Deductions
Charitable Contributions
Making charitable contributions is an easy and effective way to lower your taxes. You are eligible to take a deduction for contributions or gifts made to certain qualified organizations. The contributions can either be in the form of money or property. You must file Form 1040, U.S. Individual Income Tax Return, and itemize deductions on Schedule A, Itemized Deductions, to take advantage of this deduction.
Contact The Mobile Tax Man office for more information or assistance. 214-317-9927
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Contributions in General
A charitable contribution is a donation or gift to, or for use by, a qualified organization. It is voluntary and is made without getting, or expecting to get, anything of equal value in return. Deductible charitable contributions include money or property given to qualified organizations, your out-of-pocket expenses when you serve as a volunteer for a qualified organization, and certain expenses you pay for a student living with you who is sponsored by a qualified organization.
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Deductible charitable contributions do not include the following, even if given to a qualified organization:
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Cost of raffle, bingo, or lottery tickets
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Dues, fees, or bills paid to country clubs, lodges, fraternal orders, or similar organizations
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Tuition
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Value of your time or services
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Value of blood given to a blood bank
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Money or goods given directly to an individual
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Qualified Organizations
You can deduct contributions made to a qualified organization. To be considered qualified, most organizations (other than churches) must apply to the IRS. Local fundraisers for community members in need of assistance will not be considered qualified organizations unless they have been approved as such by the IRS.
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Examples of some qualified charitable organizations include the following:
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Churches, synagogues, temples, mosques, and other religious organizations
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Most nonprofit organizations, such as Salvation Army, Red Cross, CARE, Goodwill Industries, United Way, Boys and Girls Clubs of America.
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Nonprofit hospitals and medical research organizations
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Nonprofit schools
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Most nonprofit, educational organizations such as Future Business Leaders of America, 4-H Club, and Junior Achievement
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Nonprofit volunteer fire departments
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Public parks and recreation facilities
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War veterans' groups such as Disabled American Veterans and Purple Heart
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Federal, state, and local governments if your contribution is solely for public purposes, such as a gift to reduce the public debt
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Some examples of non-qualified organizations:
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Homeowners' associations
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Political groups or candidates for public office
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Organizations whose purpose is to lobby for law changes
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Individuals
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Organizations run for personal profit
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Civic leagues, social clubs and sports clubs
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Labor unions
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Chambers of commerce
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Foreign organizations except certain Canadian, Israeli, and Mexican charities
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Date of Contribution
Usually, you may deduct charitable contributions only in the year they were actually made. A check that you mail is considered delivered on the date you mailed it. A contribution charged on a credit card is deductible in the year you make the charge. The amount of your deduction may be limited depending on the type of property given and the type of organization to which it is given. Some contributions that you are not able to deduct in the current year because of adjusted gross income limits may be carried over to future years.
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Item (Non-cash) Donations
Extra tax deductions may be as close as your closet. If you donated clothing, toys, furniture, or other household items to charity, you are allowed to deduct the fair market value of your donated items. However, no deduction is allowed for these items unless they are in at least good used condition. The IRS does not provide a guide to determine the fair market value suggesting, instead, taxpayers survey thrift and consignment stores for similar items to provide an indication of the item's fair market value.
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Generally, the deduction for property contributed is equal to the fair market value of the property at the time of the contribution. Different rules may apply if the value of the property has increased or for vehicle donations.
IRS Publication 561, Determining the Value of Donated Property, provides general IRS guidelines on noncash donations.
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You can verify the organizations eligibility before you make a donation by going to IRS.gov and checking the Exempt Organizations Select Check database maintained by the IRS.
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Vehicle Donations
If you donate a qualified vehicle valued at more than $500, you will not be allowed to take a charitable deduction unless you get a written acknowledgement of the contribution from the charitable organization (usually within 30 days) and include the acknowledgement with your tax return. The amount of your deduction is limited by the organization's use of the vehicle. If the charitable organization sells the donated vehicle without having significantly used the vehicle for charitable purposes, generally your charitable deduction cannot be greater than the amount the organization received from the sale of the vehicle. If the organization uses the vehicle for charitable purposes, you should be able to deduct the fair market value of the vehicle immediately preceding your donation. The organization should issue a Form 1098-C to provide you with the required information. For this purpose, qualified vehicles include motor vehicles, boats, and aircraft.
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Publication 4303, A Donor's Guide To Vehicle Donations, provides general IRS guidelines on car donations.
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Exchange Students
If you have an American or foreign exchange student living in your home, you may be able to deduct up to $50 per month as a charitable deduction on Schedule A. You must have a written agreement from a qualified organization that administers the student program. The student cannot be your dependent or a relative, and must be a full-time student at the high school level or below.
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Expenses that you may be able to deduct include the cost of books, tuition, food, clothing, transportation, medical and dental care, entertainment and other amounts you actually spend for the well-being of the student. They do not include general household expenses, such as rent, mortgage payments, taxes, insurance, repairs or the fair market value of lodging.
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If you are compensated or reimbursed for any part of the costs of having a student living with you, you cannot deduct any of your costs unless you are reimbursed for only an extraordinary or a one-time item, such as a hospital bill. In this case, you can deduct the expenses for which you were not reimbursed.
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You cannot deduct the costs of a foreign student living in your home under a mutual exchange program through which your child will live with a family in a foreign country.
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Volunteer Activities
You can deduct the out-of-pocket expenses incurred while serving as a volunteer for a qualified organization. This includes the cost of uniforms not suitable for everyday use that you must wear when volunteering, travel expenses where no significant element of personal pleasure is involved, and vehicle expenses for which you can deduct out-of-pocket expenses, such as the cost of gas and oil, or 14 cents per mile. The value of your time or services cannot be deducted.
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Partially Deductible Contributions
If you attended a charity benefit or event, you may be able to deduct the dollar amount that is more than the fair market value of the event. For example, if you attended a dinner fundraiser for a qualified non-profit organization for $65 a ticket and the regular price of the meal is $10, your contribution amount would be $55.
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If you receive goods or services in exchange for your contribution, you can deduct only the amount of the payment that is more than the value of the goods or services received. For example, if you spent $20 on a school youth group's movie ticket sales and it would have cost $10 to purchase the food items from the store, then you would be able to deduct $10.
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If the payment is more than $75, the qualified organization must give you a written statement that indicates the value of the goods or services received.
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Direct Contributions from an IRA
If you are 70 and a half or older, you can make a direct transfer of up to $100,000 from your IRA to any qualified charity. These direct transfers, or Qualified Charitable Distributions (QCD), are considered part or all of your minimum required distributions (MRD) for the year. QCDs are not taxable and you are not allowed to claim them as charitable deductions on your tax return. Any distributions that are not QCDs are subject to the normal rules for IRA distributions.
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Records to Keep
The IRS requires you to keep a written acknowledgement from the charitable organization for any single cash or property contribution of $250 or more. You are also required to keep records and receipts for all contributions regardless of the amount or value.
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For the contributions of less than $250, you should have a canceled check, receipt from the organization, or other reliable written documentation of the contribution. For all cash contributions, you must have either a bank record or a receipt from the organization. For contributions of $250 or more, written acknowledgement of the contribution from the qualified organization is required to claim the deduction. For property with a fair market value of more than $500, you must include a written description of the donated property with your tax return.
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For contributions of property, you should have a receipt indicating the name of the charitable organization, date and location of the contribution and description of the property. You should also have written documentation that includes, in addition to the information on the receipt, the address of the organization, the fair market value of the property at the time of the contribution, and how the fair market value was determined. If you have total property contributions of more than $500, you will need to complete Form 8283, Non-cash Charitable
Contributions , and attach it to your return. If you donated property with a fair market value exceeding $5,000, you must get a written appraisal by a qualified appraiser and include the appraisal with your tax return.
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For contributions of qualified vehicles (such as motor vehicles, boats, and aircraft) with a claimed value of more than $500, the charitable organization must provide you with a separate written acknowledgement of the contribution (usually within 30 days). Form 1098-C includes the necessary information. The acknowledgement must include the following necessary information:
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Your name and identification number (usually your Social Security number)
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A number that identifies the vehicle, such as the vehicle's VIN (vehicle identification number)
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If the organization sells the donated vehicle without having made material modifications to it or without having significantly used the vehicle for charitable purposes you will need:
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A certification that the vehicle was sold in an arm's-length transaction between unrelated parties
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The gross proceeds received by the charity from the sale
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A statement that the deductible amount for the donated vehicle may not exceed the gross proceeds
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If the organization keeps the donated vehicle for its use: you will need:
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A certification stating how the charity intends to use the donated vehicle, for how long, and whether material improvements will be made to the vehicle
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A certification that the vehicle will not be exchanged before the period of intended usage has ended or the intended improvements have been made
Medical Expenses
Medical Expenses - Itemized Deductions
If you itemize your deductions, you may be able to deduct medical expenses. You can deduct the amount that is greater than 7.5% (if you are 65 and over you will be able to deduct additional medical expenses of up to 2.5 percent) of your adjusted gross income. Generally, you are allowed to deduct unreimbursed medical, eye care, and dental expenses. You cannot include the cost of unnecessary cosmetic surgery that is solely for the purpose of improving appearance. Advance payments are not deductible until the service is rendered. Beginning in 2020 will a 10% of your adjusted gross income.
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You can generally include medical expenses you pay for yourself as well as those you pay for someone who was your spouse or dependent. A person generally qualifies as your dependent for purposes of the medical expense deduction if both of the following requirements are met:
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The person was a qualifying child or qualifying relative.
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The person was a U.S. citizen or national, or a resident of the United States, Canada, or Mexico.
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You can include medical expenses that you paid for any person who meets these requirements even if you cannot claim an exemption for that person on your tax return. To include these expenses, the person must have been your dependent either at the time the medical services were provided or at the time you paid the expenses.
For purposes of the medical and dental expenses deduction, a child of divorced or separated parents can be treated as a dependent of both parents. Under most circumstances, each parent can include the medical expenses they pay for the child, unless the child's exemption is being claimed under a multiple support agreement. You can also claim the medical expenses you paid for a parent who would be a dependent except their taxable income is greater than $4,000 and/or they filed a joint tax return.
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Medical Expenses - What Is Deductible?
Deductible medical expenses include expenses for legal abortion, acupuncture, inpatient treatment for alcoholism, transportation to and from Alcoholics Anonymous Club meetings, ambulance service, an artificial limb, artificial teeth, chiropractor fees, Christian Science Practitioner fees, contact lenses, crutches, dental expenses, inpatient treatment at a drug rehabilitation center, eyeglasses, eye surgery including surgery to correct vision, some fertility enhancement, purchase and care of a guide dog, hearing aids, hospital expenses, health insurance premiums not paid with pre-tax dollars, laboratory fees, lead-based paint removal, legal fees needed to authorize treatment for mental illness, the portion of life-care or advance payment that you pay to a retirement home that is for medical care, lodging up to $50 per day per person that is necessary to receive medical care, admission and transportation to a medical conference for a chronic illness of you, your spouse, or your dependent, fees paid to physicians, surgeons, specialists, dentists, psychologist, and other medical practitioners, prescription drugs and insulin, nursing home, nursing services, oxygen, special education recommended by a doctor for learning disabilities caused by mental or physical impairment, sterilization, telephone and television equipment and repair for a hearing impaired person, transportation expenses including bus, taxi, plane, or 23 cents per mile for miles you drive for medical purposes plus parking fees and tolls, weight-loss program for a specific diseases diagnosed by a physician (such as obesity, hypertension or heart disease), and wheelchair purchase and repair. The cost of sex change surgery and breast pumps are also qualified medical expenses.
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You can include in medical expenses amounts you pay for special equipment installed in a home or for improvements that have a medical purpose (such as ramps for your home, widening doorways, and installing support bars). Only the amount of the expense that exceeds the increase in the property value of your home is deductible. Amounts paid to buy and install special plumbing fixtures for medical reasons in a home you rent are deductible if the landlord does not reimburse you or lower the rent.
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You cannot deduct expenses for cosmetic surgery, dancing lessons, diaper service, funeral expenses, health club dues, maternity clothes, nonprescription drugs, nutritional supplements, teeth whitening, or veterinary fees.
You cannot deduct expenses reimbursed to you.
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Medical Expenses - Maximize Your Deductions
If you file Form 1040, U.S. Individual Income Tax Return, and itemize your deductions, you may deduct medical expenses that are greater than 7.5% (if you are 65 and over you will be able to deduct additional medical expenses of up to 2.5 percent) of your adjusted gross income. Careful tax planning may allow you to take more medical deductions during one tax year instead of spreading them over two. For example, in a year that you already have substantial medical expenses, schedule and pay for your routine doctor or dentist appointments by December 31 instead of early in the next year. Payments made on a credit card or by check are considered paid at the time the payment is made.
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Self-Employed Health Insurance
If you are self-employed, you may deduct up to 100% of your medical insurance costs of a plan established under your business that covers yourself, your spouse, and your dependents. Take the deduction on Form 1040 as an adjustment to income. You may not take this deduction for any month in which you or your spouse were eligible to participate in any subsidized health plan maintained by your employer or your spouse's employer. If you are purchasing health insurance through the Marketplace and you receive the Premium Tax Credit, you will have to adjust your deduction.
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Medical Expenses for Long-Term Care
The costs of qualified long-term care services can generally be included as medical expenses. Deductible medical expenses also include a portion (based on age of the insured) of the premiums paid for qualified long-term care insurance.
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Premium Tax Credit
If you purchase your health insurance through your state's Health Insurance marketplace, you may be eligible for the Premium Tax Credit. This is a refundable credit based on your income, the actual cost of your health insurance, and the national average cost of the benchmark insurance plan. To qualify for the credit, you must meet all of the following:
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Buy health insurance through your state's Health Insurance Marketplace,
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Are ineligible for coverage through your employer or a government plan,
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Have income within 100% - 400% of the Federal Poverty Level (FPL) for your household,
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Do not use the Married Filing Separately filing status, and;
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Can not be claimed as a dependent by another taxpayer.
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One of the unique aspects of the Premium Tax Credit is the option to have a portion of your estimated credit paid directly to your insurance provider monthly to reduce your out-of-pocket cost of your insurance. If you took advantage of the advanced payments, you must file a tax return to reconcile your advanced credit payments with the actual amount of your Premium Tax Credit. You must complete Form 8962, Premium Tax Credit, and can file using either Form 1040 when reconciling advanced payments and/or claiming the credit.
Individual Shared Responsibility Payment - Penalty for No Health Insurance Coverage
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Taxpayers who have qualifying health insurance coverage through their employer, a government plan, or because they are retired must check the appropriate box on Form 1040,
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Certain taxpayers are eligible for an exemption from the requirement to have health insurance coverage. These exemptions can be granted on a month to month basis or an annual basis. Many of the exemptions are granted by the Marketplaces, however, some are granted by the IRS when the tax return is filed. To report an exemption or request an IRS exemption, complete Form 8965, Health Coverage Exemptions. Form 8965 can be attached to Form 1040
Tax Tips
Automobile
Actual Expenses of Car
When you use a car for business, you may deduct the mileage expense by using either the standard mileage rate or the actual expenses of maintaining the vehicle. If you take the actual expenses, you can deduct the depreciation, gas, oil, insurance, tires, licenses, repairs, etc. If you choose to take actual expenses when you first start using the car for business, you cannot change to the standard mileage rate deduction.
Business Mileage
If you use your car for business purposes, you may deduct a standard mileage rate for unreimbursed mileage. The 2019 standard mileage rate is 58 cents per mile. Be sure to keep a written record of your total mileage and business mileage.
Plug-in Electric Vehicles
The maximum credit for plug-in electric passenger automobiles is $7,500. You can find out if your car qualifies for the credit and how much at irs.gov.
Other Mileage
In addition to business mileage, did you know that other types of mileage are deductible if you can itemize? If you are involved in charity or volunteer work for a qualified nonprofit organization, you can deduct 14 cents per mile driven for your volunteer work. You can deduct 25 cents per mile for driving to a doctor or dentist's office, to pick up prescriptions, and for other medical purposes.
Passenger Automobile Limits - Trucks & Vans
The depreciation limit for trucks and vans (including certain sport utility vehicles) used as passenger automobiles that were placed in service in 2017 is $3,560 ($11,560 with special depreciation). This limit must be reduced if the business use is less than 100%.
Section 179 Expensing - Sport Utility Vehicles
The maximum section 179 deduction is limited to $25,000 for certain sport utility vehicles (SUVs) weighing more than 6,000 pounds, but not more than 14,000 pounds.
Miscellaneous Expenses
Itemized Deductions - Miscellaneous Expenses #1
Various expenses fall in the category of miscellaneous deductions. Job-hunting, job travel, union dues, tax preparation, and safety deposit box fees are all examples of miscellaneous deductions. If you itemize, you can deduct the amount of miscellaneous expenses that is over 2% of your adjusted gross income.
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Itemized Deductions - Miscellaneous Expenses #2
Various expenses fall in the category of miscellaneous deductions. Appraisal fees for casualties, theft losses, or charitable contributions, depreciation on home computers used for investments, and fees to collect taxable income are all types of miscellaneous deductions. If you can itemize, you can deduct the amount of miscellaneous expenses that is over 2% or your adjusted gross income.
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Itemized Deductions - Miscellaneous Expenses #3
Various expenses fall in the category of miscellaneous deductions. Hobby expenses, up to hobby income, can be taken as miscellaneous deductions. You may also deduct legal fees related to producing or collecting taxable income, doing or keeping your job, or to collect taxable alimony. If you can itemize, you can deduct the amount of miscellaneous expenses that is over 2% of your adjusted gross income.
Lottery
Deducting Cost of Lottery Tickets
If you were lucky enough to win money in a lottery, you can deduct the cost of your losing tickets for the year as an itemized deduction. The amount of the deduction is limited to your lottery winnings. You can also deduct losses from other types of gambling against your lottery winnings. If a husband and wife file a joint return, they can use their qualified combined losses to offset their combined winnings.
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Sharing a Winning Lottery Ticket
Who will pay the taxes when you win the lottery pool? Form 5754, Statement by Persons Receiving Gambling Winnings, has been provided by the IRS to alleviate the problem of how to report multiple ownership of lottery tickets. The form is prepared by the person who actually receives the winnings and it identifies all those entitled to a share of the winnings. The federal taxes should already have been withheld by the lottery.
State and Local Tax Deductions
Personal Expense
Paid State or Local Taxes
You have the option of deducting state and local general sales taxes instead of state and local income taxes as an itemized deduction but you cannot deduct both. If you choose to deduct state and local general sales taxes, you can use the actual taxes you paid during the year or the Optional State Sales Tax Tables to determine the amount of your deduction. You should keep your receipts to substantiate any actual sales taxes you claim.j
Job Related Business Expenses
Note: Beginning on 2018 the deductions for job related business expenses are not longer, unless you are filing the State Income taxes where it is available.
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Computer and Cellular Phone
If you purchased a computer or cellular phone and use it for business, you may be able to claim a depreciation deduction. Your employer must require you to have the phone or computer as a condition of your employment, and you must use them for the convenience of your employer. You must keep a record of the personal and business use of the computer or phone to determine the percentage of business use.
Entertainment
If you incur entertaining costs for business reasons, you may be able to deduct 50% of the amount. The expense must be considered ordinary or necessary to your profession. Entertainment generally includes any activity considered to provide entertainment, amusement, or recreation to potential business clients.
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Miscellaneous Job-Related Expenses
Some of your job-related expenses that may be deducted include union dues, job-related magazines and books, and other related business expenses. Generally, you must depreciate the cost of tools used in your work. If your employer requires you to wear work clothes or uniforms that are not suitable for everyday wear, you may deduct the cost and upkeep. Job-related expenses are claimed as part of your itemized deductions under miscellaneous deductions subject to the 2% of adjusted gross income floor.
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Moving Expenses
Note: Beginning on 2018 the adjustment for moving expenses are not longer, unless you are a military member.
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If you moved at least 50 miles in the last year and your move was job-related, you may be able to deduct the cost of moving your household goods and your traveling expenses. The standard mileage rate for moving is 17 cents per mile. Claim moving expenses directly on Form 1040.
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National Guard and Reserve Members
If you are a member of the National Guard or Reserves and you must travel away from home to perform your service (such as for a drill or a meeting) in a location that is more than 100 miles away from your home, you can take a deduction for related travel expenses as an adjustment to income, even if you do not itemize your deductions. Allowable expenses include expenses for overnight transportation, meals, and lodging. The amount of the allowable expenses cannot exceed the amount the federal government pays its employees for travel expenses.
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Section 179 Expensing - General
If you purchase certain qualifying equipment, you may deduct the cost by making a section 179 expense deduction. The maximum section 179 for the year is $500,000. The section 179 deduction is phased out if the total amount of qualifying property placed in service exceeds $2 million. In 2017, up to $250,000 of leasehold improvements is eligible for the section 179 deduction.
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Self-Employed Health Insurance
If you are self-employed, you may deduct up to 100% of your medical insurance costs that cover yourself, your spouse, and your dependents as an adjustment to income. To do this, you (and your spouse if filing jointly) must not be eligible for coverage by an employer-subsidized health plan. If you receive a Premium Tax Credit, you must adjust your deduction.
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Start-Up and Organizational Costs
You may be able to claim a deduction of up to $5,000 for start-up and organizational costs. The deduction is reduced by the amount of the start-up costs exceeding $50,000. If you cannot deduct all your costs in the first year the business begins, amortize the remaining costs over 15 years.
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Tip Income - Allocated Tips
If you receive tip income, and work for a large food or beverage establishment, your employer may be required to allocate an amount of tips to you on your Form W-2. Your employer must allocate tips if the amount of tips you reported to him is below the IRS required minimum percentage of gross sales. The difference is called allocated tips and is in box 8 of Form W-2. You will have to include these allocated tips in your income and also pay Social Security and Medicare tax on them.
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Tip Income - Record of Tips
Do you receive tips as part of your income? You must report all tips as wages on Form 1040. If you receive tips of $20 or more in one month, you must also keep a daily record of tips received and give your employer a written report of your tips for that month by the 10th day of the next month.
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Travel Expense
You may be able to deduct business travel expenses if you must conduct business away from your tax home. The cost of transportation, lodging, laundry, dry cleaning, and telephone expenses are some of the deductible expenses. Generally, meals are only 50% deductible. If you are subject to the Department of Transportation hours of service limits, you may be able to deduct 80% of your meal expenses.
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Unemployment Compensation
Have you received unemployment compensation during the year? You must report all unemployment compensation as income. State and federal unemployment insurance benefits, and railroad unemployment compensation benefits are all considered taxable income. You can choose to have income tax withheld from any unemployment compensation you receive.