Getting a tax deduction for an allowed expense on your taxes is great. Making the mistake of claiming a deduction that is not allowed by the IRS can you get into trouble and a possible audit. For example, you can deduct the expense of a dinner with clients up to 50% of the bill only. If you claim more than the 50% allowed or you do not properly record the business purpose of the meeting, the deduction could be thrown out.
Travel is similar to entertainment were only the part of the travel that is business related can be deducted. If you take your family or your spouse with you and do things on your trip purely for pleasure, those parts of the trip cannot be deducted on your return.
Commuting costs are only allowed from one business location to another business location. The commute from your home to the office is not something you can deduct on your taxes.
Make sure your charity giving is to IRS recognized organization or the donation will not be deductible. And if you get something, like a night at the opera, in exchange for you donation, you need to subtract the fair market value of the benefit you receive from the donation that you claim.
And the IRS has made giving to charities without a proper record not something you can deduct. You could previously deduct small amounts of cash that you gave to charities. But now it is required that you have proof of the donation to get the deduction. So write a check instead of giving cash.
You may have better options when it comes to your mortgage tax deduction, and Turbo Tax 2014 can help you get the best advantage possible.
Turbo Tax 2014 guides you through the process of decreasing your taxable income, and you may come to a new decision about claiming your mortgage interest. Homeowners have differing ideas about carrying a balance or paying off their mortgages entirely, but the following example may help you make the right decision for you.
Q: I have the money to pay off my mortgage balance and still keep money in my emergency savings account. The interest rate on the savings account is low, and I wonder if losing my mortgage tax deduction will have a negative impact at tax time. I am confident in my daily financial decisions, and I make every effort to save for retirement. What do you think I should do?
Singletary: I think you should pay off the balance of your mortgage, but with the following considerations.
Think about the current state of your health, your job security, and your ability to obtain subsequent employment in light of the present economic climate. You might need your savings funds if you face a health or employment challenge, and accessing these funds would be much easier if they are not completely tied to your home equity. If you are comfortable with this scenario, then I would endorse your decision to pay off your mortgage.
On December 3, 2013, Intuit Inc announced that its’ new TurboTax ItsDeductible app for iPhone had become available. This app is aimed at helping the estimated seventy-five percent of US citizens who donate to charity, convert their goodwill into sizable tax deductions. This app is free of charge and offered on the iPhone with iOS7 app store.
The Turbo Tax online program itself is very popular. When combined with the portability and convenience of a mobile device, the TurboTax ItsDeductible app allows people to easily monitor their charitable donations. This app features valuations for over ten thousand commonly donated items, like toys, clothing, sporting goods, games, appliances, household products and more.
Although most taxpayers are aware that non cash donations might be tax deductible, they do not always value the goods they donate to charity correctly. Usually, this is because they have just guessed the value randomly. For example, sometimes, bags of clothes are donated with $50.00 valuations, when the real value is over $300.00.
Prior to leaving a donation facility, people can easily and quickly input their donated goods into TurboTax ItsDeductible. Then, the app will automatically make a fair market valuation, based on guidelines by the Internal Revenue Service. This ensures that users receive the full deductions they are entitled to on their tax returns. The app uses location sensitive technology to quickly capture the address of the charity, for tax record keeping. All philanthropists should monitor their donations with this app, to be properly rewarded for their generosity.
Often when considering purchasing a home, one of the things that intrigues potential homeowner’s is the right to be able to claim mortgage tax deductions. There are a number of deductions that are available including interest payments, points and some closing costs. What is not always evident however, is what must be done in order to claim these deductions and when they might be most beneficial.
Prepare for additional paperwork
One of the first things that a taxpayer will need to do to take advantage of mortgage tax deductions is to prepare to itemize deductions. The most significant opportunities for deductions come in the early phases of a mortgage, especially during the first five years. This is because this is when the most interest is paid and also when a new home buyer can deduct points and closing costs. This will require filing a Form 1040 as well as a Schedule A for federal tax filings.
Understanding who can deduct interest payments
Interest payments can only be deducted by the person who is legally obligated to pay the mortgage. When a property is owned equally by two or more non-spousal taxpayers, each of them may claim one half of the interest payments on the mortgage. It is also critical to note that the mortgage company should have issued a Form 1098 with the full amount of interest paid and if this is the case, then copies should be attached to the tax returns.
Second homes and mortgage deductions
For a second home to qualify for tax deductions, the owner, or the person responsible for the mortgage, must have spent a specific number of days in the home throughout the year. In other cases, the Internal Revenue Service would qualify the property as a rental property and is subject to different tax laws. Homeowner’s who have second homes should review Publication 527 if they are confused about the rules.
There are numerous opportunities for a homeowner to take a tax deduction for their home mortgage payments and for specific events that may occur such as destruction of the home, repairs and remodeling and refinancing of the home. However, a homeowner must ensure that they carefully review all of the rules that apply to their individual circumstances. For example, while a primary home loan to purchase may be eligible to claim points, personal mortgage insurance and other costs as a tax deduction, a cash-out refinance may not be eligible for these tax deductions. Homeowner’s should carefully review Internal Revenue Service Publication 936 for information and if in doubt, always contact a qualified tax accountant who can help take the mystery out of mortgage tax deductions.
Visit the California Apartments Blog to get more tax and home improvement tips as well as new home builder reviews such as this Denver real estate for sale.
Tax season is upon us, and people seem to react to tax season with mixed feelings. Of course, if you are expecting a refund this year, then you are probably excited to file your taxes. But be honest – there is that little voice in the back of your head worrying about being audited, right? After all, people rank the experience of an IRS audit right up there with a root canal. If you want to do your best to steer clear of the worst come tax time, here are some tips for how to avoid an IRS tax audit:
Double check your work. Silly mistakes can cost you a lot of time and frustration down the road. Always go over your finished tax forms with a fine-tooth comb, especially if you prepared them using your own software. You can’t take back what you send the IRS once you hit that submit button, and just one extra zero where there’s not supposed to be one is all it takes to trigger that dreaded phone call from the IRS.
Meet your deadlines. When it comes to dealing with the IRS, you want to avoid drawing any unnecessary attention to yourself. When you file late or fail to make a payment on time, it’s like holding a big red flag up and hoping the IRS doesn’t see it.
Report everything. The IRS cross-references everything, so don’t leave anything out – no matter how insignificant it may seem. For example, that ten dollar interest amount you earned on your small savings account may not mean a lot to you . . . but it’s certainly not worth an IRS audit, is it?
Overshooting your deductibles. Only claim what you can legally claim, and be completely honest. The deductibles portion of your tax returns is one of the most likely areas you can expect the IRS to scrutinize. If anything looks off, or even slightly questionable, you are in danger of being audited.
Keep records. If you are going to claim something – anything, from income to expenses to deductibles – keep records of it. Invest in a small file folder and maintain your receipts and records throughout the year in order to make an easy job of it. That way, you can be sure that you are filing correctly when you send in your returns, and you can rest assured that you did everything within your power to avoid an audit.
There is no guarantee that you won’t be audited by the IRS. It is possible to everything the “right” way only to come under investigation, while others seem to slide under the radar. What you can do is set your mind at ease that an audit is as unlikely as possible, and these tips should help you do just that.
About the Author: Francine Ersery is an accountant in the windy city and often has to help her clients sort through audit issues. When she’s not working she can often be found looking at Chicago daily offers for hot deals and weekend entertainment opportunities.
Individuals that pay alimony (also known as “spousal support” or “spousal maintenance”) to a former spouse can deduct these payments on their personal federal income tax returns. In turn, the alimony recipient is required to claim the payments as income.
Before a payor takes an alimony deduction they should make sure that their payments meet the IRS qualifications for alimony. Ideally, this was addressed and discussed in detail with their divorce attorney to ensure that the alimony was structured in a way that would allow a deduction. If you are not sure whether your payments are deductible you should consult with a family law or tax attorney. Here are some tips regarding what does and does not meet the general requirements for payments to qualify as alimony under the Internal Revenue Code.
Alimony is Formally Mandated
According to the IRS, alimony payments must be mandated by a legal settlement agreement or court order to qualify for the tax deduction. This means that there must be a legally binding agreement, such as a temporary support order, separation agreement or divorce decree, that describes and mandates the support provided by one spouse to the other. The IRS does not consider voluntary, informal payments of money to a spouse or former spouse to be alimony.
Child Support Is Not Alimony
Child support is not alimony and those who pay child support cannot deduct these payments from their income. Under federal tax laws, child support is not tax deductible by the parent who pays it, and does notneed to be reported as taxable income by the parent who receives the payments.
Cash Payments Only
Non-cash property transfers don’t count as alimony and cannot be deducted from one’s taxable income. Alimony must be paid in cash, or by check or money order, in order to satisfy the statutory requirements.
Third Party Payments
In some cases, court-ordered payments to third parties can be considered alimony and are therefore tax deductible. Examples of this include rent or medical expense payments. In addition, payments made on taxes, mortgages or insurance may also be entirely or partially tax deductible if treated as alimony under a divorce or separation agreement.
Complications Can Arise if You Still Live With Your Ex-Spouse
According to the IRS, a person who is legally separated from his or her spouse, yet still lives in the same home with him or her cannot normally claim a tax deduction on alimony payments. An exception to this rule exists when one spouse leaves the home within one month after receiving an alimony payment. In those states that recognize legal separation, those who are still living with their former spouse and have a legally binding support agreement but are not legally separated, should talk to their attorney or tax adviser to find out whether their payments qualify for a deduction.
About the Author
Scott Morgan is a board certified Austin divorce lawyer who regularly blogs on the subject of divorce and family law. You can read his blog at AustinDivorceSpecialist.com.