It is a sad reality for many people that they will have to let go a particular percentage of their income to Uncle Sam. While there is nothing much we can do about that, the right idea is to look for legal ways to reduce your tax bills.
This is where tax deductions and credits come in. These two provide the easiest way to limit your tax burdens. Here is an explanation of how to claim deductions on deductible expenses.
Miscellaneous Expenses You Can Deduct
Uncle Sam allows every eligible taxpayer to deduct various miscellaneous expenses. While some costs can be automatically deducted, you can only deduct others if the 2% rule is obeyed.
There are various miscellaneous expenses one can deduct, which might not obey the 2% rule. Examples are losses that come from being scammed by a Ponzi scheme, or similar scam investments, costs incurred for dealing with a mental disability, money lost from damage or loss of your property, stock, artwork, or any income-generating property. One can also deduct federal estate tax as a beneficiary with gambling losses up to the entire winning amount.
Here are sample unreimbursed expenses that one might deduct: expenses for job hunting, expenses for the home, office, legal fees, the cost to buy and maintain a uniform (provided it is work-related), membership fees for Union and professional groups (provided that membership is related to your job)
There are some unreimbursed business expenses that you can deduct. For instance, a person who carries mail in the rural area might be qualified to deduct associated costs of driving a car, alongside regulatory and licensing fees. Employees might have the opportunity to deduct travel expenses related to business, bad business debt, occupational taxes paid, and expenses incurred while having a work-related medical exam.
For people that itemize, the expenses paid during tax filing might be deductible. As a result, people who paid to file their 2019 tax return electronically in 2020 might be able to deduct associated expenses on the tax return for 2020.
Provided you are within the 2% rule limit, you might be able to deduct other business expenses as well. This might translate to a tax break for the costs on investment, expenses on the hobby, appraisal fees (paid for property donation), losses arising for deposits (for people whose bank declared bankruptcy), and the depreciation of your PC provided its use for investment purposes.
The 2% Rule
The 2% rule limits the miscellaneous expenses that one can deduct. With this, one can write off some costs provided the entire amount exceeds 2% of the AGI. Miscellaneous expenses with the 2% rule are in three categories: fees for tax preparations, payments for the unreimbursed employee, and other costs that you paid for
Receiving taxable income
Managing investment property
Getting a tax refund
Miscellaneous Expenses You Cannot Deduct.
You cannot deduct all miscellaneous expenses even if those expenses would qualify for the 2% rule. In such cases deducting the money spent on political activities, lobbying, or meeting with a lawyer for personal stuff or funeral is impossible. Also, one cannot remove the cost associated with adopting a kid, parking fines, or installing a home security system.
Further non-deductible expenses are losses for a hobby, broker's commissions, licenses (like vehicle and marriage licenses), costs for personal living, and losses when you sell your property like a car or a house.
Expenses related to commuting and fees associated with repairing your home cannot be deducted in many cases. These rules come with a couple of exceptions. Expenses paid for businesses in a home office might be deductible.
FOR MORE INFORMATION OR TO SEE HOW ELLIOT KRAVITZ, ATP. CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.
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Elliot Kravitz, ATP