by Penny Fox –
1) You are volunteering your services to a non-profit community home-builder. Nice tax deduction, right?
Alas, there are no federal tax deductions for the value of your time or labor donated to a charity. (Think about it: if you were paid for your labor, that would be taxable income that you could offset by giving the money to charity — and deducting the gift. The no pay/no deduction state of affairs leaves you in the same position.) But you can deduct the cost of any materials you donate and 14 cents per mile driven in connection with your charitable work.
2) You accept a new job that requires you to move. Can you write off your moving costs even though you don’t itemize?
Job-related moving expenses are an “above-line deduction.” You can deduct them even if you take the standard deduction on your tax return. If you do itemize, you can add your job-hunting costs, such as career counseling, resume printing and travel expenses to job interviews to your miscellaneous deductions. Such expenses are deductible to the extent they exceed 2% of your AGI. While moving expenses are deductible for getting to your first or any subsequent job, job-hunting costs don’t count when getting your first job. After that you can write off costs of looking for a job in the same line of work.
3) Is Alimony tax deductible?
You can take a tax deduction for alimony you pay an ex-spouse, even if you don’t itemize your deductions. To qualify as alimony, the cash-only payments must be spelled out in your divorce agreement. If you’re the one receiving alimony, it’s taxable income to you – and your ex is required to report your Social Security number so the IRS can be sure you report the money.
4) Are court-ordered child care support payments deductible, too?
Unlike alimony, the payer doesn’t get a deduction; nor does the recipient pay income tax on the money.
5) Your children attend private elementary schools and private high schools. Is their tuition tax-deductible?
You can’t directly deduct the cost of elementary or secondary school tuition. But there is a tax break that helps cover those costs and associated expenses including books, supplies, and uniforms. You can open a Coverdell Educational Savings Account to which you can contribute up to $2,000 annually and use the withdrawals tax-free for school-related expenses.
6) Your father made a payment on your college loan. Who gets to claim the student-loan interest tax deduction?
No need to fight over this. The IRS says that if Mom or Dad makes a payment on your student loan debt, it’s a gift that gives twice. You, the child, can qualify to deduct up to $2,500 of student loan interest paid, as long as your parents don’t claim you as a dependent.
7) Can you deduct the taxes you pay to your state on your federal income tax return even if you don’t itemize your deductions?
You must itemize to deduct the state income taxes you pay. And you have the choice of deducting either state income taxes or state and local sales taxes. The right to write off sales taxes expired at the end of 2011 but Congress revived it retroactively to cover 2012 and 2013. But, still, you’ll have to itemize to capture the break.
8) You spent a few weekends in Vegas last year. One weekend, you won money. The other, your wallet came back a little worse for wear. Luckily gambling losses are tax deductible, aren’t they?
You can deduct losses . . . but only to the extent of the gambling winnings you report as taxable income. And, while the law calls for all gamblers to report 100% of their winnings, only the 25% or so taxpayers who itemize can deduct their losses. Those who use the standard deduction can’t deduct gambling losses (but they’re still expected to pay tax on their winnings).
Gambling losses are considered miscellaneous expenses to be deducted on Schedule A of the Form 1040, and are not restricted by the rule that allows miscellaneous expenses only to the extent that they total more than 2% of your adjusted gross income. Gambling losses are deductible dollar for dollar, up to the amount of winnings reported.
9) You have made a large number of charitable donations in one year. Sky’s the limit on doing good — and cutting down taxable income, right?
As far as Congress is concerned, it is possible to be too generous. Generally, your deduction for donations to charity in one year cannot exceed 50% of your adjusted gross income for that year (30% in the case of donations of appreciated assets and contributions to private foundations). But any excess can be carried over for up to five tax years to deliver the tax break you’re due.
10) When you donate your old car to charity, what’s the write-off?
In most cases, your deduction is limited to the price paid for the vehicle when it is sold by the charity to raise cash. But, there’s a notable exception:
If the charity uses the vehicle in its mission (to deliver meals to the needy, for example) or fixes it up and gives it to a needy family, you are allowed to claim a deduction equal to the vehicle’s fair market value (check used car guidebooks or Web sites). That could produce a bigger write-off since the value a charity gets at auction is likely to be a lower wholesale or even fire-sale price.
Penny M. Fox, CPA specializes in tax and accounting services, including tax planning and tax return preparation, bookkeeping, retirement planning, business consulting, estate planning, trust consulting, divorce planning and bankruptcy planning.