Thin Lines: What You Can and Cannot Claim on a Business Trip

airplane travel airfare business trip deduction

Air Travel

Many of you will be traveling during the holidays for both business and pleasure. Although we’ve touched on business trip deductions in the past, we figured it’s time to outline more fully what can and cannot be claimed on a business trip, specifically a trip wherein you may mix business and leisure.

Overview

You’re already planning to travel, and maybe you’re planning to have an extra day at either end of the trip. Or maybe you’ll be traveling near your old stomping grounds, and want to visit some friends from college. You’re allowed to deduct any essential business portions of your trip, but anything that is nonessential cannot be claimed on your taxes. That means if you want to take a detour on your business trip to see an old friend, you can still deduct your airfare to a location so long as the principal reason for your trip is business related.

Devil is in the details

So what does that boil down to? It means that every small expense that is unrelated to your business portion of the trip cannot be claimed. When does this become tricky? Let’s say you travel to Austin for a business trip to meet with a client, and upon arriving in Austin you and the client have a lunch meeting: you are allowed the standard 50% meal deduction. Similarly, if that morning before the meeting you eat breakfast alone at the hotel restaurant, you can deduct 50% of your meal cost. Actually you can claim that deduction at any restaurant in town so long as it’s part of your business trip. But if you’re in, say, the hotel bar and grab lunch with your old college roommate, that’s no longer a business expense and you cannot claim the deduction for that meal–unless of course said former college roommate is the client in question.

The key is moderation and meticulousness. If you’re unsure, ask your CPA or tax advisor: you don’t want to draw the attention of the IRS.

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Season of Giving: Maximize Deductions for Your Charitable Contributions

Taxes Charitable Contribution Deductions

Tax Deductions

The holidays are a time for family, feast, and often for giving. Feeling the holiday spirit and feel like donating to a charity? That’s great! The good news is that your contribution may be tax deductible! However, not all money you give to a charity is deductible. Charitable, financial gifts to 501(c)(3) organizations are often deductible, but it’s worth noting that not all donations can be claimed. Before we get to the list, know that generally you can deduct up to 50% of your adjusted gross income, but limitations may apply. That aside, here are a few things to know before you open your wallet hoping for a tax write-off.

Not all money you give is deductible

Perhaps the most infamous example being lottery tickets: if you attend a fundraiser event for a nonprofit and purchase a lottery ticket or raffle ticket, the cost of the ticket is not deductible.

Don’t expect to make money on a non-financial contribution

When donating goods such as real estate or a vehicle, the IRS will deduct only the fair market value from your tax liability. In other words, don’t donate a clunker car and except to be able to deduce the price of a mint vehicle.

You need to provide a record for any financial contribution

Regardless of size, the IRS will want to see a record. This could take the form of a written acknowledgment from the organization to which you donated, a bank record of a transaction, a check copy, or other type of record.

That also goes for any non-financial contribution over $250. Similarly you can submit a written acknowledgement from the recipient, or a written acknowledgement of value from a qualified third-party organization.

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5 Things You Didn’t Know About Taxes and Nonprofits

Tax Accounting Calculator Deductions

Tax Facts

Whether you’re a regular employee, a volunteer, or starting your own nonprofit, charitable work can be rewarding well beyond a paycheck. However, there are some misconceptions about the tax deductions available to those who assist nonprofits. Check out these things that you may or may not have known about your local (or national) nonprofit.

Volunteers can deduct expenses while volunteering

Nonprofits often rely on two forms of assistance: charitable contributions and volunteers. If you don’t have money to spare, volunteering is a great way to contribute to a nonprofit. As a volunteer, you can deduct travel expenses, clothing or uniform costs, and other out-of-pocket expenses.

Not all nonprofits are tax exempt

Nonprofits are all tax exempt, right? Actually, some organizations such as public schools and churches are not required to apply for tax-exempt status.

Not all tax-exempt organizations can receive tax-deductible contributions

Isn’t that confusing? Generally 501(c)(3) and private foundations can accept tax-deductible donations. However there are 30 different types of tax exempt status, and not all of them can receive tax-deductible contributions.

Employees and officers pay the same taxes as everyone else

Although volunteers are able to deduct their out-of-pocket expenses, regular employees are subject to the same taxes of employees of for-profit companies and not for profit organizations.

Not all financial donations are deductible

Charitable, financial gifts to 503(c)(3) organizations are often deductible, but it’s worth noting that not all donations can be claimed. Perhaps the most infamous example being lottery tickets: if you attend a fundraiser event for a nonprofit and purchase a lottery ticket or raffle ticket the cost of the ticket is not deductible.

Thinking about starting a Nonprofit? Know Your Orgs

Historically the 501(c)(3) was the standard for entrepreneurs who wanted to operate a business with a greater purpose than financial returns to investors. However there are more options available to entrepreneurs who want to give their work a social or environmental purpose. Here are a variety of other options for consideration.

Nonprofit

Simply put, a nonprofit is an organization from which those who run it cannot earn a profit. This is not to say that a nonprofit cannot earn a profit, however all profits must go back into the organization–there is no profit sharing among controlling members. 501(c)(3) status is often known as the “charitable tax exemption,” which allows exemption from federal corporation and income taxes on most types of revenue. Further, 501(c)(3) organizations are able to solicit tax deductible contributions and their volunteers are able to deduct their out-of-pocket expenses.

Not For Profit

Although you may often encounter this distinction, there’s no technical difference between the “not for profit” and “nonprofit” — the two are often used interchangeably. However the IRS has made one distinction: “not for profit” refers to an activity, in contrast to an organization established for purposes other than generation of profit. In sum, you cannot deduct expenses incurred in the pursuit of a not for profit activity.

B Corp (Social Action Corp)

Benefit Corporations are still a fairly new classification. B corps differ from regular corporations in that their investors and entrepreneurs are not committed solely to maximizing the profits of shareholders. Rather, B corps have a legal framework that requires the corporation to also account for environmental and social factors. B corps are not, as it may seem, a for-profit/nonprofit hybrid: a company still elects to be taxed as a C or S corp. B corp status only affects the requirements of corporate accountability, purpose, and transparency. That being said, it’s worth noting that B corps do not qualify for the tax deductions that are specific to nonprofits.

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School’s Back in Session: Taxes and Adult Education

College Degree Education Tax Expenses

Educational Expenses

Thinking about heading back to school, but worried about the cost of education? As an adult, you might be able to claim the Lifetime Learning Credit equal to 20% of qualified education expenses–up to $10,000. You can also deduct your educational expenses as a job or career expense. Here are a few things you should know about deducting your educational expenses.

You cannot deduct any courses for which your employer paid

Any classes your employer pays for you cannot claim on your tax return. It’s also worth knowing that your employer is able to pay for up to $5,250 a year for your classes before it counts as part of your income.

You can deduct a lot of expenses

For tax purposes, “education” is a pretty broad term, and therefore it’s not necessarily restricted to college courses. For example, personal development courses, courses to enhance or cultivate professional skills, and even certain activities that do not involve formal instruction may all qualify. There are a couple of criteria, though. For starters, the course maintains or improves skills that are required for your job or your current trade. For example, a seminar that teaches skill sets directly pertinent to your job. Your educational expenses will also satisfy the criteria if the course(s) are required for your job, or to retain your job title or rate of pay.

Expenses cannot qualify you for a new trade

Looking to change careers? Any courses you take to move into a new professional field do NOT qualify for a tax deduction. For example, a marketing professional cannot deduct course costs for a law degree. Note that this deduction is not qualified nor disqualified by your intent: so long as the expenses qualify you for a new career, they are automatically disqualified whether or not you intend to change careers.

Thinking about an MBA? Be cautious about a deduction

Although the qualifications for the deduction are largely objective, there are a few subjective elements for each scenario. That being said, MBA candidates had mixed results when trying to claim an educational deduction for an MBA program–many such cases ended in court. So long as you garner evidence that your new degree is not in pursuit of a new career, you might be able to claim the deduction.

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Tax Benefits for Parents with Young Children

Raising children is a lot of work, and it can be quite expensive. Fortunately, the government knows this, and accordingly offers a few tax exemptions for parents with young children. It’s important to note that for many of these exemptions, both parents must be working, or the nonworking spouse must be a full-time student or actively looking for work.

Tax Benefits Parents Child Credit

Tax Benefits for Parents

The tax benefits available are as follows:

  1. Child Tax Credit: you can save up to $1,000 off your taxes for every child under the age of 17. It’s worth noting that the child must be claimed as a dependent and must live with you for at least half of the year. Joint-filing couples with incomes above $110,000 or single head of household filers who make over $75,000 are not eligible to claim this credit.
  1. Child Care Credit: If you were working or looking for work while paying for child care, you may be able to claim a credit between 20-35% of your child care costs. This credit caps at $3,000 per child, or $6,000 for more than a single child. Any child under the age of 13 is eligible.
  1. Medical Mileage Deduction: children are prone to injury and illness, and trips to the doctor can take up a lot of time. Fortunately all those trips may qualify you for a tax break. As a parent you may be able to deduct mileage, tolls, parking, and other costs associated with taking your child to the doctor. However only illness or emergency trips are deductible; not trips for a regular checkup.
  1. Dependent Exemption: the dependent exemption reduces your taxable income by $3,900 per child under the age of 19. This exemption can be extended up to the age 24 for full-time students.

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Three Things Family Owned Businesses Need to Know About Taxes

Taxes are a bit different for every business type. While it is important to keep your personal and business taxes separate, some people fail to separate the two. Failing to keep your business and personal taxes separated makes things a bit trickier during tax time. Family-owned businesses should pay attention to the three items discussed below to prevent audits and mistakes.familyownedbusinesspic

Section 179 Deduction

Section 179 permits business owners to make deductions for equipment purchased in a tax year. The Tax Extenders Bill is capped at $25,000 per business for expenses to be claimed. To claim this deduction, you complete form 4562 and maintain possession of all of your receipts.

Healthcare

Small businesses and small family-operated businesses may have tax credits available for offering health insurance to their employees. If healthcare is purchased through the Small Business Health Care Exchange, there are more options for competitive pricing and coverage plans to choose from.

Business Structure

It is necessary that your business classify itself properly. Limited Liability Companies do not have any tax liability. S Corporations, partnerships and corporations should file business and personal tax returns. Sole proprietorships are taxed on all profits reported, as there are no separations between the owner and the business.

Closing Thoughts on Family Owned Business Taxes

Enlist the assistance of a tax preparation specialist, and one that has experience with family-owned businesses. Make sure that your business is claiming all of the deductions and credits that it can. New credits or deductions may be available, so view the changes to business tax law before filing your returns.

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Three Tax Deductions for Mortgage Interest

Being a homeowner allows you to qualify for deductions on your mortgage interest. Take advantage of this opportunity if you’ve purchased a house or pay interest on mobile homes, condos, or other places of residence.TaxDeductionPic

Property Tax

Putting money into your home allows you to treat the purchase as a future investment. Having “imputed rent” can be omitted from your taxable income. In this situation, it allows the taxpayer to be both a landlord and renter with the responsibilities of each.

Mortgage Interest

Itemizing deductions may allow taxpayers to reduce taxed capital by deducting interest paid on their place of residence. This deduction is limited to the interest on debt acquired to purchase a residence. Homeowners may also deduct interest paid toward home equity regardless of borrowed funds.

Selling Your Residence

If the taxpayer has lived in a residence for over two out of the last five years, the property is considered their primary residence. And if they have not gained any capital gains on their home they may sell the house and exclude the profit from their taxable income. In normal situations, taxpayers would generally have to record and submit the profit made from selling their goods, but in this situation the homeowner is exempt.

Conclusion

Finding deductions to use toward your homeownership can seem overwhelming. Finding the right tax deduction that fits your type of residence is vital to making the most out of your tax return.

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The Basics of Deducting Relocation Fees

Moving can be a pain in the neck. However, moving can be a necessary evil if you get a new job and your new job is far away from where you currently live. You may be able to write-off some of the fees associated with moving if you meet certain criteria. This article will discuss the relocation fees you can write-off on your taxes.MovingTruck

Rules for Deducting Relocation Expenses

In order to deduct your relocation expenses, you have to meet certain requirements. One requirement relates to the distance between your new job and your prior home; another requirement relates to the time you work at your new job. Your new job must be a minimum 50 miles from your prior home for the move to qualify for the relocation expense deduction. In order to meet the time test, you have to be employed full time for a minimum of 39 weeks during the first 12 months after the move to the new location. You can work for more than one employer to meet this rule.

If you are a married couple, only one person has to meet this rule. The time rule is a little bit different for self-employed people. Self-employed people have to work 78 weeks during the first 24-months of arrival at the new address. This time can be split between working for yourself and working as an employee.

What Fees Can You Deduct?

You can usually deduct fees associated with moving your belongings. So this includes the fees for renting your truck, paying your movers, or paying for storage. You can’t deduct the costs for meals.

Moving can be a harrowing adventure. You may be able to recoup some of the costs when you file your taxes. Be sure to keep good records during your move.

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How to Apply for Tax Relief After a Natural Disaster

If you have recently been affected by a natural disaster in your area, and need tax relief as a result of that disaster, there are a number of items you need to consider when applying to the IRS for tax relief.VolcanoDisaster

Qualifications

To qualify for tax relief after a natural disaster, you do not need to be located in a federally declared disaster area. Taxpayers who have been affected are defined as individuals, businesses, sole proprietors, as well as S Corporation shareholders, whose records for tax payment purposes are located in a disaster area during the filing or payment date. Thus, their ability to meet the deadline is postponed.

Application Process

Taxpayers affected by natural disasters must fill out and submit an amended return along with any losses they experience. The IRS extends filing deadlines up to one year for any person who has been affected, and provides other provisions in tax relief. However, taxpayers must file the amended return to avoid penalties.

To claim a loss, a taxpayer needs to file the loss as an itemized deduction on Form 1040, Schedule A, or file it under Schedule A in Form 1040NR. He or she must also subtract $100 from each casualty and theft after her or she subtracts any value remaining in his or her property along with the insurance reimbursement. Once this is done, the taxpayer can submit the amended return to the IRS.

A natural disaster provides more than enough stress during tax season. Luckily the IRS can provide you with relief.

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Claiming Property Rental Tax on Your Personal Income Tax Return

When you own a rental property there are certain guidelines you need to be aware of when tax season arrives. Not knowing what to do can be a headache, and there are a host of things you need to keep in mind when claiming a rental property. Here are several vital bits of information to help you out.RentalPropertyTax

Rental Income is Taxable

All income you receive from owning a rental property is taxable. However, you are able to reduce your tax burden on that income by claiming the expenses you accrue each tax year on a rental property. Both income and expenses concerning your rental property should be reported on the Schedule E form.

Security Deposits

Fortunately, the security deposits you collect for the lease are not considered income as they are refundable when your tenant vacates the rental. However, deposits for the first and last month’s rent do need to be claimed on your taxes because they are advanced rental payments on the property you own.

Any portion of a security deposit you keep as a result of a tenant’s failure to keep the condition of the property in good condition is also taxable and must be claimed.

Deductions

There are plenty of things that you can deduct from your taxes when you claim a rental property. Essentially anything you pay to manage and maintain it is deductible on your taxes. Thus, it’s important to keep your expense receipts.

If you own a rental property, educate yourself so you can save money.

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    We serve: Federal Way, Des Moines, Kent, Auburn, and communities throughout WA and beyond. Call to meet John C. Huddleston, J.D., LL.M., CPA, Lance Hulbert, CPA, Grace Lee-Choi, CPA, Jennifer Zhou, CPA, or Jessica Chisholm, CPA. Member WSCPA.