What exactly is a miscellaneous deduction?

Often one of the most asked questions when preparing tax documents. There are certain employee expenses and many other expenses that can be classified as a miscellaneous deduction taken on Schedule A of form 1040. Of course these deductions are subject to the 2% limit. What does this limit mean? You can deduct the amount left after you subtract out 2% of your adjusted gross income from the total.

What are some of these expenses?
• Employment related educational expenses
• Professional association dues
• Business association dues
• Costs associated with looking for a new job
• Professional books and magazines
• Any unreimbursed employee travel, meals and entertainment
• Home office expenses
• Safe deposit rental to store investment-related items
• Legal fees to collect taxable income such as alimony
• Tax preparation fees

Items which might be deductable but NOT subject to the 2% floor include:
• Moving expenses to a new job location
• Gambling losses to the extent of gambling winnings
• Jury duty turned over to your employer

Items that cannot be deducted include:
• Broker's commissions that you paid in connection with your IRA or other investment property.
• Burial or funeral expenses, including the cost of a cemetery lot.
• Campaign expenses.
• Club dues.
• Commuting expenses.
• Fees and licenses, such as car licenses, marriage licenses, and dog tags.
• Fines and penalties, such as parking tickets.
• Health spa expenses.
• Home repairs, insurance, and rent.
• Home security system.
• Investment-related seminars
• Losses from the sale of your home, furniture, personal car, etc.
• Lost or misplaced cash or property.
• Lunches with co-workers.
• Meals while working late.
• Personal legal expenses
• Personal, living, or family expenses.
• Political contributions.

Hope this makes it a little easier when preparing your documents for tax filing. Have additional questions, please feel free to contact us.

Qualified medical expenses - What is deductible?

With the official opening of the tax season last Friday, we thought it be best to address those popular questions often asked as you are preparing your tax file for 2010.

So what exactly are medical expenses in the eyes of the IRS?

They are those expenses that are for the diagnosis, cure, mitigation, treatment, or prevention of disease. It also includes the cost for treatment for payments for legal medical services rendered by physicians, surgeons, dentists and other medical practitioners.

Also included are the costs for equipment, supplies, and diagnostic devices needed for medical purposes. The premiums you pay for insurance coverage and any amounts paid for transportation to get medical care are deductable. Medical expenses also covers amounts paid for qualified long-term care services.

What does it NOT include?

They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation.

Some other items that cannot be deducted include:

• Diet Foods
• Life Insurance or Income Protection Policies
• Maternity Clothing
• Surgery for purely cosmetic reasons
• toothpaste, toiletries and cosmetics
• nonprescription nicotine gum, patches or lozengers
• nonprescription drugs or medicine
• Teeth whitening
• Hair transplant

Please note that if your doctor has recommended a program as treatment for a specific condition and it is properly documented for expenses such as:

• Health club dues
• social activities such as swimming
• Weight loss program

The IRS has indicated that the cost would be deductable

Of course you will only get these deductions if you itemize on Schedule A and you can only deduct that amount of your medical and dental expenses that is more than 7.5% of your adjusted gross Income
These deductions can be taken for yourself, your spouse and your dependents (the person must have been a dependent either at the time of the medical services were provided or at the time you paid the expense).

When in doubt always ask your tax advisor if the expense is allowable.

Who gets a 1099?

Every year at this time, I get asked this question by many of my small business clients. It is up to you, the business owner to correctly determine whether individuals providing services require the issuance of a 1099. The best way to decipher this is to first understand the relationship with the worker performing the service and the degree of control and independence.
Do you have control over when the worker works? Do you have control over what they are working on and when?
Do you control the finances of the worker’s job to be completed? Are expenses reimbursed?
Are there any types of benefits paid? Is the work they do a key aspect of your business?
It is important to ask yourself these questions in determining whether or not the worker is in fact an employee or independent contractor.

Once you have determined if in fact the worker is an independent contactor, you must then determine if you have paid that worker over $600 for that year. If the answer is yes, they need to receive a 1099 from you.

Here is a helpful list of those payments requiring a 1099 – MISC:

• Any person who rendered service to your business and you paid more than $600 in compensation that are taxed as a sole proprietor

• Any person you paid over $600 in rent to for office space, machines or equipment (excluding corporations or real estate agents)

• Any person providing $600 or more in legal services to your business regardless of whether or not they are a sole proprietor, corporation or partnership need to be issued a 1099.


So as a general rule:

Sole proprietors, partnerships, and LLC’s taxed as sole proprietors or partnerships DO get a 1099.

C Corporations, S Corporations, and LLC’s taxed as C or S Corporations DO NOT need to be issued a 1099.

If you classify an employee as an independent contractor you may be held liable for paying employment taxes unless you have a reasonable basis for not treating the worker as an employee.

And as always, if you have specific questions, we are always more than willing to help you out.

New Year, New Tax Laws and what it means to you

The new tax law temporarily extends the 2001 and 2003 income tax rate cuts and extends unemployment insurance for another 13 months. There are a few other items including new payroll tax breaks and the reinstatement of estate tax. So how does this all affect you? With the new payroll tax relief, the employer's share of the social security tax has gone down by 2 percentage points. So if you make $60,000 a year in 2011, you will see an additional $1,200 in your paycheck this year. Use this 2% increase in your pay and increase your 401k payroll deduction by this amount.

There will be no change in the income tax rates for the next two years although the alternative minimum tax (AMT)patch extends only through 2011 and is not indexed for inflation.

The top capital gains rate will remain at 15% for the next two years as well as for qualified dividends (stocks held longer than 60 days).

The estate tax has been reinstated in 2011 and 2012 at a maximum rate of 3% with a $5 million exemption per person. Beginning in 2013, the per person exemption is reduced to $1 million with a 55% estate and gift tax rate.

The beginning of the year is a great time to sit down with your tax advisor to have a plan for the new year.