is a ?wash? so the net tax impact is neutral.

Summary

While most doctors and dentists are keenly aware of the need to purchase individual disability insurance coverage, few are aware of the importance of Disability Business Overhead Expense insurance.

Lawrence B. Keller, CLU, ChFC, CFP? is the founder of Physician Financial Services, a New York- based firm specializing in income protection and wealth accumulation strategies for physicians. He can be reached at (516) 677-6211 or by email to Lkeller@physicianfinancialservices.com with comments or questions.

Tips for Taxpayers Who Travel for Charity Work

From IRS Tax Tips Newsletter:

Do you plan to travel while doing charity work this summer? Some travel expenses may help lower your taxes if you itemize deductions when you file next year. Here are five tax tips the IRS wants you to know about travel while serving a charity.

1.?You must volunteer to work for a qualified organization. Ask the charity about its tax-exempt status. You can also visit IRS.gov and use the Select Check tool to see if the group is qualified.

2.?You may be able to deduct unreimbursed travel expenses you pay while serving as a volunteer. You can?t deduct the value of your time or services.

3.?The deduction qualifies only if there is no significant element of personal pleasure, recreation or vacation in the travel. However, the deduction will qualify even if you enjoy the trip.

4.?You can deduct your travel expenses if your work is real and substantial throughout the trip. You can?t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.

5.?Deductible travel expenses may include:

  • Air, rail and bus transportation
  • Car expenses
  • Lodging costs
  • The cost of meals
  • Taxi fares or other transportation costs between the airport or station and your hotel

To learn more see Publication 526, Charitable Contributions. The booklet is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).