Deducting Entertainment Expenses for Business

If you happen to entertain your customers, employee or any others in your business you may be able to deduction expenses that are deemed ordinary and necessary for doing business. Expenses such as these may be deducted if they are related or associated with your business directly.

Proof of the expense must be provided and have information such as the cost, date and location of the entertainment. The relationship of those entertained may also be required to be furnished. Typical cases allow only for a deduction of 50% of meal and entertainment costs.

If you are an employee subject to reimbursement for entertainment expenses, any reimbursement through an accountable plan should not appear on your W-2 as income. If you were not reimbursed or were reimbursed through a non-accountable plan you can deduct expenses through Form 2106, Employee Business Expenses, or Form 2106, Unreimbursed Employee Business Expense. Deductions such as these will appear on your tax return as itemized and are usually subject to a limit of 2% of your adjusted gross income.

If you are self-employed you may take deductions by using Form 1040, Schedule C, Profit or Loss from Business or Form 1040, Schedule C-EZ, Net Profit Form Business. If you are a farmer you will use Form 1040, Schedule F, Profit or Loss from Farming to deduct these expenses.

Going to School? Deduct Your Expenses

Education expenses can add up quickly, and any kind of financial relief can really make a difference. You may be able to deduct certain education expenses at tax time. If you pay tuition for yourself, a spouse, or another dependent, you may qualify to deduct a portion of the expenses. However, it may be more worthwhile to look at using a credit for tuition and fees instead of directly deducting them. You should first check out eligibility for:

• The American Opportunity Tax Credit (AOTC)
• Lifetime Learning Credit (LLC)
• Deducting the expense as an itemized business expense

If you want to deduct tuition and fees, you don’t have to itemize expenses. Instead, you can just adjust your income on your Form 1040. If you are married, you have to file jointly in order to claim education expenses, and you can’t be listed as a dependent on another taxpayers return.

Taxpayers are subject to certain limitations related to their modified adjusted gross income. Those with a MAGI that exceeds the limit will receive a reduction or even a complete elimination of the education expense deduction depending on which status is used to file. You can’t claim a deduction along with one of the educational credits for the same student in one tax year. Although, you may be able to combine your tuition and fees with eligible business expenses. These expenses can’t be claimed more than once.

You can’t claim a deduction if your tuition or other expenses were paid through a grant, scholarship, fellowship, or other eligible savings plan. You also can’t deduct expenses you paid using distributions from an educational tuition plan, though you can claim the portion that is equal to the contribution you made.

Medical Expenses Add Up to Deductions

Medical expenses can be quite costly, and take a lot of money out of your hands. Instead of deducting your hard earned cash from your wallet, consider taking a deduction of your unreimbursed medical expenses at tax time.

Beginning January 1, 2013, you are able to deduct your total medical expenses paid for you, your partner, and eligible dependents that exceeds 10% of your adjusted gross income. If you or your partner are age 65 or older, the limit is decreased to 7.5%, and remains in effect until December 31, 2016.

To determine your deduction, you’ll have to itemize your expenses and report them on a Schedule A of your Form 1040. Some deductible medical expenses include:

• Fees paid to a doctor, dentist, surgeon, chiropractor, psychiatrist, psychologist and nontraditional medical practitioners.
• Costs for in-patient care, including nursing home services, meals, and lodging in a health care facility.
• Acupuncture, rehab treatment, or smoking cessation program, as long as the treatment is prescribed by a doctor.
• Weight-loss treatment to help with a specific disease or medical condition, excluding the cost of special diet foods and health club memberships
• Insulin and prescription drug costs
• Prosthetic teeth, eyeglasses, contacts, hearing aids, wheelchairs, guide dogs, crutches or other medical supply
• Conference costs and transportation relating to a chronic disease from which you suffer, although meals and lodging at the conference are non-deductible
• Transportation costs to and from a hospital or other medical facility, subject to the standard regulations for travel expenses, including mileage rates
• Insurance premiums that cover medical care or long-term care. Employees shouldn’t deduct premiums paid to an employer sponsored plan unless the premiums are listed on your W-2 in Box 1.

Self-employed individuals may be eligible to take a deduction for self-employment insurance. Generally, it’s taken as an adjustment to income instead of an itemized deduction. If you can’t claim the entire cost of your self-employed medical insurance premiums, you can take the rest of your expense as an itemized deduction when you file your taxes.

Prescription drugs, including insulin and other over the counter drugs acquired through a prescriptions can be deducted as a medical expense. A dr. must provide a written or electronic order for the medication in compliance with all laws of the state where the expense is incurred in order for the deduction to qualify.

Funeral expenses, burial costs, over-the-counter drugs without a prescription, and personal use items such as toiletries are not eligible for deduction. You also can’t deduct nicotine gum or patches, or other smoking cessation devices without a written prescription.

You can only deduct medical expenses that you paid during the tax year in which you are filing your return. If you were reimbursed by any third party, regardless of whether it was paid directly to you or the doctor or hospital, you must subtract the reimbursement from your total expenses before deduction.

Health Care Coverage and Your Tax Return

Since the enactment of the Affordable Care Act, your taxes are now affected by your health care coverage status. The new policy states that all Americans must have qualified health insurance, though there are a few circumstances in which an exception may apply.

Generally, ¾^ths of the taxpayers who file a return will only be required to check a box on their form that indicates that they have health insurance. This applies to those who are covered under an employee sponsored health plan, or government plans such as Medicare, Medicaid, or military health benefits.

If you purchased health care coverage through the Marketplace, you may have received an advanced tax credit to supplement the cost of your monthly premiums. If you chose to use the tax credit when you purchased your plan, you will have to reconcile the mount you received with the amount you were eligible for on your tax return.

The tax credit is based on your estimated household income, which you supply when you purchase coverage through the marketplace. At tax time, if your actual income is more than you estimated, you may have received a larger tax credit than you are eligible for. If this happens, you may have to pay back the excess credit. You can do so by deducting the amount from any refund you are owed on your taxes, if applicable.

You will receive a document that indicates the amount you received for the credit and other pertinent information in order to file your tax return.

How to Tell If You Should File a Tax Return

Not everyone is required to file a tax return. Most people are, but for those who aren’t, it may still prove beneficial to do so anyway. If you’re not sure if you have to file a tax return, you should familiarize yourself with the rules before tax season approaches.

Income, age, and filing status all factor into determining whether or not you need to file. More requirements apply to those who are self-employed or considered a dependent of another taxpayer. You will need to cover all bases when deciding whether you’re required to file a return.

You’ll need To File If:

You’ll be required to file a return if your employer withheld federal tax from your salary throughout the year, or you are self-employed and made estimated tax payments each quarter. When you file, you may be entitled to a refund if you overpaid, but the only way to know is to file a return.

Also, if you purchased health care through the Health Insurance Marketplace and opted to use the premium tax credit to lower your monthly costs, you’ll need to reconcile the amount you received. To do so, you’ll have to file a return. You’ll receive Form 1095-A, the Health Insurance Marketplace Statement by the beginning of February. This form will have all the information you need to reconcile the credit you received with the amount you are actually allotted.

If you made less than $53,267 last year may be eligible to receive the Earned Income Tax Credit, which can save you up to $6,242 for 2015. Even if you have no qualifying children, there’s a possibility you can still qualify, but you’ll have to file a return to know.

If you qualify for the Child Tax Credit, but don’t receive the entire credit amount, you may be eligible for the Additional Child Tax Credit. Again, the only way to know if to file a return.

The American Opportunity Credit is one other reason you may want to file a return. Each eligible student enrolled in post-secondary education may receive a credit of up to $2,500. You are able to claim yourself or a dependent, but the student has to be enrolled for an entire academic period for at least half-time. You don’t have to owe any taxes in order to claim the credit, but you will have to file Form 8863, Education Credits with a tax return if you wish to claim it.

Dealing with Capital Assets at Tax Time

Anything you own, whether it’s something you use for personal reasons or an investment purpose, is considered a capital asset. Things like your home, furniture, and vehicle, as well as stocks and bonds are all examples of the types of capital assets many people own.

If you chose to sell one of these assets, the result will either be a capital gain or a capital loss, depending on the base cost of the asset and what you sold it for. Selling for a greater amount than you paid for the asset will result in a capital gain, while a capital loss occurs when the sale price is lower. Any loss from the sale of personal use property (a home or vehicle) isn’t eligible for deduction at tax time.

Capital losses and gains are considered either long-term or short-term depending on how long you held the asset in your possession. Anything less than a year is typically a short-term capital loss, while longer times are long-term. The day you acquired the asset from the day you sold it or got rid of it is the period of possession.

You have to report any transactions on capital assets at tax time using Form 8949, Sales and Other Dispositions of Capital Assets. Any capital gains or deductions of losses can be done on a Schedule D or Form 1040. Generally, the taxation rate is 15% or less for net capital gains, determined by your tax bracket. Some net gains are taxed at 20% depending on the income threshold of the asset holder in relation to an ordinary tax rate of 39.6%.

Other rates of taxation of capital gains apply when:

• The gain is from the sale of a section 1202 qualified small business stock. These will be taxed at a maximum rate of 28%.
• Collectible items, such as art or coins, are sold for a net gain. The taxation rate is 28%.
• An uncaptured section 1250 gain results from the sale of a 250 real estate property. The tax is applied at 25% max.

Income graduation rates apply to short-term capital gains, which may require you to make estimated tax payments throughout the year.

During the year, if you’ve encountered more capital loss than gain, you can claim the lesser amount of two options:

1. $3,000 ($1,500 if filing married, separately)
2. your total net loss as reported on line 16 of Form 1040

You can carry forward any additional amounts of your total net loss exceeding $3,000 to the next tax year.

Tax Savers for Single Parents

Raising children on your own isn’t easy. Single parents can use any help they can get, which is why, at tax time, there are certain tips that can come as a welcome relief. When filing your tax return as a single parent, consider the following eight points:

1. Head of Household Status – if your children lived with you for over 50% of the year, and you were single by the end of the tax year, you can file using the head of household status. You have to have made a majority of the household income, but it can greatly reduce your tax burden and offer new deductions.
2. Dependent Qualifications – the amount of dependents you claim can change which credits and deductions you may be eligible for. Deductions for one child can’t be split between parents, so usually a written decree (from divorce or separation) is in place to state who can claim the child. Generally, the custodial parent is entitled to the deduction for dependents, as they meet all the requirements on care and household support. A dependent child is one who lived with you for at least six months of the year and has been financially supported by your income during that time.
3. Exemptions – Every taxpayer is entitled to a personal exemption, but you can also claim a dependent exemption for each of your qualified dependents. These exemptions can add up, but if you make over $279,650 a year and claim Head of Household, you can’t claim these exemptions.
4. Dependent Credits –those who earn less than $75,000 are able to claim a $1000 credit per dependent child under the age of 17 on the final day of December.
5. Child Care Tax Credit – paying for someone else to care for your child while you work can net you a $3,000 credit for a single child ($6,000 for two or more). The types of child care that qualify vary, but can include after school programs and day camps.
6. Dependent Spending Accounts – You can contribute up to $5,000 tax free in a special account provided by your employer that allows for dependent expenses.
7. Earned Income Credit – parents who earn less than $46,997 and have three or more dependent children qualify for this credit, which is based on income and dependent amounts. Taxpayers with less children may qualify for a portion of the credit.
8. Adoption credit – Federal tax credits apply to help offset the costs you may have incurred for an adoption throughout the tax year.

Unemployment Compensation & Taxes

Do you receive unemployment benefits? Depending on which program the benefits are distributed from, you may be responsible for paying taxes on the income. Taxable compensation amounts include money received from any of the following programs:

• State unemployment insurance
• Federal Unemployment Trust Fund
• Railroad unemployment compensation
• Disability compensation
• Allowances paid in accordance with the Trade Act of 1974
• Disaster Relief and Emergency Assistance Act of 1974

If you received benefits from the above programs, you may be required to pay taxes on the income. Some types of income are not considered to be unemployment compensation, such as worker’s compensation payments, or distributions from a private unemployment fund. Private unemployment benefits are taxed as if you received a larger sum than you contributed, and is reported on line 21 on your Form 1040. Supplemental unemployment benefits from a fund that your employer supports are also not considered unemployment compensation, and are subject to income tax, Social Security and Medicare taxes, as per regular income. You will find these amounts reported on your W-2 from your employer.

You should include unemployment compensation amounts in your gross income at tax time. You can either chose to have taxes withheld from your benefits, or you may be required to makes estimated tax payments. If you receive unemployment benefits from the government you should receive a Form 1099-G, Certain Government Payments, which documents the total amount of compensation you received. You should seek advice from a qualified tax assistant in order to correctly report your benefits on your tax form.

The Individual Shared Responsibility Provision for 2015

A special provision of the Affordable Care Act, which requires each taxpayer to have qualifying health care, comes into effect when you file your tax return.

Unless you meet a certain exemption, you are expected to have a health care plan which meets the minimum requirements of the Affordable Care Act. The Individual Shared Responsibility Provision states than any taxpayer who can afford health care and isn’t exempt from purchasing it must make a payment at tax time. This payment is calculated using Form 8965.

Many taxpayers will simply check a box on their return that indicates that they had acceptable health care coverage for the tax year. You are responsible for ensuring both you and your dependents are covered, unless you qualify for an exemption. While some exemptions have to be claimed through the Marketplace, many are claimed directly on your tax return.

Choosing to file your tax return electronically can save you time and ensure you have prepared your return correctly, regardless of your health care coverage status. Electronic filing uses special software that will help you accurately claim an exemption, indicate your coverage, or even make a quick individual shared responsibility payment effortlessly. This year, chose to e-file and learn more about how the Affordable Care Act affects your taxes.

On a Roll to Retirement

If you have money or assets saved in an eligible retirement plan, you may be able to transfer the funds to a different retirement plan without having to pay taxes on the withdrawal, as long as you perform a rollover. In order to be considered a rollover, the transfer has to happen within sixty days, and although it isn’t taxed, the distribution will be shown on your tax return. Not every distribution is eligible for a rollover. Some examples of non-eligible distributions include:

• Post-tax contributions to retirement plans. There are some exceptions to this rule which may allow certain non-taxed distributions to be eligible, so as your financial planner for assistance in determining if your distributions fit the exception.
• Distributions that are a portion of a life-time payment to you or a beneficiary, or any distributions which will be made over a period of ten years or more.
• Distributions made as part of a required minimum statement
• Hardship distributions
• Dividends from employer securities
• Life insurance coverage expenses

As with most rules, there are exclusions and fine print that relates to certain corrective distributions and loans. Any distributions that are not rolled over into a new plan have to be accounted for in your income for the year.

There is a time-sensitive period for which you can roll an eligible distribution into another plan. The sixty day rollover period applies from the day you received the eligible distribution. If your benefit came from an employer sponsored plan, regardless of whether or not you chose to roll it over into a new plan, it will be subject to 20% income tax. However, you can chose to defer that tax, but you will need to add the same amount you withheld from an additional source. You can also opt to have the payer automatically roll your funds into a new account directly, and avoid the mandatory taxation altogether.

Retirement distributions to those under the age of 59 ½ are subject to 10% additional tax. This penalty is applicable unless a specific exemption suits the taxpayer. There are some plans, like a SIMPLE IRA in which the distribution may be subject to a 25% penalty tax.