Home Office Deduction Facts

With technology making it easier than ever for people to operate a business out of their house, many taxpayers may be able to take a home office deduction when filing their 2009 federal tax return next year.

Here are five important things the IRS wants you to know about claiming the home office deduction.

1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:

As your principal place of business, or

As a place to meet or deal with patients, clients or customers in the normal course of your business, or

In the case of a separate structure which is not attached to your home, it must be used in connection with your trade or business

For certain storage use, rental use or daycare-facility use, you are required to use the property regularly but not exclusively.

2. Generally, the amount you can deduct depends on the percentage of your home that you used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

3. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

4. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home, to figure your home office deduction. Report the deduction on line 30 of Schedule C, Form 1040.

5. Different rules apply to claiming the home office deduction if you are an employee. For example, the regular and exclusive business use must be for the convenience of your employer.

For more information see IRS Publication 587, Business Use of Your Home, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Publication 587, Business Use of Your Home

Tax Benefits for Job Seekers

Many taxpayers spend time during the summer months polishing their resume and attending career fairs. If you are searching for a job this summer, you may be able to deduct some of your expenses on your tax return.

Here are six things you need to know about deducting costs related to your job search.

In order to deduct job search costs, the expenses must be spent on a job search in your current occupation. You may not deduct expenses incurred while looking for a job in a new occupation.

You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.

You can deduct amounts you spend for preparing and mailing copies of a resume to prospective employers as long as you are looking for a new job in your present occupation.

If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.

You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.

You cannot deduct job search expenses if you are looking for a job for the first time.

Cash for Clunkers Fallout

Seems as though everyone is wanting on the band wagon. But in a blink of the eye all the money ran out. And now Congress had to quickly appropriate new money.

So, if you want your $3500 or $4500 rebate - get it fast!

It seems that the salvage yards are concerned because all the traded-in cars are being crushed instead of going to salvage. That means the loss of valuable replacement parts for older cars still in service.

Sales Tax Deduction for Vehicles

For 2009 only, individuals can deduct sales tax paid on the purchase of a new vehicle. The deduction is available for cars, trucks, motorcycles, motor homes and recreational vehicles. The vehicles must be purchased after February 16, 2009, and before January 1, 2010 to qualify for the deduction.

Claiming the Vehicle Sales Tax Deduction

People won't need to itemize to take this deduction. Instead, the deduction will be added to a person's standard deduction. Itemizers will take this deduction in addition to the deduction for state and local income taxes. If you elect to deduct sales taxes in lieu of state and local income taxes, then the taxes paid on the car will be included along with other sales taxes you paid.
Qualifying for the Vehicle Sales Tax DeductionThe vehicle must be new (not used). The vehicle must be an automobile, light truck, or motorcycle with a gross vehicle weight rating of not more than 8,500 pounds. Motor homes and recreation vehicles also qualify (no gross vehicle weight restrictions for motor vehicles are mentioned in the law).

Additionally, the vehicle must be purchase after February 16, 2009, and before January 1, 2010.
Limitations for the Vehicle Sales Tax Deduction

The vehicle sales tax deduction is limited to the tax paid on the first $49,500 of the vehicle's purchase price. When calculating the deduction, don't include the sales tax paid as part of the purchase price of the car. If the purchase price is over $49,500, then you'll need to prorate the sales tax.

The sales tax deduction is available without further limitation for individuals with modified adjusted gross income of $125,000 or less ($250,000 for married couples filing jointly). The deduction is phased out for individuals with modified adjusted gross income of $125,000 to $135,000 ($250,000 to $260,000 for joint filers). To prorate your deduction based on this income phaseout, take the excess of your modified adjusted gross income over the threshold amount, divide by $10,000, and subtract that from the total sales tax paid on your vehicle.

What about States with No Sales Taxes?

The states of Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon do not impose a sales tax. Taxpayers living in these states can deduct fees, excise taxes, and other taxes that are assessed on the purchase of a vehicle. "The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee," according to the Internal Revenue Service.

Here are a couple of tips to consider:

Consider purchasing rather than leasing. Purchases of new automobiles counts for the deduction, but leases do not qualify.

Don't let the sales person talk you into a higher purchase price because you can write off the sales tax. People who qualify for this deduction will likely be in the 28% tax bracket or lower. For people in the 28% bracket, their taxes will be reduced by $280 for every $1,000 spent on sales tax.

Tax Advice Websites

Looking for some Tax Advice websites that will provide you with a wealth of information? William Perez, About.com writer has compiled a great list of websites that can answer about any question you may have. My personal favorite is TaxMama, Eva Rosenberg.

TaxGuru
Kerry Kerstetter manages to blog every single cartoon related to taxes. He answers complex tax questions, and provides valuable advice on setting up Quickbooks, and getting the most out of a tax professional. Kerstetter specializes in small business tax issues (such as S Corporations, C Corporations, and LLCs), as well as real estate investing and 1031 exchanges.

Docuticker - Taxation Reports
Docuticker collates reports from various government agencies, think tanks, and non-governmental organizations. They have an entire category of their site devoted to reports concerning tax policy and tax administration practices. The site is edited and compiled by librarians Gary Price and Shirl Kennedy.

TaxProf Blog
Tax Professor Paul Caron covers every single piece of tax news imaginable. Professor Caron discusses all aspects of tax law: teaching tax law in schools, reporting on court cases, discusses legislation, and commenting on guidance from the IRS. TaxProf Blog is required reading.

Mauled Again
Tax professor James Edward Maule comments on tax laws and the legal education. According to Professor Maule, he provides "more than occasional commentary on tax law, legal education, the First Amendment," and various topics of personal interest.

Don't Mess With Taxes
Journalist Kay Bell always finds a way to make taxes interesting and relevant to everyday life. Kay Bell is a featured writer on Bankrate.com.

Latest News from the IRS
Find the latest news and information from the Internal Revenue Service.

Start Making Sense
Tax professor Daniel Shaviro provides commentary on tax policy and the federal budget. According to Shaviro, his blog provides "unfair but balanced commentary on tax and budget policy, contemporary U.S. politics and culture, and whatever else happens to come up."

Tax Foundation
The Tax Foundation is a nonpartisan think tank provides analysis of tax policies at the federal and state level. The Tax Foundation promotes tax policies that are simple and promote economic growth. The Foundation is most known for its "Tax Freedom Day" statistics. Their blog provides commentary on tax policies.

Tax Lawyer's Blog
Tax attorney and certified public accountant Peter Pappas writes about issues dealing with tax controversies, dealing with the IRS, and handling tax problems.

TaxMama's TaxQuips
Eva Rosenberg, the Internet's "Tax Mama," hosts a daily podcast answering tax questions. Rosenberg's answers are informative and often humorous, and sometimes she shares tax secrets that only very experienced tax professionals know about.

Gina's Tax Articles
Gina L. Gwozdz, CPA, provides valuable tax tips for individuals and small businesses. Gina owns and operates her own tax advisory business out of Bullard, Texas (about 2 hours east of Dallas). She believes in helping "her clients minimize their tax liability within the constraints of the law."

Tax Time
About.com's guide to making tax time a little less frustrating.

2009 Health Savings Account Limits

As we are in the month of June already, it is important to take a moment and review your Health Savings Account to ensure the maximum benefit is being obtained. In 2009, the limits on health savings accounts were increased.

The 2009 levels are as follows:

New Annual Contribution Levels for HSAs: For 2009, the maximum annual HSA contribution will rise to $3,000 for individual coverage (up from $2,850 in 2008) and $5,950 for family coverage (up from $5,800 in 2008).

Catch up contributions for individuals who are 55 or older is increased by statute to $1,000 for 2009 and all years going forward.

Individuals who are eligible on the first day of the last month of the taxable year (December for most taxpayers) are allowed the full annual contribution (plus catch up contribution, if 55 or older by year end), regardless of the number of months the individual was eligible in the year.

For individuals who are no longer eligible individuals on that date, both the HSA contribution and catch up contribution apply pro rata based on the number of months of the year a taxpayer is an eligible individual.

New Amounts for Out-of-Pocket Spending on HSA-Compatible HDHPs:

For 2009, the maximum annual out-of-pocket amounts for HDHP self-coverage increase to $5,800 and the maximum annual out-of-pocket amount for HDHP family coverage is twice that, $11,600.

Minimum Deductible Amounts for HSA-Compatible HDHPs:

For 2009, the minimum deductible for HDHPs increases to $1,150 for self-only coverage and $2,300 for family coverage. The current minimum deductibles are $1,100 for single coverage and $2,200 for family coverage.


Publication 969 - Health Savings Accounts

News Releases from the IRS for 2009

Spring 2009 Statistics of Income Bulletin Now Available IR-2009-56, May 29, 2009 — Statistics about the tax returns filed by individuals with high incomes for 2006 are now available.

IRS Offers Tax Credit Guidance to Businesses Hiring Unemployed Veterans and Certain YouthIR-2009-55, May 28, 2009 — Businesses that hired veterans and certain younger workers during the first part of 2009 should be aware of Aug. 17 certifiation date for the work opporturnity tax credit (WOTC).

Interest Rates Remain the Same for the Third Quarter of 2009IR-2009-54, May 28, 2009 — Quarterly interest rates for the quarter beginning July 1 are now available.

IRS Accepting Applications for Low Income Taxpayer Clinic GrantsIR-2009-52, May 22, 2009 — The IRS announced today that the 2010 Low Income Taxpayer Clinic (LITC) grant application process is now open.

Law Offers Special Tax Breaks for Small Business; Act Now and Save, IRS SaysIR-2009-51, May 20, 2009 — IRS urges small businesses to act now and take advantage of tax-saving opportunities included in the recovery law.

IRS Announces Withholding Adjustment Option for Pension Plans and Provides Taxpayer EducationIR-2009-50, May 14, 2009 — The IRS released new withholding adjustment procedures for pensions as part of outreach efforts to educate taxpayers about the benefits they will receive under the American Recovery and Reinvestment Act.

IRS Reminds Small Tax-Exempt Organizations to File e-PostcardsIR-2009-49, May 6, 2009 — The IRS reminds many small tax-exempt organizations to file their annual electronic informational return.

Next Tax Talk Today Highlights Estate, Gift and Employment Tax IR-2009-48, May 4, 2009 — The Internal Revenue Service’s Tax Talk Today will feature a special 100-minute program on Tuesday, May 12 at 2 p.m. to discuss current estate, gift and employment tax issues.

IRS Seeks Applications for Advisory CouncilIR-2009-47, May 1, 2009 — New members sought for the Internal Revenue Service Advisory Council (IRSAC), which has eight open seats for three-year terms starting in January 2010.

News Release and Fact Sheet ArchiveNews releases and fact sheets from November 2002 forward and an archive of news releases and fact sheets in PDF format back to 1997.

2009 Tax Changes for Education

Education tax credits were significantly enhanced under the American Recovery and Reinvestment Act of 2009. It is important to review your situation under the new guidelines as you may now be eligible for the credits.

Education tax credits can help offset the costs of higher education for yourself or a dependent.
The Hope Credit and the Lifetime Learning Credit are two education credits available which may benefit you. You may be able to subtract them in full from your federal income tax, rather than just deducting from your taxable income.

The Hope Credit

In 2009, the Hope Credit applies to all four years of post-secondary education, such as college or vocational school. It does not apply to graduate and professional-level programs.

It can be worth up to $2,500 per eligible student in 2009.

You're allowed 100% of the first $2,000 of qualified tuition and related fees paid during the tax year, plus 25% of the next $2,000.

Qualified expenses, include tuition and fees required for enrollment or attendance at an eligible education institution and course materials. They do not include room and board, student activities, athletics (other than courses that are part of a degree program), insurance, equipment, transportation, or any personal, living, or family expenses.

Each student must be enrolled at least half-time for at least one academic period which began during the year.

The Lifetime Learning Credit

Applies to undergraduate, graduate and professional degree courses, including instruction to acquire or improve job skills.

If you qualify, your credit equals 20% of the first $10,000 of post-secondary tuition and fees you pay during the year, for a maximum credit of $2,000 per tax return.

You cannot claim both the Hope and Lifetime Learning Credits for the same student in the same year.

To qualify for either credit, you must pay post-secondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.

These credits are phased out for Modified Adjusted Gross Income over $80,000 ($160,000 for married filing jointly) and eliminated completely for Modified AGI of $90,000 or more ($180,000 for married filing jointly). If the taxpayer is married, the credit may be claimed only on a joint return.

IRS Federal Tax Payments

Will you be making a payment with your federal tax return this year? If so, here is what you need to know about making tax payments correctly.

Never send cash!

If you file electronically, you can file and pay in a single step by authorizing an electronic funds withdrawal via tax preparation software or a tax professional.

You can pay by phone or online using a credit or debit card whether you file a paper return or electronically.

Electronic payment options provide an alternative to paying taxes or user fees by check or money order. You can make payments 24 hours a day, seven days a week. Visit IRS.gov and search e-pay, or refer to Publication 3611, e-File Electronic Payments for more details.

If you itemize, you may be able to deduct the convenience fee charged for paying individual income taxes with a credit or debit card as a miscellaneous itemized deduction. The deduction is subject to the 2 percent limit on Form 1040, Schedule A, Itemized Deductions.

Enclose your payment with your return, but do not staple it to the form.

If you pay by check or money order, make sure it is payable to the “United States Treasury.”

Always provide your correct name, address, Social Security number listed first on the tax form, daytime telephone number, tax year and form number on the front of your check or money order.

Complete and include Form 1040-V, Payment Voucher, when sending your payment and tax return to the IRS. This will help the IRS process your payment accurately and efficiently.

For more information, call 800-829-4477 for TeleTax Topic 158, "Ensuring Proper Credit of Payments.” You can also find out more in Publication 17, Your Federal Income Tax and Form 1040-V, both available at IRS.gov.

Electronic Payment Options
Form 1040-V, Payment Voucher (PDF 47K)
Form 1040-ES, Estimated Tax for Individuals (PDF 294.9K)
Publication 17, Your Federal Income Tax (PDF 2,072K)