Wednesday, March 7, 2001
|
Wednesday, March 7, 2001 |
|
Don't overlook valuable tax deductions
If you're looking for deductions to help lower your 2000 tax bill, the Georgia Society of CPAs provides the following information on commonly overlooked deductions and what is and isn't deductible. For starters, many of the lesser-known deductions fall into the medical expenses and miscellaneous itemized deductions categories and, as such, must exceed a "floor" or minimum amount of your adjusted gross income (AGI) before they become deductible. In the case of medical deductions, that floor is 7.5 percent of AGI; for miscellaneous itemized deductions, it is 2 percent. Deductible expenses can add up faster than you might think, so don't let these income thresholds prevent you from claiming the deductions you deserve. Health insurance - Those who are self-employed can deduct 60 percent of their health insurance payments from gross income. If you are not self-employed, you deduct health insurance premiums on Schedule A, subject to the 7.5 percent floor for medical expenses. Self-employment tax Self-employed workers are eligible to deduct half the self-employment tax paid, as a deduction from gross income. According to the IRS, this is one of the most frequently overlooked tax deductions. Job hunting Costs associated with looking for a new job in your current line of work are deductible as miscellaneous itemized deductions. Deductible job-hunting expenses include the costs of preparing and printing your resume, employment agency fees, automobile and travel expenses, phone calls, and any other expenses related to your attempt to land a new job. Note that you can't take a deduction if you are searching for your first job or looking for one in a new line of work. Job-related clothing expenses - The cost of clothing you buy for your job that cannot also be used for general wear is deductible as a miscellaneous itemized deduction, as is the expense of laundering and dry cleaning such clothing. Closing costs Most closing costs incurred in buying a house are not deductible. However, check your settlement statement for property taxes or mortgage interest (and possibly points) you paid at the closing that may not show up on the year-end statement from your lender and be sure to deduct those amounts. Tax planning and preparation Fees you pay for tax planning and preparation, for example to your CPA, are deductible as miscellaneous itemized deductions subject to the 2 percent floor. Early withdrawal penalties If you made a premature withdrawal from a certificate of deposit or time saving account, you can deduct the amount of any penalty you pay even if you don't itemize your deductions. Bad debts
A bad debt is deductible as a short-term capital loss on Schedule
D in the year that the debt becomes totally worthless. You will need evidence,
such as a signed loan agreement, that the money you lent your relative,
friend or business associate, was actually a loan and not a gift. To cover
yourself in the future, be sure you get a signed loan agreement stating
the payment terms and interest rate and be sure to document your collection
efforts. Old clothes, furniture and other items donated to charity You can generally deduct the fair market value of non-cash contributions to Goodwill, your church, or any other qualified charitable organization. If you're in the 28 percent tax bracket, a $1,000 contribution of old clothes means $280 in your pocket. Just be sure to get a receipt from the charity to substantiate your donation. You can also deduct mileage at a rate of 14 cents per mile in 2000 if you use your car in connection with volunteering for a qualified non-profit. CPAs remind you that, at higher levels of income, many itemized deductions are phased out. The adjusted gross income levels at which the phase-out begins are adjusted annually for inflation. For 2000, they are $128,950 for singles, heads of households, and married people filing jointly and $64,475 for married filing separately. However, medical and dental expenses, gambling losses, investment interest, and casualty and theft losses are not subject to the phase-out rule. This limitation is applied after any disallowance of miscellaneous itemized deductions subject to the 2 percent rule has been taken into account. The GSCPA is the premier professional organization for CPAs in the state of Georgia. With over 10,000 members throughout the state, the purpose of the GSCPA is to promote the study of accountancy and applicable laws, provide continuing professional education, maintain high ethical and work standards, and provide information about accounting issues to the membership and the public. For more information, access our web site at www.gscpa.org. |