Can I Deduct Work Clothes on My Tax Returns?

It's the answer you get to a lot of tax questions: It depends.

Q. I’m thinking of taking a new job and I would have to wear suits every day. I own one suit. Can I deduct the costs as necessary and unreimbursed? 
— Working Joe

A. Congratulations on the job.

Your question is a good one, but it’s not as simple as you’re hoping.

The IRS under certain circumstances allows employees to deduct unreimbursed business expenses, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

“These expenses are subject to a 2% limitation,” Kiely said. “This means if your unreimbursed employee business expenses are greater than 2% of your adjusted gross income, you can deduct the amount that exceeds 2%.”

According to IRS Publication 529, “Miscellaneous Deductions,” you might be able to deduct the following expenses:

1. Business bad debt of an employee.
2. Business liability insurance premiums.
3. Damages paid to a former employer for breach of an employment contract.
4. Depreciation on a computer your employer requires you to use in your work.
5. Dues to a chamber of commerce if membership helps you do your job.
6. Dues to professional societies.
7. Educator expenses.
8. Home office or part of your home used regularly and exclusively in your work.
9. Job search expenses in your present occupation.
10. Laboratory breakage fees.
11. Legal fees related to your job.
12. Licenses and regulatory fees.
13. Malpractice insurance premiums.
14. Medical examinations required by an employer.
15. Occupational taxes.
16. Passport for a business trip.
17. Repayment of an income aid payment received under an employer’s plan.
18. Research expenses of a college professor.
19. Rural mail carriers’ vehicle expenses.
20. Subscriptions to professional journals and trade magazines related to your work.
21. Tools and supplies used in your work.
22. Travel, transportation, meals, entertainment, gifts and local lodging related to your work.
23. Union dues and expenses.
24. Work clothes and uniforms if required and not suitable for everyday use.
25. Work-related education.

No. 24 on the list is the one we’re talking about.

You can deduct the cost and upkeep of work clothes if you must wear them as a condition of your employment and if the clothes aren’t suitable for everyday wear.

“The second requirement is the stickler of why most workers can’t deduct their work clothes,” Kiely said.
Workers who may be able to deduct the cost and upkeep of work clothes include delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes and transportation workers.

Musicians and entertainers can deduct the cost of theatrical clothing and accessories that aren’t suitable for everyday wear, Kiely said.

Interestingly, he said, work clothing consisting of white cap, white shirt or white jacket, white bib overalls and standard work shoes, which a painter is required by his union to wear on the job, isn’t distinctive in character or in the nature of a uniform. Similarly, the costs of buying and maintaining blue work clothes worn by a welder at the request of a foreman aren’t deductible.

Kiely said you can deduct the cost of protective clothing required in your work, such as safety shoes or boots, safety glasses, hard hats, and work gloves. Examples of workers who may be required to wear safety items include carpenters, cement workers, chemical workers, electricians, fishing boat crew members, machinists, oil field workers, pipe fitters, steamfitters and truck drivers.

“Unfortunately for you, suits, white shirts and ties are for many ordinary street clothes and are suitable for everyday care,” Kiely said. “You can wear business attire to weddings, funerals or church on Sundays.”

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3 Tax Scams You Need to Watch Out For

Becoming a victim of a tax scam is not only frustrating and expensive, it could get you in trouble with the IRS.

In the early 60s, Roger Maris and Mickey Mantle hit a remarkable number of home runs including a famous back-to-back four-bagger, which according to Yogi Berra was the reason he famously quipped, “It’s déjà vu all over again.” While spring training is still a few weeks away, we’re in the thick of a tax season, where legions of scammers are swinging for the back wall.

According to the IRS, there was a 400% increase in phishing and malware incidents during the 2016 tax season. With the April 15 filing deadline still feeling as far away as the Green Monster from home plate in Fenway Park, Yogi Berra’s other dictum — it ain’t over till it’s over — was never more true.

My book “Swiped: How to Protect Yourself in a World Full of Phishers, Scammers and Identity Thieves” goes into great detail about the various tactics cyber criminals use to lure you, but the most important thing you can do to keep yourself scam-free this tax season is educate yourself on the most prevalent risks out there.

As ever the best (yet pretty boring) advice is to file your taxes as early as possible. Tax-related identity theft is primarily aimed at grabbing your tax refund, and scammers are creative, sophisticated, persistent, and move very quickly once your information is in hand. Armed with your Social Security number, date of birth and a few other pieces of your personally identifiable information, which if you have been involved in a data breach (you can check here to see warning signs and view two of your credit scores for free on Credit.com) is likely available on the dark web, they are off to log on to motels’ Wi-Fi networks, bunny-slippered feet resting comfortably on coffee tables, furiously filing fraudulent tax returns online.

Here are some other things to bear in mind as the tax season is upon us:

1. Phishing

There is no bigger threat. Phishing was recognized as a word by the Oxford English Dictionary more than 10 years ago, which is the main reason I thought of Yogi Berra’s déjà vu quip. By now it is a home truth that there are phishers out there. Catfishing is a regular part of the popular imagination, and phishing emails hit our inboxes with the same regularity as the various promotional emails we get from retailers and media outlets.

Phishing emails take many forms, but they are most commonly pointed at getting enough of your personally identifiable information to commit fraud in your name (identity theft). They also commonly contain a link that places malware on your computer. These programs can do a variety of things (none of them good), ranging from recruiting your machine into a botnet distributed denial of service attack to placing a keystroke recorder on your computer to access bank, credit union, credit card and brokerage accounts to gathering all the personally identifiable information on your hard drive.

Here’s what you need to know: The IRS will never send you an email to initiate any business with you. Did you hear that? NEVER. If you receive an email from the IRS, delete it. End of story. Oh, and they will never initiate contact by way of phone call either.

That said, there are other sources of email that may have the look and feel of a legitimate communication that are tied to other kinds of tax scams.

2. The Criminal Tax Preparation Scams

You learned how to do homework in school for this reason: Not all tax preparers are the same and you must vet anyone you’re thinking about using well before handing over a shred of your personally identifying information. Get at least three references, check online if there are any reviews and call them.

Here’s why: At this time of the year, tax prep offices that are actually fronts for criminal identity theft tend to pop up around the country in strip malls and other properties and then promptly disappear a few days later. Make sure the one you choose is legit!

3. Shady Tax Preparation

Phishing emails may not be aimed at stealing your personally identifiable information or planting malware on your computer. They may be simply aimed at getting your attention and business through enticing (and fraudulent) offers of a really big tax refund. While these preparers may get you a big refund, it could well be based on false information.

Be on the lookout for questions about business expenses that you did not accrue, especially watching out for signals from your preparer that you are giving him or her a figure that is “too low.”

Other soft-cons of shady tax preparation include inflated deductions, claiming tax credits to which you are not entitled and declaring charitable donations you did not make. Bottom line here: We’re all connected these days, and chances are you will get caught, so just make sure you are working with someone who follows the instructions (yes, they’re complicated, and that’s why it’s not a bad idea to get help).

As Yogi Berra said, “You can observe a lot by watching.” Tax season is stressful without the threat of tax-related identity theft and other scams. It’s important to be vigilant, because, to quote Yogi all over again, “If the world were perfect, it wouldn’t be.”

Image: RonTech2000

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8 Crucial Tax Tips for Millennials

tax_tips

As a millennial, you might have a surprisingly complex tax situation. Owing student loans, working multiple side hustles, and investing at a young age are all complicated scenarios come tax season.

Because of this, filing your own taxes often comes with added stress and unknowns. To help streamline this chore, here are eight tax tips for filing taxes when you have multiple streams of income and various financial responsibilities.

1. Don’t Miss the Tax Deadline

The most important part of filing your taxes is doing it by the deadline. The IRS doesn’t mind if you need more time or you don’t have the funds to pay the entire tax bill right now, but you must take the proper steps to alert them.

Decide which route to take: Either file your taxes completely, request an extension, or apply for a payment plan. Whatever you do, don’t ignore the situation and hope it will just go away.

If you miss the tax deadline without requesting an extension, you could be subject to penalties, interest, and late fees.

2. Choose the Right Tax Software

If your tax situation is fairly simple, you may feel comfortable filing your own taxes using a DIY tax software program. There are many reputable programs available, so shop around to find a good deal.

You may even qualify for free filing services. If you earn less than $64,000 a year, the IRS offers free software to help you file your taxes at no charge.

3. Write Off Side Hustle Expenses

Sure, you know how to file taxes for the income from your day job. But if you also earn money through a side hustle, you may have extra considerations.

For example, you may be able to write off certain expenses you incurred through your side hustle. If you purchased equipment or office supplies, these costs can be deducted on your tax return. Doing so reduces your taxable income, meaning you would owe less to the government.

4. Maximize Education Tax Savings

If you have student loans, you could save money come tax time. Nearly all education costs, whether it’s interest paid on your student loans or additional classes you’ve taken for continuing education requirements, are tax deductible. See a full list of education credits and deductions here.

List out all of your higher education expenses to see which ones you qualify for. If you’re unsure, speak to a tax professional who can offer additional tax tips, or follow the prompts in your tax software.

5. Inquire About the Saver’s Credit

The longer you wait to start saving for retirement, the less time compound interest will have to work on your behalf. To encourage people to stash away money in a retirement account, the IRS offers a tax credit called the Saver’s Credit.

The Saver’s Credit is often overlooked, even by tax professionals, but it can greatly reduce your tax bill at the end of the year.

The amount of the credit is 50%, 20%, or 10% of your retirement contributions up to $2,000 (or $4,000 if married filing jointly). The amount you qualify for depends on your adjusted gross income.

6. Deduct Job-Hunting Costs

Did you know that you can deduct any costs related to hunting for a new job? It’s true. If the new job is in your current career field, you can claim this tax deduction. Job search costs that you may be able to claim on your taxes include:

  • Resume copies
  • Dry cleaning
  • Employment agency fees
  • Certifications or classes
  • Business travel expenses

7. Block Off Time to File

Scheduling time to actually file your taxes is one of the most important tax tips. Block out time in your calendar to work on your taxes so you don’t have to rush through the process. Pretend it’s a regular appointment, and vow to keep it no matter what else comes up.

The tax filing process may take a few hours, so it’s not something you want to save until the last minute. Schedule time in your calendar sooner rather than later so you don’t feel as stressed.

8. Double Check Your Calculations

Even the smallest calculation errors can prove to be big mistakes when it comes to your taxes. Take time to double check your work: Have you listed all the deductions and credits you qualify for? Did you include all your income sources from various jobs? What about your higher education expenses and retirement contributions?

Nearly all DIY tax programs come with built-in features to ensure that your tax information is correct. The tax software will make sure your math is correct, but nothing is better than your own two eyes — especially when inputting your Social Security number, address, income figures, and expense costs.

Doing your taxes is never a fun task, but taking the time to do them correctly can save you big bucks. Educate yourself on the deductions and credits you may be eligible for and lean on free resources to help you file.

(Editor’s note: Tax season is always full of scams. You can use these tips for protecting yourself from taxpayer identity theft.)

Image: AleksandarNakic

 

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Business Credit Card Fees That Are Tax Deductible

Here are some business tax write offs to keep on your radar.

Many of us use credit cards every day. We earn rewards points and make shopping and paying for goods easier through the convenience of not having to carry around cash.

Those same perks hold true for business cards as well. But if your business credit card has expenses and fees attached to it, do you know which of those are tax deductible? If you don’t, you’ll be happy to learn that it’s actually quite a few. It turns out that some of the best business credit cards are a lot better at helping you get a break on your taxes than personal cards. In fact, nearly every fee that you incur on your business card can be written off.

Annual Fees

Annual fees on a business card are tax deductible. This may be a great way to justify getting that card with the steep annual fee that also has amazing rewards. Yes, you can write it off, but keep in mind that the primary use of the card needs to be for business purposes and not for personal use.

Late Fees

Hopefully you’re not incurring late fees on your credit cards, but mistakes happen and you sometimes forget to make a payment. Those fees can be written off for your business taxes. Of course, it’s always best to call the company and explain you simply forgot and ask if they can waive the fee this time; saving $35 is almost always going to be better than claiming a $35 tax deduction.

Interest Charges

Again, in an ideal world you won’t be paying interest on any of your purchases. But there are times when you need equipment, and there just isn’t enough cash in the bank to pay for it right away. Those interest charges are all tax deductible.

Swipe Fees

As a business owner, you pay the credit card company every time someone uses their card to pay you. These are always business-related expenses and fully tax deductible.

Miscellaneous Fees

There are sometimes other fees associated with using a credit card. For instance, do you need cash? Your cash advance fees are deductible (although most financial professionals still don’t recommend this expensive way of accessing cash).

Maximizing your Tax Deductions as a Business Owner

The best part about deducting credit card fees as a business owner is there is really no stipulation on how big your business has to be. In fact, if you use a personal credit card and incur expenses, you can deduct them (as long as they are business related). That’s great news for even those who have a side business.

If you think you’ve been leaving credit card-related tax deductions on the table, it’s a good idea to go through your card statements before filing your taxes and add up all the fees. You could reduce your tax liability considerably if you’re using your credit card, whether business or personal, for business use.

And don’t forget that you can track how your credit card spending is impacting your credit by checking your two free credit scores, updated every 14 days, at Credit.com.

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Congratulations! You May Be Getting a Tax Break

tax-break

When tax season rolls around, most of us are just relieved to get our paperwork in on time. Now, according to Wolters Kluwer Tax & Accounting, a software solutions provider for tax, accounting and audit professionals, there may be even more reason to rest easy: A sweet little tax break.

According to the firm, since the late 1980s the U.S. Tax Code has required that federal income brackets be adjusted for inflation each year. These inflation adjustments were added to the Internal Revenue Code in recent years, and now over 50 other inflation-driven computations, as the firm describes them, are required to determine deduction, exemption and exclusion amounts, along with the 40 separate computations used to adjust the tax brackets for inflation each year.

Now, based on the Department of Labor’s inflation figures for the 12 months between August 31, 2015 and August 31, 2016, the firm is projecting that taxpayers will “experience modest savings” when filing their 2017 taxes compared to 2016. Here’s a closer look:

  • “A married company filing jointly with a total taxable income of $130,000 should pay less income taxes in 2017,” said the firm.
  • Marginal tax rates will have increased due to the income ranges bracketing, meaning “a single filer with taxable income of $50,000 should owe $22.50 less next year,” the firm concluded.
  • Meanwhile, “the additional standard deduction for those 65 years old and older, or who are blind, will remain at $1,250 for 2017, as will the $1,550 additional amount for single-aged-65-or-older filers,” the firm wrote.

Beyond that, the standard deduction for single, married filing jointly, and married filing separately filers is expected to jump in 2017 to $6,350, $12,700 and $6,350, respectively. That’s up from $6,300, $12,600 and $6,300. This change can bring about lower taxes, the firm explained, by “decreasing the taxpayer’s taxable income.”

According to Kelly Phillips Erb, a Philadelphia tax attorney who frequently blogs at Forbes, this is good news since “every time the bracket shifts even a little bit, all the taxpayers below that threshold benefit a little bit.” So with the standard deduction threshold rising, “the higher it is, the more people can claim it.” Two-thirds of taxpayers already take advantage of the standard deduction, she added.

Taxpayers should also consider how stagnant incomes — those that haven’t increased with inflation — can play a key role in their taxes this season. “If your income stays flat, which most people’s tend to do, but the tax breaks go up and the brackets shift up, you’ll get to trim off a few dollars from your taxes,” Erb said. Put another way, “you’re benefitting from the fact that the tax brackets are going up while your income is staying the same.”

As you gather your taxes together, it’s a good idea to spend some time researching some of the ways you can maximize your refund. You’ll also want to be wary of filing your taxes with accountants who aren’t on the up-and-up and, of course, to pay your taxes on time. Unpaid taxes can ultimately lead to a lien, which can hurt your credit. (You can view two of your credit scores, updated every 14 days, for free on Credit.com.)

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